<PAGE>
Putnam
Intermediate
Government
Income Trust
ANNUAL REPORT
November 30, 1994
[LOGO APPEARS HERE]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
"Interest rates should stabilize once the bond market is confident that the
Federal Reserve Board has done enough to moderate economic growth and reduce
the risk of inflation. While it's not possible to pinpoint the actual date
this will occur, it's on the foreseeable horizon."
- -- Neil Powers, lead portfolio manager
Performance should always be considered in light of a fund's investment
strategy. Putnam Intermediate Government Income Trust is designed for
investors seeking high current income and relative stability of net asset
value through a portfolio of U.S. government and foreign governmental
securities with limited maturities.
- --------------------------------------------------------------------------------
FISCAL 1994 RESULTS AT A GLANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN NAV MARKET PRICE
- ---------------------------------------------------------------------------
<S> <C> <C>
(change in value during
period plus reinvested
distributions)
12 months ended 11/30/94 -2.44% -2.38%
SHARE VALUE NAV MARKET PRICE
- ---------------------------------------------------------------------------
11/30/93 $9.05 $8.125
11/30/94 8.07 7.250
</TABLE>
<TABLE>
<CAPTION>
CAPITAL GAINS
LONG- SHORT- TAX RETURN
DISTRIBUTIONS NO. INCOME TERM TERM OF CAPITAL/1/ TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
13 $0.393 $0.019 $0.047 $0.244 $0.703
</TABLE>
<TABLE>
<CAPTION>
CURRENT RETURN NAV MARKET PRICE
- ---------------------------------------------------------------------------
<S> <C> <C>
End of period
Current dividend rate/2/ 7.43% 8.28%
</TABLE>
Performance data represent past results. For performance over longer periods,
see page 8. /1/For more information, see page 28. /2/Income portion of most
recent distribution, annualized and divided by NAV or market price at end of
period.
2
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM APPEARS HERE]
DEAR SHAREHOLDER:
AS WE BEGIN A NEW YEAR, MOST INVESTORS WON'T REGRET THE PASSING OF THE OLD.
SINCE LAST FEBRUARY, WHEN THE FEDERAL RESERVE BOARD BEGAN A SERIES OF
INCREASES IN INTEREST RATES, 1994 WAS MARKED BY SHARP CORRECTIONS FOLLOWED BY
SMALL GAINS AND EXTENDED UNCERTAINTY FOR VIRTUALLY ALL FINANCIAL MARKETS.
WELL IN ADVANCE OF THE FED'S FIRST INCREASE, PUTNAM INTERMEDIATE GOVERNMENT
INCOME TRUST'S MANAGEMENT TEAM HAD ADOPTED DEFENSIVE STRATEGIES DESIGNED TO
REDUCE THE IMPACT OF RISING RATES ON THE FUND'S PORTFOLIO. WHILE DEFENSIVE
STRATEGIES PROVED RELATIVELY SUCCESSFUL, FUND PERFORMANCE GENERALLY EDGED
INTO THE NEGATIVE NUMBERS.
I AM PLEASED TO ANNOUNCE THAT D. WILLIAM KOHLI HAS JOINED NEIL J. POWERS AND
MARK TURNER IN THE MANAGEMENT OF YOUR FUND. BILL, FORMERLY SENIOR VICE
PRESIDENT AND CO-DIRECTOR OF GLOBAL BOND MANAGEMENT FOR FRANKLIN
ADVISORS/TEMPLETON INVESTMENT COUNSEL, IS NOW MANAGING THE FUND'S
INTERNATIONAL FIXED-INCOME HOLDINGS. BILL HAS EIGHT YEARS OF INVESTMENT
EXPERIENCE.
IN THE ACCOMPANYING REPORT, YOUR FUND'S MANAGERS DISCUSS THE FISCAL YEAR JUST
ENDED AND PROSPECTS IN THE CHALLENGING MONTHS AHEAD.
RESPECTFULLY YOURS,
/S/ GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JANUARY 18, 1995
3
<PAGE>
REPORT FROM THE FUND MANAGERS
NEIL J. POWERS, LEAD MANAGER
D. WILLIAM KOHLI
F. MARK TURNER
As most investors know, February 1994 marked the start of a series of short-term
interest rate hikes and the beginning of a very volatile environment for fixed
income securities. Although Putnam Intermediate Government Income Trust fared
better than many other fixed-income investments through the challenges of 1994's
bond market, the fund's total return was -2.44% at net asset value during its
fiscal year that ended on November 30, 1994.
A YEAR OF VOLATILITY AND CHALLENGES
Shortly after the start of the fund's fiscal year, the Federal Reserve Board
began its tightening of monetary policy. After the Fed made its first move,
the U.S. bond market responded dramatically, anticipating, quite correctly,
that similar moves would follow. Thus, initial market reaction priced in
several additional interest rate increases, resulting in a great deal of
volatility and a dramatic flattening of the yield curve.
Simultaneous turbulence in most international fixed-income markets provided
further challenges for the fund. The challenges were created in part by
cyclical inflationary pressures and by large budget deficits in many
economies around the world.
Your fund's focus on high-quality investments keeps its holdings concentrated
in two sectors, or "sleeves" -- U.S. government securities and foreign
government securities. This dual-sector strategy is designed to allow
strengths in one sector to offset declines in the other. Because this fiscal
year saw volatility both at home and abroad, performance was dampened in both
sectors. We were, however, able to make some strategic moves throughout the
year to provide some protection for the fund's portfolio.
4
<PAGE>
U.S. GOVERNMENT: STRATEGIC DEFENSE AGAINST VOLATILITY
Early in the year, when interest rates began to rise, we shifted the
portfolio into a "barbelled" position. This was accomplished by focusing on
the shorter and longer ends of the intermediate-term sector in order to
shorten the average maturity of the portfolio. Our rationale for the shift
was the expectation that intermediate-term securities would be among the
hardest hit by the market volatility.
While the barbell strategy proved effective as a defensive measure, we have
since returned to a "bulleted" position, or a concentration in
intermediate-term securities. Several factors have contributed to our return
to this configuration, which we've maintained since the middle of the
calendar year. First, we believed the yield curve had been significantly
adjusted in anticipation of any further interest rate hikes, so the defensive
"barbelled" positioning was no longer warranted. Also, owning a cluster of
securities in the middle of the intermediate sector -- a combination of four-
and five-year notes and mortgage-backed securities -- has provided a
higher-yielding portfolio.
In May, we began to take greater advantage of the income opportunities
offered by mortgage-backed securities. We continued to add them to the
portfolio throughout the remainder of the fund's
[U.S. TREASURY VS. MORTGAGE BACKED SECURITIES GRAPH APPEARS HERE]
5
<PAGE>
fiscal year; the fund remains relatively heavily weighted in this area. These
securities have provided attractive income opportunities on a relative basis
without the prepayment risks experienced in previous years. Since we
increased holdings in mortgage-backed securities in May, the resulting income
has more than offset any declines in their value.
FOREIGN GOVERNMENTS: OPPORTUNITIES ANTICIPATED
The volatility in fixed-income markets throughout the world was more dramatic
than expected and was, in part, a reaction to the rise in U.S. interest
rates. Large budget deficits in countries throughout the world further
contributed to the bond market's woes. These deficits were created by
political instability, high unemployment rates, reduced tax revenues, and
other factors that necessitated increased government spending. As a result,
the market place demanded higher bond rates to draw more capital and to make
these countries' obligations more attractive to investors.
The overall volatility in international bond markets meant dampened results
in this sector. Much of the underperformance was due to a lack of exposure to
foreign currencies. Most of our foreign currency holdings were hedged back
into U.S. dollars to protect the fund from adverse foreign currency
movements. However, this protective strategy proved ineffective due to the
dollar's unexpected and prolonged weakness against major foreign currencies.
OUTLOOK: VOLATILITY AND UNCERTAINTY EXPECTED TO EASE
While economic growth probably has not slowed enough to rule out further
action by the Fed, we believe much of the volatility and uncertainty that
have characterized this challenging year are now behind us.
In the U.S. government sector, we plan to take advantage of higher income
potential to offset any further likely price declines. Moving into 1995, we
believe the income component of total return, rather than price movement,
will be the dominant factor in the performance of fixed-income securities.
Based on this expectation, we have constructed a relatively high-yielding
portfolio, taking particular advantage of mortgage-backed securities.
6
<PAGE>
[DIVERSIFICATION BY COUNTRY* PIE CHART APPEARS HERE]
Over the past five months, international bond markets have stabilized, and
we're beginning to see bonds shifting back into favor. This positive outlook
is becoming especially evident in countries such as New Zealand, where local
investors are perceiving the bond market to offer greater value in comparison
to equities. We will concentrate on these markets, as well as on smaller
European economies where we believe bond market stability is returning.
As the fund enters a new fiscal year, we see a more promising climate in both
of its sectors. While the potential for near-term volatility still exists, we
believe we are well-positioned for the longer-term, and that any further
tightening by the Fed has already been priced into the bond market. As we
position the portfolio to take advantage of the opportunities offered by U.S.
mortgage-backed securities and the returning stability of international bond
markets, we feel optimistic about your fund's prospects in fiscal 1995.
We believe your fund's relatively modest losses in a year that severely
challenged most fixed-income investments stand as evidence that its strategy
remains effective and valuable for today's income investor.
The views expressed throughout the report are exclusively those of Putnam
Management. They are not meant as investment advice. Although the described
holdings were viewed favorably as of November 30, 1994, there is no guarantee
the fund will continue to hold these securities in the future.
7
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. 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 back into the fund at net asset value. We show
total return in two ways: on a cumulative long-term basis and on average how
the fund might have grown each year over varying periods. For comparative
purposes, we show how the fund performed relative to appropriate indexes and
benchmarks.
TOTAL RETURN FOR PERIODS ENDED 11/30/94
<TABLE>
<CAPTION>
NAV Market price
- -------------------------------------------------------------------
<S> <C> <C>
1 year -2.44% -2.38%
- -------------------------------------------------------------------
5 years 45.96 32.73
Annual average 7.86 5.83
- -------------------------------------------------------------------
Life of fund
(since 6/27/88) 65.32 38.12
Annual average 8.13 5.15
- -------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEXES AND BENCHMARKS
<TABLE>
<CAPTION>
Salomon Bros.
Lehman Bros. Non-U.S. Consumer
Government World Govt. Price
Bond Index Bond Index Index
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1 year -3.59% 7.11% 2.68%
- -------------------------------------------------------------------------
5 years 43.11 75.12 18.90
Annual average 7.43 11.86 3.52
- -------------------------------------------------------------------------
Life of fund
(since 6/27/88) 67.52 79.95 26.86
Annual average 8.37 9.59 3.77
- -------------------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
NAV Market price
- -------------------------------------------------------------------
<S> <C> <C>
1 year -4.14% -7.21%
- -------------------------------------------------------------------
5 years 43.12 27.49
Annual average 7.43 4.98
- -------------------------------------------------------------------
Life of fund
(since 6/27/88) 64.50 35.74
Annual average 7.95 4.81
- -------------------------------------------------------------------
</TABLE>
Performance data represent past results. Investment returns and market price
will fluctuate so an investor's shares, when sold, may be worth more or less
than their original cost. Fund performance data do not take into account any
adjustment for taxes payable on reinvested distributions.
8
<PAGE>
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
MARKET PRICE is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES INDEX reflects
performance of adjustable-rate securities backed by the mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), and Federal National Mortgage Association (FNMA).
LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX* reflects performance of 15-
and 30-year fixed-rate securities backed by mortgage pools of the GNMA,
FHLMC, and FNMA.
LEHMAN BROTHERS LONG-TERM TREASURY INDEX* is composed of all bonds covered by
the Lehman Brothers Treasury Bond Index with maturities of 10 years or greater.
LEHMAN BROTHERS GOVERNMENT BOND INDEX* is an unmanaged list of U.S.
government and mortgage-backed securities.
SALOMON BROTHERS NON-U.S. WORLD GOVERNMENT BOND INDEX* is an unmanaged list
of bonds issued by 10 countries.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes, and performance of the fund will
differ.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the Year ended November 30, 1994
To the Trustees and Shareholders of
Putnam Intermediate Government Income Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
Intermediate Government Income Trust (the "fund") at November 30, 1994, and
the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at November 30,
1994 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 23, 1995
10
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1994
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (71.2%)(a)
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
Federal Home Loan Mortgage Corporation
$ 1,432,555 10 1/2s, with various due dates to May 1, 2020 $ 1,520,746
5,189,971 Certificate of Participation (COP) 8 1/2s, with various
due dates to September 1, 2008 5,194,836
3,746,407 7 1/2s, January 1, 2020 3,500,549
1,752,462 COP, 7s, with various due dates to July 1, 2008 1,690,937
740,809 COP, 6 1/2s, September 1, 2002 688,026
Federal National Mortgage Association
1,212,420 11 1/2s, August 1, 2022 1,344,650
2,798,321 10 1/2s, with various due dates to December 1, 2018 3,005,573
1,273,088 10s, September 1, 2020 1,344,303
6,076,228 8 1/2s, January 1, 2012 6,080,027
63,344,346 8s, with various due dates to January 1, 2009 60,623,605
12,000,000 TBA Dwarfs 8s, December 14, 2009 (b) 11,782,500
680,897 8s, Dwarfs with various due dates to November 15, 2009 668,554
Government National Mortgage Association
157,304 9 1/2s, with various due dates to August 15, 2023 163,081
34,617,964 8 1/2s, with various due dates to November 15, 2024 33,865,891
70,682,301 8s, with various due dates to October 15, 2024 67,325,716
10,283,000 TBA 8s, December 14, 2024 (b) 9,775,277
44,230,515 7 1/2s, with various due dates to July 15, 2023 40,726,736
25,000,000 U.S. Treasury Notes 11 1/4s, February 15, 1995 25,273,438
10,000,000 U.S. Treasury Notes 11 1/4s, May 15, 1995 10,218,750
7,500,000 U.S. Treasury Notes 8 7/8s, February 15, 1996 7,645,313
60,000,000 U.S. Treasury Notes 9 1/4s, August 15, 1998 62,831,250
15,000,000 U.S. Treasury Bonds 12 3/8s, May 15, 2004 19,345,313
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $387,620,237) $374,615,071
</TABLE>
<TABLE>
<CAPTION>
FOREIGN BONDS AND NOTES (29.1%)(a)
PRINCIPAL AMOUNT VALUE
<C> <C> <S> <C>
AUD 1,690,000 Australia (Government of) bonds 13s, 1996 $ 1,364,675
AUD 6,500,000 Australia (Government of) bonds 10s, 2002 4,875,000
AUD 8,900,000 Australia (Government of) bonds 9 1/2s, 2003 6,458,063
AUD 8,462,000 Australia (Government of) bonds 8 3/4s, 2001 6,023,886
AUD 4,987,000 Australia (Government of) bonds 6 1/4s, 1999 3,310,121
CAD 36,200,000 Canada (Government of ) notes 7 3/4s, 1999 25,294,750
DKK 20,900,000 Denmark (Government of) bonds 9s, 2000 3,487,688
DKK 9,100,000 Denmark (Government of) bonds 8s, 2003 1,427,563
DKK 51,000,000 Denmark (Government of) bonds 6s, 1999 7,522,500
FIM 9,000,000 Finland (Republic of) notes 11s, 1999 1,935,000
FIM 12,000,000 Finish Housing Fund bonds 10 3/4s, 2002 2,542,500
ECU 6,400,000 France (Government of) OAT 8s, April 25, 2003 7,628,000
FRF 44,000,000 France (Government of) bonds 5 1/2s, 2004 6,902,500
ITL 18,335,000,000 Italy (Government of) bonds 12s, 2003 11,516,672
ITL 12,410,000,000 Italy (Government of) bonds 8 1/2s, 2004 6,344,613
ITL 10,590,000,000 Italy (Government of) notes 8 1/2s, 1999 5,897,306
NLG 4,300,000 Netherlands (Government of) bonds 5 3/4s, 2004 2,179,563
ESP 462,400,000 Spain (Government of) bonds 10.55s, 1996 3,560,480
ESP 500,400,000 Spain (Government of) bonds 10 1/4s, 1998 3,746,745
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FOREIGN BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
<C> <C> <S> <C>
SEK 10,700,000 Sweden (Government of) bonds 11s, 1999 $ 1,444,500
SEK 11,000,000 Swedish Public Housing bonds 11s, 1999 1,457,500
SEK 24,900,000 Sweden (Government of) bonds 10 1/4s, 2003 3,190,313
GBP 10,330,000 United Kingdom Treasury bonds 9 3/4s, 2002 17,192,994
ECU 4,200,000 United Kingdom Treasury bonds 9 1/8s, 2001 5,302,500
GBP 1,480,000 United Kingdom Treasury bonds 9s, 2000 2,373,550
GBP 6,440,000 United Kingdom Treasury bonds 7 1/4s, 1998 9,788,800
------------
TOTAL FOREIGN BONDS AND NOTES
(cost $155,677,813) $152,767,782
</TABLE>
<TABLE>
<CAPTION>
OPTIONS ON FOREIGN CURRENCIES (--%)(a)
EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
<C> <C> <S> <C> <C>
DEM 14,300,000 Put option on Deutschemarks Dec. 94/DM 1.55 $ 35,750
JPY 19,157,000 Call option on Japanese Yen Jan. 95/JPY99.5 157,087
-----------
TOTAL OPTIONS ON FOREIGN CURRENCIES
(cost $513,657) $ 192,837
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS (2.7%)(a)
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
$ 5,000,000 Federal Home Loan Mortgage Corp. 5.35s,
December 8, 1994 $ 4,994,701
9,050,000 Interest in $500,000,000 joint repurchase agreement
dated November 30, 1994 with Bankers Trust Co., due
December 1, 1994 with respect to various U.S. Treasury
obligations -- maturity value of $9,051,445 for an effective
yield of 5.75% 9,051,445
------------
TOTAL SHORT-TERM INVESTMENTS (cost $14,046,146) $ 14,046,146
------------
TOTAL INVESTMENTS (cost $557,857,853)(c) $541,621,836
============
</TABLE>
(a) Percentages indicated are based on net assets of $525,591,860, which
correspond to a net asset value per share of $8.07.
(b) TBA's are mortgage backed securities traded under delayed delivery
commitments, settling after November 30, 1994. Although the unit price for
the trades has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 2.0% from
the principal amount. Income on such securities will not be earned until
settlement date. The cost of TBA purchases held at November 30, 1994 was
$21,590,552 or 4.1% of net assets.
(c) The aggregate identified cost for federal income tax purposes is
$559,532,651 resulting in gross unrealized appreciation and depreciation of
$999,482 and $18,910,297 respectively, or net unrealized of depreciation of
$17,910,815.
TBA SALE COMMITMENTS OUTSTANDING at November 30, 1994(b)
(proceeds receivable $9,798,159)
<TABLE>
<CAPTION>
Principal Delivery Coupon Market
Agency Amount Month Rate Value
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA $10,291,000 Dec. 94 8s $9,782,881
- --------------------------------------------------------------------
</TABLE>
12
<PAGE>
FORWARD CURRENCY CONTRACTS OUTSTANDING at November 30, 1994
(Aggregate Face Value $99,098,088)
<TABLE>
<CAPTION>
Unrealized
Market Aggregate Delivery Appreciation
Value Face Value Date (Depreciation)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian
Dollars (Buy) $ 2,689,900 $ 2,708,440 01/23/95 $ (18,540)
- --------------------------------------------------------------------------------------------------
Deutschemarks
(Sell) 13,706,250 14,241,900 02/01/95 535,650
- --------------------------------------------------------------------------------------------------
Deutschemarks
(Sell) 12,112,500 12,642,646 02/01/95 530,146
- --------------------------------------------------------------------------------------------------
Deutschemarks
(Sell) 8,287,500 8,578,876 02/01/95 291,376
- --------------------------------------------------------------------------------------------------
Deutschemarks
(Sell) 7,973,750 8,066,598 02/22/95 92,848
- --------------------------------------------------------------------------------------------------
Deutschemarks
(Sell) 13,970,010 14,111,734 02/23/95 141,724
- --------------------------------------------------------------------------------------------------
French Francs
(Sell) 8,012,290 8,196,409 02/14/95 184,119
- --------------------------------------------------------------------------------------------------
French Francs
(Sell) 21,466,920 22,120,282 12/07/94 653,362
- --------------------------------------------------------------------------------------------------
New Zealand
(Buy) 2,187,500 2,173,500 02/01/95 14,000
- --------------------------------------------------------------------------------------------------
New Zealand
(Buy) 6,463,250 6,257,703 12/19/94 205,547
- --------------------------------------------------------------------------------------------------
$2,630,232
- --------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
CROSS FORWARD CONTRACTS OUTSTANDING at November 30, 1994
(Aggregate Face Value $18,944,721)
<TABLE>
<CAPTION>
In
Market Exchange Market Delivery Unrealized
Value For Value Date Appreciation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deutschemarks
(Buy) $ 4,533,280 British Pounds $ 4,526,774 02/03/95 $ 6,506
- ----------------------------------------------------------------------------------------------------------
Deutschemarks
(Buy) 13,770,240 British Pounds 13,575,094 12/20/94 195,146
- ----------------------------------------------------------------------------------------------------------
$201,652
- ----------------------------------------------------------------------------------------------------------
</TABLE>
DIVERSIFICATION OF FOREIGN BONDS AND NOTES AT NOVEMBER 30, 1994
(as a percentage of net assets):
- --------------------------------------------------------------------------------
United Kingdom 5.6 % Spain 1.4%
Canada 4.8 France 1.3
Italy 4.5 Sweden 1.2
Australia 4.2 Finland 0.8
Multi-National 2.5 Netherlands 0.4
Denmark 2.4
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994
<TABLE>
<S> <C>
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $557,857,853) (Note 1) $541,621,836
- -------------------------------------------------------------------------------------------------------
Cash 156,808
- -------------------------------------------------------------------------------------------------------
Interest and other receivables 10,391,143
- -------------------------------------------------------------------------------------------------------
Receivable for securities sold 9,841,608
- -------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 2,850,424
- -------------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 423,880
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 565,285,699
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for securities purchased 23,199,860
- -------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,256,924
- -------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 981,272
- -------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,058
- -------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 261
- -------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 42,751
- -------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 18,540
- -------------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 2,335,348
- -------------------------------------------------------------------------------------------------------
Other accrued expenses 69,944
- -------------------------------------------------------------------------------------------------------
TBA sale commitment, at value (proceeds receivable $9,798,159) 9,782,881
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 39,693,839
- -------------------------------------------------------------------------------------------------------
NET ASSETS $525,591,860
- -------------------------------------------------------------------------------------------------------
REPRESENTED BY
Paid-in capital (Notes 1 and 4) $572,673,955
- -------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Notes 1 and 4) (6,034,059)
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Notes 1 and 4) (27,659,181)
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, options,
foreign currency, TBA sales, and forward currency contracts (13,388,855)
- -------------------------------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL
SHARES OUTSTANDING $525,591,860
- -------------------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------------------------------
Net asset value per share
($525,591,860 divided by 65,098,252 shares) $8.07
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
STATEMENT OF OPERATIONS
Year ended November 30, 1994
<TABLE>
<S> <C>
INTEREST INCOME (net of foreign tax of $93,152) $ 41,538,294
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,096,234
- ----------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 373,909
- ----------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,554
- ----------------------------------------------------------------------------------------------------
Reports to shareholders 37,990
- ----------------------------------------------------------------------------------------------------
Auditing 52,854
- ----------------------------------------------------------------------------------------------------
Legal 13,383
- ----------------------------------------------------------------------------------------------------
Postage 139,480
- ----------------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,656
- ----------------------------------------------------------------------------------------------------
Exchange listing fees 49,644
- ----------------------------------------------------------------------------------------------------
TOTAL EXPENSES 4,791,704
- ----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 36,746,590
- ----------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (25,767,900)
- ----------------------------------------------------------------------------------------------------
Net realized loss on options (Notes 1 and 3) (1,928,855)
- ----------------------------------------------------------------------------------------------------
Net realized loss on forward
currency contracts (Notes 1 and 3) (11,654,006)
- ----------------------------------------------------------------------------------------------------
Net realized loss on foreign currency (Note 1) (300,207)
- ----------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, options,
foreign currency, TBA sales, and forward currency
contracts during the year (14,966,979)
- ----------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENT TRANSACTIONS (54,617,947)
- ----------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(17,871,357)
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
----------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
- --------------------------------------------------------------------------------------------------------
Net investment income $ 36,746,590 $ 35,669,322
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (25,767,900) 10,950,035
- --------------------------------------------------------------------------------------------------------
Net realized loss on options (1,928,855) (400,852)
- --------------------------------------------------------------------------------------------------------
Net realized loss on forward currency contracts (11,654,006) (3,692,956)
- --------------------------------------------------------------------------------------------------------
Net realized loss on foreign currency (300,207) (69,619)
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments, options, foreign currency, TBA sales, and
forward currency contracts (14,966,979) 7,090,507
- --------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS (17,871,357) 49,546,437
- --------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income (25,519,203) (35,669,322)
- --------------------------------------------------------------------------------------------------------
In excess of net investment income -- (2,519,510)
- --------------------------------------------------------------------------------------------------------
From net realized gain on investments (4,319,003) (28,856,348)
- --------------------------------------------------------------------------------------------------------
Return of capital (15,925,598) --
- --------------------------------------------------------------------------------------------------------
Increase in capital share transactions -- 5,152,532
- --------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (63,635,161) (12,346,211)
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of year 589,227,021 601,573,232
- --------------------------------------------------------------------------------------------------------
END OF YEAR (including distributions
in excess of net investment income of $6,034,059
and $2,519,510, respectively) $525,591,860 $589,227,021
- --------------------------------------------------------------------------------------------------------
NUMBER OF FUND SHARES
- --------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 65,098,252 64,528,505
- --------------------------------------------------------------------------------------------------------
Shares issues in connection with
reinvestment of distributions -- 569,747
- --------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING AT END OF YEAR 65,098,252 65,098,252
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
- -------------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.05 $9.32 $9.21
- -------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------
Net Investment Income .56 .55 .60
- -------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments (.84) .21 .28
- -------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (.28) .76 .88
- -------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS*:
From Net Investment Income (.39) (.55) (.60)
- -------------------------------------------------------------------------------------------------
In Excess of Net Investment Income -- (.04) --
- -------------------------------------------------------------------------------------------------
From Net Realized Gain on Investments (.07) (.44) (.17)
- -------------------------------------------------------------------------------------------------
In Excess of Net Realized Gain on Investments -- -- --
- -------------------------------------------------------------------------------------------------
Return of Capital (.24) -- --
- -------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.70) (1.03) (.77)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.07 $9.05 $9.32
- -------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $7.25 $8.125 $9.125
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
MARKET VALUE (%) (2.38) (.01) 8.69
- -------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (In thousands) $525,592 $589,227 $601,573
- -------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets (%) .87 .89 .92
- -------------------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 6.64 5.98 6.51
- -------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 242.42 303.68 216.24
- -------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
June 27, 1988
(COMMENCEMENT OF
OPERATIONS) TO
YEAR ENDED NOVEMBER 30 NOVEMBER 30
- --------------------------------------------------------------------------------------------------------------------------
1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.08 $9.11 $9.38 $9.30
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income .68 .73 .79 .35
- --------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments .34 .22 (.05) .07
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.02 .95 .74 .42
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS*:
From Net Investment Income (.68) (.73) (.79) (.34)
- --------------------------------------------------------------------------------------------------------------------------
In Excess of Net Investment Income -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
From Net Realized Gain on Investments (.05) (.08) (.22) --
- --------------------------------------------------------------------------------------------------------------------------
In Excess of Net Realized Gain on Investments -- (.09) -- --
- --------------------------------------------------------------------------------------------------------------------------
Return of Capital (.16) (.08) -- --
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.89) (.98) (1.01) (.34)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.21 $9.08 $9.11 $9.38
- --------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $9.125 $9.000 $9.000 $9.250
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
MARKET VALUE (%) 11.80 11.90 8.52 (4.11)(b)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (In thousands) $585,649 $567,117 $562,115 $569,990
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets (%) 1.01 1.02 1.00 .42(b)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 7.51 8.19 8.43 3.71(b)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 255.49 268.42 174.57 34.74(b)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Distributions for periods ended through November 30, 1994 have been restated
to conform to Statement of Position 93-2 (Note 4).
(a) Annualized.
(b) Not annualized.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The fund's
investment objective is to seek, with equal emphasis, high current income and
relative stability of net asset value by investing in a portfolio of U.S.
government and agency obligations and foreign governmental obligations with
limited maturities.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
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, except that
certain U.S. government obligations are stated at the mean between the bid and
asked prices. Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which approximates
market value, and other investments are stated at fair value following
procedures approved by the Trustees.
B 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. Discount on zero coupon bonds
is accreted according to the effective yield method.
Upon receipt or payment for foreign currency-denominated receivables and
payables, the fund realizes a gain or loss on foreign currency amounting to
the difference between the original value and the ending value of the
receivable or payable. Foreign currency gains and losses related to interest
receivable are reported as part of interest income.
C 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 managed by Putnam Investment Managem ent, Inc., the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., and certain other accounts.
These balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
D 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. The fund's Manager 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.
E TBA PURCHASE COMMITMENTS The fund may enter into "TBA" (to be
20
<PAGE>
announced) purchase commitments to purchase securities for a fixed price at a
future date beyond customary settlement time. The fund holds, and maintains
until the settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund enters into offsetting
contracts for the forward sale of other securities it owns. TBA purchase
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the
value of the fund's other assets. Unsettled TBA purchase commitments are
valued at the current market value of the underlying securities, generally
according to the procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the fund Manager deems it appropriate to do
so.
TBA SALES COMMITMENTS The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an
offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by the fund as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the fund realizes a gain or loss on the
commitment without regard to any unrealized gain or loss on the underlying
security. If the fund delivers securities under the commitment, the fund
realizes a gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
F OPTION ACCOUNTING PRINCIPLES When the fund writes a call option or put
option, an amount equal to the premium received by the fund is included in the
fund's "Statement of assets and liabilities" as an asset and an equivalent
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The current market value
of an option is the last sale price or, in the absence of a sale, the last
offering price, except that certain options on U.S. government obligations are
stated at fair value on the basis of valuations furnished by a pricing service
approved by the Trustees. If an option expires on its stipulated expiration
date, or if the fund enters into a closing purchase transaction, the fund
realizes a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, the fund
realizes a gain or loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally received. If a
written put option is exercised, the amount of the premium originally received
reduces the cost the security that the fund purchases upon exercise of the
option. Accordingly, the risk in writing a call
21
<PAGE>
option is that the fund relinquishes the opportunity to profit if the market
price of the underlying security increases and the option is exercised. In
writing a put option, the fund assumes the risk of incurring a loss if the
market price of the underlying security decreases and the option is
exercised.
The premium paid by the fund for the purchase of a call option or put option
is included in the fund's "Statement of assets and liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option the fund has purchased expires on the
stipulated expiration date the fund realizes a loss in the amount of the cost
of the option. If the fund enters into a closing sale transaction, it
realizes a gain or loss, depending on whether the proceeds from the closing
sale are greater or less than the cost of the option. If the fund exercises a
put option, it realizes a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. If the fund exercises a call option, the cost of the
securities acquired by exercising the call is increased by the premium
originally paid.
OPTIONS ON FOREIGN CURRENCIES The fund writes and purchases put and call
options on foreign currencies. The accounting principles and risks involved
are similar to those described above relating to options on securities.
G FORWARD CURRENCY CONTRACTS A forward currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future date.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is marked-to-market daily and the change in market
value is recorded by the fund as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. The maximum potential loss from forward currency contracts
is the aggregate face value in U.S. dollars at the time the contract was opened;
however, management of the fund believes the likelihood of such loss to be
remote.
H FEDERAL TAXES It is the policy of the fund to distribute all of its 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.
Therefore, no provision has been made for federal taxes on income, capital gains
or unrealized appreciation of securities held and excise tax on income and
capital gains.
At November 30, 1994 the fund had a capital loss carryover of $25,428,000,
which will expire on November 30, 2002.
I DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of market conditions or
investment decisions, the fund may not achieve projected investment results for
a given period. The amount and character of income and gains determined in
accordance with income tax regulations may differ from generally accepted
accounting principles. These differences include treatment of post-October
losses, realized and unrealized gains and losses on foreign currencies, and GNMA
paydowns. Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended November 30, 1994
the fund reclassified $12,192,757 to
22
<PAGE>
increase distributions in excess of net investment income and $11,591,778 to
decrease accumulated net realized loss, resulting in an increase of $650,979
to paid-in-capital.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment advisory
services is paid quarterly at the annual rate of: 0.75% of the first $500
million of average weekly net assets, 0.65% of the next $500 million, 0.60%
of the next $500 million, 0.55% of any amount over $1.5 billion.
The fund also reimburses the Manager 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.
Trustees of the fund receive an annual Trustee's fee of $1,320 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust
Company (PFTC), a wholly owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services,
a division of PFTC. Investor servicing and custodian fees reported in the
Statement of operations for the year ended November 30, 1994 have been
reduced by credits allowed by PFTC. Such credits amounted to $289,938.
23
<PAGE>
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended November 30, 1994, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $397,056,643 and $399,135,387, respectively. Purchases and sales
of U.S. government obligations aggregated $900,687,397 and $884,070,661,
respectively. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
Written option transactions during the year are summarized as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
- --------------------------------------------------------
<S> <C> <C>
Options written 99,250 $ 212,864
- --------------------------------------------------------
Options closed (27,390) (144,389)
- --------------------------------------------------------
Options expired (71,860) (68,475)
- --------------------------------------------------------
WRITTEN OPTIONS
OUTSTANDING AT END
OF YEAR $ --
- --------------------------------------------------------
</TABLE>
Purchased option transactions on foreign currencies during the period are
summarized as follows:
<TABLE>
<CAPTION>
Cost
- --------------------------------------------------------
<S> <C>
Options open at beginning of year $ 666,789
- --------------------------------------------------------
Options purchased 6,096,579
- --------------------------------------------------------
Options closed (4,412,833)
- --------------------------------------------------------
Options expired (1,836,878)
- --------------------------------------------------------
Purchased options outstanding
at end of year $ 513,657
- --------------------------------------------------------
</TABLE>
Transactions in forward currency contracts during the year are summarized as
follows:
<TABLE>
<CAPTION>
Purchases of forward
currency contracts
- --------------------------------------------------------
Aggregate
face value
- --------------------------------------------------------
<S> <C>
Contracts open at
beginning of year $ 25,205,925
- --------------------------------------------------------
Contracts purchased 540,602,404
- --------------------------------------------------------
Contracts closed (535,723,965)
- --------------------------------------------------------
Open at end of year $ 30,084,364
- --------------------------------------------------------
Sales of forward
currency contracts
- --------------------------------------------------------
Aggregate
face value
- --------------------------------------------------------
Contracts open at
beginning of year $ 126,071,719
- --------------------------------------------------------
Contracts written 1,098,433,004
- --------------------------------------------------------
Contracts closed (1,136,546,278)
- --------------------------------------------------------
Open at end of year $ 87,958,445
- --------------------------------------------------------
</TABLE>
24
<PAGE>
NOTE 4
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective December 1, 1993, Putnam Intermediate Government Income Trust
adopted the provisions of Statement of Position 93-2 "Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies (SOP)." The purpose
of this SOP is to report the undistributed net investment income (accumulated
loss) and accumulated net realized gain (loss) accounts in such a manner as
to approximate amounts available for future distributions (or to offset
future realized capital gains) and to achieve uniformity in the presentation
of distributions by investment companies.
As a result of the SOP, the fund has reclassified $2,603,305 to decrease
accumulated net realized gain, $2,549,179 to increase distributions in excess
of net investment income, with an increase of $5,152,484 to additional
paid-in capital. These adjustments represent the cumulative amounts
necessary to report these balances on a tax basis through November 30, 1993.
These reclassifications, which have no impact on the total net asset value of
the fund are primarily attributed to market discount, gains and losses on
foreign exchange transactions and paydowns for mortgage-backed securities,
returns of shareholder capital and market discount, which are treated
differently in the computation of distributable income and capital gains
under federal income tax rules and regulations versus generally accepted
accounting principles.
25
<PAGE>
SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- --------------------------------------------------------------------------------------------------------------------
NOVEMBER 30 AUGUST 31 MAY 31 FEBRUARY 28 NOVEMBER 30
- --------------------------------------------------------------------------------------------------------------------
1994 1994 1994 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENT
INCOME
Total $ 11,066,280 $ 10,443,409 $ 10,370,334 $ 9,658,271 $ 9,416,897
Per share $ .17 $ .16 $ .16 $ .15 $ .15
- --------------------------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME
Total $ 10,020,299 $ 9,255,437 $ 9,094,386 $ 8,376,468 $ 8,175,281
Per share $ .15 $ .14 $ .14 $ .13 $ .13
- --------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Total $(15,345,006) $ (4,746,051) $ (27,030,125) $ (7,496,765) $(13,054,383)
Per share $ (.24) $ (.07) $ (.42) $ (.11) $ (.21)
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS
Total $(5,324,707) $ 4,509,386 $ (17,935,739) $ 879,703 $ (4,879,102)
Per share $ (.09) $ .07 $ (.28) $ .02 $ (.08)
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS AT
END OF PERIOD
Total $525,591,860 $540,681,196 $ 545,936,464 $574,368,277 $ 589,227,021
Per share $ 8.07 $ 8.31 $ 8.39 $ 8.82 $ 9.05
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------------------------------------------------
AUGUST 31 MAY 31 FEBRUARY 28 NOVEMBER 30 AUGUST 31 MAY 31 FEBRUARY 28
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1993 1993 1992 1992 1992 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL INVESTMENT
INCOME
Total $ 10,122,570 $ 10,923,417 $ 10,522,893 $ 9,486,368 $ 11,818,592 $ 11,421,240 $ 11,432,832
Per share $ .15 $ .17 $ .16 $ .15 $ .18 $ .18 $ .18
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME
Total $ 8,808,242 $ 9,474,981 $ 9,210,818 $ 8,164,154 $ 10,428,221 $ 10,053,157 $ 10,062,197
Per share $ .13 $ .15 $ .14 $ .12 $ .16 $ .16 $ .16
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Total $ 7,879,731 $ 3,870,296 $ 15,181,471 $ (144,023) $ 17,524,842 $ 973,099 $ (297,066)
Per share $ .13 $ .05 $ .24 $ -- $ .28 $ .01 $ (.01)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS
Total $ 16,687,973 $ 13,345,277 $ 24,392,289 $ 8,020,131 $ 27,953,063 $ 11,026,256 $ 9,765,131
Per share $ .26 $ .20 $ .38 $ .12 $ .44 $ .17 $ .15
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT
END OF PERIOD
Total $603,871,402 $596,948,092 $593,400,171 $601,573,232 $603,882,234 $586,216,506 $583,588,249
Per share $ 9.28 $ 9.17 $ 9.12 $ 9.32 $ 9.38 $ 9.12 $ 9.15
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
SPECIAL NOTICES
FEDERAL TAX INFORMATION
RETURN OF CAPITAL FOR FISCAL YEAR ENDED NOVEMBER 30, 1994
After the fund's year-end financial review, it was determined that 34.8% of
the fiscal year's distribution must be classified as a return of capital and
therefore is not taxable to shareholders. Your form 1099, mailed in January
1995, will indicate the exact amount of your distribution not subject to tax.
In addition, you will need to adjust the cost basis of your shares when you
eventually redeem or exchange them. This will increase any resulting capital
gain or decrease any capital loss you incur at that time.
A return of capital is determined in accordance with federal tax law. Under
the law, certain gains and losses on foreign currency transactions, which
would otherwise be considered capital gains and losses, must be reclassified
as ordinary income. Thus, losses on these transactions result in a reduction
of net investment income available for distribution. These losses can occur
unpredictably at a point in the year after monthly or quarterly distributions
have already been made, necessitating a redesignation. It is important to
note that in previous fiscal years, your fund's use of these transactions and
investments has produced gains, which have been paid out to shareholders in
year-end distributions.
DIVIDEND POLICY
It is the fund's dividend policy to pay monthly distributions from net
investment income and any net realized short-term gains (including gains from
options and futures transactions). Long-term capital gains, if any, are
distributed at least annually. In an effort to maintain a more stable level
of distributions, the fund's monthly distribution rate will be based on
Putnam Management's projections of the net investment income and net realized
short-term capital gains that the fund is likely to earn over the long
28
<PAGE>
term. Such distributions at times may exceed the current earnings of the
fund, resulting in a return of capital to shareholders.
At the time of each distribution, shareholders are furnished Putnam
Management's current estimate of the sources of such distribution. These
estimates are subject to adjustment depending on investment results for the
fund's entire fiscal year. Final information regarding such matters is
furnished to shareholders in tax information provided following the end of
each calendar year.
SHAREHOLDER MEETING
The fall 1995 annual meeting of shareholders of the fund will include a
proposal to convert the fund to an open-ended fund. This proposal is a result
of a provision in the fund's Declaration of Trust requiring a shareholder
vote on open-ending if the fund's shares trade at a certain discount during a
set period in the fund's fiscal year. Further information on the proposal
will be contained in the proxy statement for the annual meeting.
CHANGE OF INVESTMENT POLICY
During fiscal 1994, the Trustees approved changes in the investment policies
of the fund to reduce the required minimum allocation to U.S. government
securities from 65% to 50% and to permit up to 15% of the fund's assets to be
invested in foreign government securities rated BBB, BB, and B. These changes
were designed to reflect the significant changes in the global fixed-income
markets since the fund's launch in 1988, with a view to seeking an increase
in yield while maintaining the fund's fundamental character as a high
quality, global bond fund.
SHARE REPURCHASE
On November 3, 1994, the Trustees authorized the fund to repurchase up to
3,250,000 shares in the open market. Repurchases will be made only when the
fund's shares are trading at less than net asset value and such times and
amounts as is believed to be in the best interest of the fund's shareholders.
Any repurchases of shares will have the effect of increasing the net asset
value per share of remaining shares outstanding.
29
<PAGE>
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
F. Mark Turner
Vice President
Neil J. Powers, CFA
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
30
<PAGE>
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for
up-to-date information about the fund's NAV or to request Putnam's quarterly
Closed-End Fund Commentary.
31
<PAGE>
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PUTNAM INVESTMENTS Bulk Rate
The Putnam Funds U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
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076-15836
