-----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, LUFFxrSUUDeFlWcbiMBs1VxYJuxcx0J0hK6V5h0pAgrVWqreFdFFTrMWW6gH9BIW W/AAAbMKOILNhSN2MCwQsw== 0000928816-99-000222.txt : 19990722 0000928816-99-000222.hdr.sgml : 19990722 ACCESSION NUMBER: 0000928816-99-000222 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990721 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: 99667824 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 ON PERFORMANCE AND OUTLOOK 5-31-99 [LOGO: BOSTON * LONDON * TOKYO] From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: As prospects for the world's securities markets grew more positive during the past few months, global investors put away some of their concerns over risk and returned to a more venturesome frame of mind. As a consequence, the U.S. Treasury securities to which those investors had fled lost some of their luster. Putnam Intermediate U.S. Government Income Fund's flexibility to hold both Treasury and mortgage-backed securities helped your fund during the past few months. Mortgage-backed securities were among the beneficiaries of investors' mood shift. The performance of mortgage-backed securities was further helped by continued economic strength, stable interest rates, and low inflation, and they contributed to the fund's performance during the first half of fiscal 1999. In the following report, fund managers Michael Martino and Kevin Cronin provide a detailed discussion of their strategy in the changing investment environment as well as their current thinking about prospects and strategies for the second half of the fiscal year. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees July 21, 1999 Report from the Fund Managers Michael Martino Kevin M. Cronin Close on the heels of worldwide market turbulence in the second half of 1998, U.S. bond markets stabilized. U.S. Treasury securities -- the main beneficiaries of a flight to quality by worried investors in the third quarter and early fourth quarter of 1998 -- gave back some of their gains, while non-Treasury sectors such as mortgage-backed securities recovered. Putnam Intermediate U.S. Government Income Fund's performance for the six months ended May 31, 1999, reflects a neutral positioning within this environment. Over the long term, the fund continues to provide strong performance. Total return for 6 months ended 5/31/99 Class A Class B Class M NAV POP NAV CDSC NAV POP - ------------------------------------------------------------- -0.40% -3.67% -0.49% -3.41% -0.27% -2.22% - ------------------------------------------------------------- Past performance is no indication of future results. Performance information for longer periods begins on page 5. * U.S. TREASURIES STALL AFTER MAJOR ADVANCE After enjoying a major rally in 1998, U.S. Treasuries lost momentum in early 1999. In the fall of 1998, they had outperformed all other fixed-income sectors, benefiting from their sterling reputation as a comparatively safe investment amid the global turmoil. Year to date in 1999, however, interest rates have risen by more than one percentage point across almost all maturities in the Treasury market. When interest rates rise, bond prices fall, and U.S. Treasuries typically underperformed other sectors. The performance of U.S. Treasuries suffered for two important reasons. First, as the global economic and market situation stabilized, investors became more comfortable investing in the non-Treasury sectors again. Market participants sold Treasuries so that assets could be reallocated to now-cheaper corporate bonds, mortgage-backed securities, high-yield issues, and emerging- markets bonds. Second, the economy continued to grow at a faster pace than had been expected. That sustained growth caused market sentiment to shift in anticipation that the Federal Reserve Board would raise key short-term interest rates in order to slow growth and head off inflation. The Fed corroborated that concern by announcing a bias toward raising rates in the future in May. [GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION] COMPARATIVE PORTFOLIO COMPOSITION* 11/30/98 5/31/99 Fixed rate mortgage-backed securities 48.6% 47.2% Adjustable-rate mortgage-backed securities 0.6% 0.4% U.S. Treasury securities 36.8% 48.1% Cash and short-term investments 12.7% 4.0% Footnote reads: *Based on net assets as of 5/31/99. Composition will vary over time. * STABILITY HELPS MORTGAGE-BACKED SECURITIES THRIVE While Treasuries struggled, mortgage-backed securities rebounded from last year's slump, which reflected an increase in mortgage refinancing activity as interest rates declined. After their travails last year, mortgage-backed securities became attractive buy candidates for investors taking profits on Treasury securities that had appreciated significantly. Another important consideration is that the mortgage-backed market generally performs better than the Treasury market when the overall investment environment is calm. Over the semiannual period, there was little drama, another factor that helped mortgages outperform Treasuries. The economy was stable, as was the political backdrop. The president's impeachment faded into the background, and the Kosovo crisis proved to have little impact on interest rates. [GRAPHIC OMITTED: vertical bar chart DURATION OVERVIEW] DURATION OVERVIEW* 0-1 year 9.5% 1-5 years 75.3% 5+ years 15.2% Footnote reads: *Based on net assets as of 5/31/99. Duration will vary over time. The mortgage market consequently has been a recent focus of the fund. Investments in this sector have been clustered in Government National Mortgage Association (GNMA) certificates with coupon rates in the 7% to 9.5% range. We have found these securities to be stable, profitable investments for the fund because they have tended to be less affected by the recent comparatively sharp swings in interest rates than lower or higher coupon alternatives currently available. Early in the period, we employed a barbell strategy with the fund's Treasury allocation. That is, we concentrated the fund's investments in these securities on longer-term securities on the one hand and short term securities on the other, with few investments in between. This positioning helped fund performance when the yield difference between short- and long-term securities decreased. For the most part, though, we have followed a steady investment strategy more typical of the fund by investing mainly in Treasuries with two-, three-, and five-year maturities. In terms of duration -- a measure of the fund's sensitivity to interest rates -- we maintained a neutral stance, which helped performance. Our belief was that there would be no benefit in taking a more aggressive approach regarding the future direction of interest rates as we waited for the dust to settle from last year's turmoil. In other words, we stuck to basics and tried to avoid risk, two positions that have helped your fund post a strong long-term record. "Mortgage-backed securities have become attractive buy candidates for investors taking profits on Treasury securities that had appreciated significantly. Because of their appealing prices and what we feel will be a generally stable environment, we intend to continue to increase the fund's stake in mortgage-backed securities." - -- Michael Martino, fund manager * OUTLOOK: FED EXPECTED TO HOLD RELATIVELY STABLE At the end of the period, market prices factored in the expectation that the Fed would raise short-term interest rates in June. Our outlook calls for the economy to moderate, for inflation not to be a problem in 1999, and for the Fed not to be forced to raise interest rates substantially. That being said, the economy has remained strong, and so if the Fed does choose to raise rates further, we believe that it will do so in a limited manner. At present, we believe there is no compelling reason to implement a strategy based on future moves in interest rates. Instead, we intend to maintain a neutral duration with your fund so that its response to changes in interest rates will be in line with the market. Where we will seek to make a significant shift will be in the mortgage-backed sector. We intend to continue to increase that stake in the fund, as it looks like the best opportunity to help performance over the coming months. 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 5/31/99, 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 invests 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 5/31/99 Class A Class B Class M (inception dates) (2/16/93) (2/16/93) (4/3/95) NAV POP NAV CDSC NAV POP - ---------------------------------------------------------------------------- 6 months -0.40% -3.67% -0.49% -3.41% -0.27% -2.22% - ---------------------------------------------------------------------------- 1 year 4.34 0.85 3.72 0.75 4.39 2.31 - ---------------------------------------------------------------------------- 5 years 38.31 33.75 34.77 34.77 37.58 34.72 Annual average 6.70 5.99 6.15 6.15 6.59 6.14 - ---------------------------------------------------------------------------- Life of fund 39.22 34.64 34.34 34.34 38.33 35.63 Annual average 5.41 4.85 4.81 4.81 5.30 4.97 - ---------------------------------------------------------------------------- COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/99 Lehman Bros. Intermediate Consumer Govt. Bond Index price index - ---------------------------------------------------------------------------- 6 months -0.23% 1.34% - ---------------------------------------------------------------------------- 1 year 4.98 2.09 - ---------------------------------------------------------------------------- 5 years 39.23 12.68 Annual average 6.84 2.42 - ---------------------------------------------------------------------------- Life of fund 42.18 16.14 Annual average 5.79 2.42 - ---------------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. 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 10-year (where available) and life-of-fund periods reflect the applicable contingent deferred sales charge (CDSC), which is 3% 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. Performance data reflects an expense limitation previously in effect. Without the expense limitation, total return would have been lower. 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 prior to 4/10/95 do not reflect the fund's performance under the current investment policies. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/99 Class A Class B Class M - ----------------------------------------------------------------------------- Distributions (number) 6 6 6 - ----------------------------------------------------------------------------- Income $0.130750 $0.115836 $0.126997 - ----------------------------------------------------------------------------- Capital gains -- -- -- - ----------------------------------------------------------------------------- Total $0.130750 $0.115836 $0.126997 - ----------------------------------------------------------------------------- Share value: NAV POP NAV NAV POP - ----------------------------------------------------------------------------- 11/30/98 $5.01 $5.18 $5.01 $5.02 $5.12 - ----------------------------------------------------------------------------- 5/31/99 4.86 5.02 4.87 4.88 4.98 - ----------------------------------------------------------------------------- Current return (end of period) - ----------------------------------------------------------------------------- Current dividend rate1 5.50% 5.32% 4.82% 5.31% 5.20% - ----------------------------------------------------------------------------- Current 30-day SEC yield2 4.68 4.53 4.08 4.53 4.44 - ----------------------------------------------------------------------------- 1 Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2 Based on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter) Class A Class B Class M (inception dates) (2/16/93) (2/16/93) (4/3/95) NAV POP NAV CDSC NAV POP - -------------------------------------------------------------------- 6 months -0.69% -3.96% -0.99% -2.71% -0.76% -3.89% - -------------------------------------------------------------------- 1 year 3.58% 0.12% 2.75% -0.19% 3.42% 1.36% - -------------------------------------------------------------------- 5 years 38.52% 33.93% 34.42% 34.42% 37.49% 34.61% Annual average 6.73% 6.02% 6.09% 6.09% 6.58% 6.12% - -------------------------------------------------------------------- Life of fund 39.16% 34.59% 33.95% 33.95% 37.98% 35.28% Annual average 5.33% 4.86% 4.69% 4.69% 5.18% 4.77% - -------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. They do not take into account any adjustment for taxes payable on reinvested distributions. 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. A guide to the financial statements These sections of the report 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 is determined. All investment and non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the net assets allocated to remarketed preferred shares.) Statement of operations shows the fund's net investment gain or loss for the reporting period. This is determined by adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses. This statement also lists any net gain or loss the fund realized on the sales of its holdings and -- for holdings that remain in the portfolio -- any change in unrealized gains or losses over the 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 amounts 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-ended funds, a separate table is provided for each share class.
The fund's portfolio May 31, 1999 (Unaudited) U.S. GOVERNMENT AND AGENCY OBLIGATIONS (95.7%) (a) PRINCIPAL AMOUNT VALUE U.S. Government Agency Obligations (47.6%) - -------------------------------------------------------------------------------------------------------------------------- $ 21,538,263 Federal Home Loan Mortgage Corp. 7 1/2s, with due dates from August 1, 2007 to March 1, 2028 $ 22,006,220 212,893 Federal National Mortgage Association Adjustable Rate Mortgage 6.092s, with due dates from November 1, 2024 to July 1, 2026 212,229 Federal National Mortgage Association Pass-Through Certificates 80,651 11 1/4s, October 1, 2010 88,992 305,193 8s, May 1, 2013 308,688 9,310,780 7s, Dwarf, October 1, 2011 9,444,576 96,605 6 1/2s, February 1, 2014 96,182 68,466,803 6 1/2s, Dwarf, with due dates from April 1, 2012 to February 1, 2014 68,166,918 10,000,000 6.43s, April 1, 2009 9,657,800 49,300,000 5 3/4s, with due dates from April 15, 2003 to February 15, 2008 48,418,899 5,785,000 5 5/8s, March 15, 2001 5,783,207 1,900,621 Government National Mortgage Association Adjustable Rate Mortgage 7s, July 20, 2026 1,933,882 Government National Mortgage Association Pass-Through Certificates 23,476,454 9 1/2s, with due dates from May 15, 2018 to March 1, 2029 25,582,694 3,812,005 9s, December 15, 2021 4,094,703 2,600,168 8 1/2s, October 15, 2008 2,711,081 14,158,471 8s, with due dates from May 15, 2024 to March 15, 2028 14,714,915 350,878 7 1/2s, with due dates from April 15, 2026 to December 15, 2027 358,773 42,101,644 7s, with due dates from June 15, 2023 to December 15, 2028 42,111,677 770,000 6 1/2s, January 15, 2029 750,989 -------------- 256,442,425 U.S. Treasury Obligations (48.1%) - -------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Notes 10,000,000 8s, May 15, 2001 10,467,200 50,000,000 6s, July 31, 2002 50,562,500 50,000,000 5 1/2s, May 15, 2009 49,531,000 25,000,000 5 3/8s, June 30, 2003 24,738,250 15,000,000 4 5/8s, November 30, 2000 14,842,950 115,000,000 4 1/4s, November 15, 2003 108,693,400 -------------- 258,835,300 -------------- Total U.S. Government and Agency Obligations (cost $524,089,326) $ 515,277,725 SHORT-TERM INVESTMENTS (4.0%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 19,074,000 Federal Home Loan Mortgage Corp., effective yield of 4.77%, July 7, 1999 $ 18,965,326 2,462,000 Interest in $277,448,000 joint repurchase agreement dated May 28, 1999 with Credit Suisse First Boston due June 1, 1999 with respect to various U.S. Treasury obligations -- maturity value of $2,463,310 for an effective yield of 4.79% 2,462,000 -------------- Total Short-Term Investments (cost $21,427,326) $ 21,427,326 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $545,516,652) (b) $ 536,705,051 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $538,559,660. (b) The aggregate identified cost on a tax basis is $545,519,280, resulting in gross unrealized appreciation and depreciation of $1,006,468 and $9,820,697, respectively, or net unrealized depreciation of $8,814,229. The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities May 31, 1999 (Unaudited) Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $545,516,652) (Note 1) $536,705,051 - ----------------------------------------------------------------------------------------------- Cash 760 - ----------------------------------------------------------------------------------------------- Interest receivable 4,208,181 - ----------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 1,671,973 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 51,988,419 - ----------------------------------------------------------------------------------------------- Total assets 594,574,384 Liabilities - ----------------------------------------------------------------------------------------------- Distributions payable to shareholders 273,081 - ----------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 2,975,774 - ----------------------------------------------------------------------------------------------- Payable for securities purchased 51,623,139 - ----------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 801,038 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 59,942 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 15,741 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,698 - ----------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 221,353 - ----------------------------------------------------------------------------------------------- Other accrued expenses 42,958 - ----------------------------------------------------------------------------------------------- Total liabilities 56,014,724 - ----------------------------------------------------------------------------------------------- Net assets $538,559,660 Represented by - ----------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $551,983,684 - ----------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (1,165,530) - ----------------------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (3,446,893) - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (8,811,601) - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $538,559,660 Computation of net asset value and offering price - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($261,276,283 divided by 53,706,715 shares) $4.86 - ----------------------------------------------------------------------------------------------- Offering price per class A share (100/96.75 of $4.86)* $5.02 - ----------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($150,815,902 divided by 30,956,678 shares)** $4.87 - ----------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($11,073,984 divided by 2,271,283 shares) $4.88 - ----------------------------------------------------------------------------------------------- Offering price per class M share (100/98.00 of $4.88)* $4.98 - ----------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($115,393,491 divided by 23,741,931 shares) $4.86 - ----------------------------------------------------------------------------------------------- * 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, 1999 (Unaudited) Interest income $14,941,121 - ----------------------------------------------------------------------------------------------- Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 1,553,393 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 349,478 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 7,309 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 5,498 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 304,837 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 620,711 - ----------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 21,313 - ----------------------------------------------------------------------------------------------- Reports to shareholders 10,342 - ----------------------------------------------------------------------------------------------- Registration fees 10,222 - ----------------------------------------------------------------------------------------------- Auditing 16,934 - ----------------------------------------------------------------------------------------------- Legal 3,344 - ----------------------------------------------------------------------------------------------- Postage 13,539 - ----------------------------------------------------------------------------------------------- Total expenses 2,916,920 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (42,391) - ----------------------------------------------------------------------------------------------- Net expenses 2,874,529 - ----------------------------------------------------------------------------------------------- Net investment income 12,066,592 - ----------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (509,431) - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the period (13,306,405) - ----------------------------------------------------------------------------------------------- Net loss on investments (13,815,836) - ----------------------------------------------------------------------------------------------- Net loss in net assets resulting from operations $ (1,749,244) - ----------------------------------------------------------------------------------------------- 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 ------------------------------- 1999* 1998 - --------------------------------------------------------------------------------------------------------------- Increase in net assets - --------------------------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------------------------- Net investment income $ 12,066,592 $ 18,667,166 - --------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (509,431) 6,359,304 - --------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments (13,306,405) 3,665,334 - --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (1,749,244) 28,691,804 - --------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------- From net investment income Class A (6,346,561) (8,144,037) - --------------------------------------------------------------------------------------------------------------- Class B (3,334,451) (3,948,021) - --------------------------------------------------------------------------------------------------------------- Class M (269,818) (369,665) - --------------------------------------------------------------------------------------------------------------- Class Y (3,281,292) (6,096,815) - --------------------------------------------------------------------------------------------------------------- In excess of net investment income Class A -- (1,024,707) - --------------------------------------------------------------------------------------------------------------- Class B -- (496,752) - --------------------------------------------------------------------------------------------------------------- Class M -- (46,512) - --------------------------------------------------------------------------------------------------------------- Class Y -- (767,119) - --------------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 43,632,105 171,644,482 - --------------------------------------------------------------------------------------------------------------- Total increase in net assets 28,650,739 179,442,658 Net assets - --------------------------------------------------------------------------------------------------------------- Beginning of period 509,908,921 330,466,263 - --------------------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $1,165,530 and $--, respectively) $538,559,660 $509,908,921 - --------------------------------------------------------------------------------------------------------------- * 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 Per-share May 31 operating performance (Unaudited) Year ended November 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $5.01 $4.90 $4.90 $4.92 $4.60 $4.91 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .12 .25(c) .28 .29 .27 .27(e) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.14) .14 -- (.02) .35 (.32) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.02) .39 .28 .27 .62 (.05) - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.13) (.25) (.28) (.26) (.29) (.24) - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital -- -- -- -- (.01) (.02) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- (.03) -- (.03) --(d) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.13) (.28) (.28) (.29) (.30) (.26) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.86 $5.01 $4.90 $4.90 $4.92 $4.60 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (0.40)* 8.19 5.98 5.71 13.85 (1.12) - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $261,276 $242,140 $135,283 $143,575 $57,049 $53,831 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .50* 1.06 1.15 1.22 1.20 1.09(e) - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.38* 5.00 5.77 5.54 5.78 5.59(e) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 86.19* 223.06 188.39 367.19 383.88 351.62 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charge. (b) 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). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the periods. (d) Distributions in excess of net investment income were less than $0.01 per share. (e) 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, 1994.
Financial highlights (For a share outstanding throughout the period) CLASS B - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended Per-share May 31 operating performance (Unaudited) Year ended November 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $5.01 $4.91 $4.90 $4.92 $4.60 $4.91 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .11 .22 (c) .26 .26 .24 .24(e) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.13) .13 -- (.02) .35 (.32) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.02) .35 .26 .24 .59 (.08) - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.12) (.22) (.25) (.24) (.26) (.21) - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital -- -- -- -- (.01) (.02) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- (.03) -- (.02) --(d) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.12) (.25) (.25) (.26) (.27) (.23) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.87 $5.01 $4.91 $4.90 $4.92 $4.60 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (0.49)* 7.32 5.56 5.08 13.17 (1.71) - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $150,816 $137,569 $68,137 $56,889 $23,201 $21,243 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .80* 1.66 1.75 1.80 1.81 1.69(e) - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.08* 4.39 5.16 4.94 5.17 4.98(e) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 86.19* 223.06 188.39 367.19 383.88 351.62 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charge. (b) 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). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the periods. (d) Distributions in excess of net investment income were less than $0.01 per share. (e) 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, 1994.
Financial highlights (For a share outstanding throughout the period) CLASS M - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share May 31 Apr. 3, 1995+ operating performance (Unaudited) Year ended November 30 to Nov. 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $5.02 $4.91 $4.90 $4.93 $4.68 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .11 .24(c) .28 .27 .12(c) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.12) .14 .01 (.02) .32 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.01) .38 .29 .25 .44 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.13) (.24) (.28) (.26) (.18) - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital -- -- -- -- (.01) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- (.03) -- (.02) --(d) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.13) (.27) (.28) (.28) (.19) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.88 $5.02 $4.91 $4.90 $4.93 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (0.27)* 8.01 6.03 5.33 9.63* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $11,074 $10,181 $7,158 $4,404 $1,058 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .58* 1.21 1.30 1.35 .87* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.31* 4.88 5.55 5.28 3.37* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 86.19* 223.06 188.39 367.19 383.88 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charge. (b) 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). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the periods. (d) Distributions in excess of net investment income were less than $0.01 per share. (e) 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, 1994.
Financial highlights (For a share outstanding throughout the period) CLASS Y - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended For the period Per-share May 31 Year ended Oct. 1, 1997+ operating performance (Unaudited) Nov. 30 to Nov. 30 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $5.01 $4.90 $4.90 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .12 .26(c) .05 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.13) .14 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.01) .40 .05 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.14) (.26) (.05) - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- (.03) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.14) (.29) (.05) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.86 $5.01 $4.90 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at net asset value (%)(a) (0.27)* 8.46 1.03* - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $115,393 $120,019 $119,889 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .38* .81 .15* - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 2.51* 5.30 .96* - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 86.19* 223.06 188.39 - ------------------------------------------------------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charge. (b) 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). (c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the periods. (d) Distributions in excess of net investment income were less than $0.01 per share. (e) 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, 1994.
Notes to financial statements May 31, 1999 (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 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 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, 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 $150 million in a combination of Putnam funds and other accounts managed by affiliates of Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. 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 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). 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, 1998, the fund had a capital loss carryover of approximately $16,767,000. This amount includes approximately $15,145,000 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 - -------------- ----------------- $ 1,133,000 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 pro rata 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. 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, 1999, fund expenses were reduced by $42,391 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 $620 has been allocated to the fund, and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted 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 have approved 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, 1999, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $67,225 and $3,030 from the sale of class A and class M shares, respectively and $181,980 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, 1999, Putnam Mutual Funds Corp., acting as underwriter received $53,366 on class A redemptions. Note 3 Purchases and sales of securities During the six months ended May 31, 1999, purchases and sales of U.S. government and agency obligations other than short-term investments aggregated $489,432,135 and $399,051,613, 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, 1999, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended May 31, 1999 - ----------------------------------------------------------------------------- Class A Shares Amount - ----------------------------------------------------------------------------- Shares sold 51,373,876 $254,375,312 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 998,626 4,933,190 - ----------------------------------------------------------------------------- 52,372,502 259,308,502 Shares repurchased (47,009,559) (233,173,375) - ----------------------------------------------------------------------------- Net increase 5,362,943 $ 26,135,127 - ----------------------------------------------------------------------------- Year ended November 30, 1998 - ----------------------------------------------------------------------------- Class A Shares Amount - ----------------------------------------------------------------------------- Shares sold 91,332,540 $455,502,043 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,375,739 6,836,861 - ----------------------------------------------------------------------------- 92,708,279 462,338,904 Shares repurchased (71,953,108) (358,927,417) - ----------------------------------------------------------------------------- Net increase 20,755,171 $103,411,487 - ----------------------------------------------------------------------------- Six months ended May 31, 1999 - ----------------------------------------------------------------------------- Class B Shares Amount - ----------------------------------------------------------------------------- Shares sold 21,611,874 $107,154,521 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 564,049 2,790,008 - ----------------------------------------------------------------------------- 22,175,923 109,944,529 Shares repurchased (18,661,721) (92,529,648) - ----------------------------------------------------------------------------- Net increase 3,514,202 $ 17,414,881 - ----------------------------------------------------------------------------- Year ended November 30, 1998 - ----------------------------------------------------------------------------- Class B Shares Amount - ----------------------------------------------------------------------------- Shares sold 49,315,114 $245,433,622 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 764,472 3,802,345 - ----------------------------------------------------------------------------- 50,079,586 249,235,967 Shares repurchased (36,525,654) (181,548,772) - ----------------------------------------------------------------------------- Net increase 13,553,932 $ 67,687,195 - ----------------------------------------------------------------------------- Six months ended May 31, 1999 - ----------------------------------------------------------------------------- Class M Shares Amount - ----------------------------------------------------------------------------- Shares sold 1,526,673 $7,604,510 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 45,656 226,046 - ----------------------------------------------------------------------------- 1,572,329 7,830,556 Shares repurchased (1,329,764) (6,894,895) - ----------------------------------------------------------------------------- Net increase 242,565 $ 935,661 - ----------------------------------------------------------------------------- Year ended November 30, 1998 - ----------------------------------------------------------------------------- Class M Shares Amount - ----------------------------------------------------------------------------- Shares sold 2,091,870 $10,449,316 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 73,620 366,156 - ----------------------------------------------------------------------------- 2,165,490 10,815,472 Shares repurchased (1,593,988) (7,940,049) - ----------------------------------------------------------------------------- Net increase 571,502 $ 2,875,423 - ----------------------------------------------------------------------------- Six months ended May 31, 1999 - ----------------------------------------------------------------------------- Class Y Shares Amount - ----------------------------------------------------------------------------- Shares sold 3,028,730 $14,944,746 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 652,447 3,281,292 - ----------------------------------------------------------------------------- 3,681,177 18,226,038 Shares repurchased (3,904,766) (19,079,602) - ----------------------------------------------------------------------------- Net decrease (223,589) $ (853,564) - ----------------------------------------------------------------------------- Year ended November 30, 1998 - ----------------------------------------------------------------------------- Class Y Shares Amount - ----------------------------------------------------------------------------- Shares sold 7,654,322 $38,026,698 - ----------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,383,744 6,859,113 - ----------------------------------------------------------------------------- 9,038,066 44,885,811 Shares repurchased (9,535,957) (47,215,434) - ----------------------------------------------------------------------------- Net decrease (497,891) $(2,329,623) - ----------------------------------------------------------------------------- The Putnam family of funds The following is a complete list of Putnam's open-end mutual funds. Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. GROWTH FUNDS 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 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 INCOME FUNDS American Government Income Fund Diversified Income Trust Global Governmental Income Trust High Yield Advantage Fund [DBL. DAGGER] High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Intermediate U.S. Government Income Fund Money Market Fund ** Preferred Income Fund Strategic Income Fund * U.S. Government Income Trust 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 ASSET ALLOCATION FUNDS Putnam Asset Allocation Funds-three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio * Formerly Putnam Diversified Income Trust II [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 not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund. Check your account balances and current performance at www.putnaminv.com. Fund information WEB SITE www.putnaminv.com INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman John A. Hill, Vice Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Edward H. D'Alelio Vice President Michael Martino Vice President and Fund Manager Kevin M. Cronin Vice President and Fund Manager Richard A. Monaghan Vice President John R. Verani Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam 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' Web site: 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 - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminv.com SA036-53208 398/428/674 7/99 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - ----------------------------------------------------------------------------- Putnam Intermediate U.S. Government Income Fund Supplement to Semiannual Report dated 5/31/99 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 $150 million or more in one or more of Putnam's 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 for periods ended 5/31/99 NAV 6 months -0.27% 1 year 4.60 5 years 38.88 Annual average 6.79 Life of fund (since class A inception, 2/16/93) 39.81 Annual average 5.48 Share value: NAV 11/30/98 $5.01 5/31/99 $4.86 - ----------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 6 $0.14 -- $0.14 - ----------------------------------------------------------------------------- Please note that past performance does not indicate future results. Returns shown for class Y 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 A shares. These returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, are lower than the operating expenses applicable to class A shares. All returns assume reinvestment of distributions at net asset value. Performance data reflects an expense limitation previously in effect. Without the expense limitation, total returns would have been lower. 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. -----END PRIVACY-ENHANCED MESSAGE-----