Putnam
Intermediate
Government
Income Trust
[GRAPHIC OMITTED:ARTWORK]
ANNUAL REPORT
November 30, 1995
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Funds in [the government bond] group have bounced back nicely
from 1994's troubles, with the most interest-rate sensitive of the lot turning
in gains that even come close to those of stock funds. As this performance
suggests, duration has largely determined funds' relative status this year."
- -- Morningstar Mutual Funds, October 13, 1995
* "At the beginning of this fiscal year, we were coming off the
worst bond market in history. At the end, we were in the midst of one of the
strongest bond markets. This dramatic reversal occurred because the high
inflation rate that many investors feared in 1994 never materialized. Because
we anticipated this turn of events, we were able to position the fund to take
advantage of the global decline in yields."
- -- Neil Powers, Lead Fund Manager
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
15 Financial statements
From the Chairman
[GRAPHIC OMITTED:photo of George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
Putnam Intermediate Government Income Trust closed the books on an eventful 12
months that began at the tag end of one of the sharpest global bond market
declines on record and ended in the midst of one of the U.S. market's
strongest rallies. As your fund's management team relates in the report that
follows, results for the fiscal year that ended on November 30, 1995, were
gratifying, especially in contrast to last year's challenges.
The portion of the portfolio devoted to U.S. government securities was the
first to enjoy the effects of the markets' warming and contributed most
strongly to the fund's fiscal 1995 performance. As the year proceeded,
however, bond markets in many other countries also began significant
recoveries. Continued low inflation and slower economic growth remain strong
prospects in the months ahead, conditions that bode well for your fund during
fiscal 1996.
Finally, I am pleased to announce that Mark J. Siegel has joined your fund's
management team. Mark joined Putnam's global fixed-income group in 1993,
coming from Salomon Brothers International Ltd., in London. He has 12 years of
investment experience.
Respectfully yours,
/s/George Putnam
-------------
George Putnam
Chairman of the Trustees
January 17, 1996
Report from the Fund Managers
Neil Powers, lead manager
D. William Kohli
Mark Siegel
What a difference a year can make. As Putnam Intermediate Government Income
Trust began its fiscal year, investors were still smarting from 1994's
distressed fixed-income market conditions. At the end of the fund's fiscal
year on November 30, 1995, those same investors were witnessing one of the
strongest bond markets in history.
The two sectors, or "sleeves," of the fund's portfolio -- U. S. government
securities and international government securities -- benefited from a
declining rate of inflation and bond market rallies around the world. Again
this year, the fund's dual-sector strategy helped to diminish volatility in
the portfolio by allowing the strengths of one sector to offset weaknesses in
the other.
* U.S. GOVERNMENT SECTOR BENEFITS FROM LONGER DURATION
In the U.S. government sleeve of the portfolio, a relatively long duration and
careful monitoring of conditions in the mortgage-backed securities market
proved extremely beneficial to the fund's overall performance. During the
fiscal year's first half, in anticipation of stabilizing interest rates and
slowing economic growth, we lengthened the duration of the portfolio.
Duration, which is a measure of a portfolio's sensitivity to interest rate
changes, can play a key role in performance. A portfolio's duration -- like
maturity, which affects duration -- is measured in years. A shorter duration
is usually maintained during a period of rising interest rates to reduce
share-price volatility. As we became less concerned about further increases in
interest rates, we lengthened the duration -- a strategy that resulted in
significant appreciation in net asset value as rates declined dramatically
throughout the period.
Strategic shifting of the fund's mortgage-backed securities holdings among
different market sectors also made a key contribution to fiscal 1995
performance. Throughout the year, the U.S. government sleeve was carefully
positioned to take advantage of the performance potential of mortgage-backed
securities. During the first half of the year, as interest rates began to
fall, we maintained a relatively high weighting but kept a careful eye on the
fund's exposure to prepayment risk. Historically, a declining interest rate
environment sparks increased prepayment activity as the lower rates prompt
homeowners to refinance their mortgages. As a result of prepayment activity,
the value of mortgage-backed securities diminishes and causes interruptions in
the fund's income stream because the prepaid principal must be reinvested at
lower rates. To protect the fund's income stream as well as the value of the
fund's holdings, we focused primarily on discount-coupon mortgages, i.e.,
those with coupons lower than the current market rate. With these securities,
the holders of the underlying mortgages are less likely to refinance because
they are paying below-market rates.
However, at the midpoint of the fiscal year, interst rates had fallen to such
a point that the discount mortgages we held had become, in effect, premium
coupon mortgages. Therefore, the fund benefited from the increased value of
these holdings. When we felt that prepayment risk might begin to accelerate
too dramatically, we significantly reduced our exposure to mortgage-backed
holdings altogether. Mortgage-backed securities did, in fact, begin to
underperform just after we reduced their weighting. Throughout the year, we
successfully employed this strategy of periodically reducing and building up
the fund's holdings of mortgage-backed securities as interest rate and
prepayment trends shifted. By the end of the fund's fiscal year, we were
increasing mortgage-backed holdings again because we believed that the risk of
prepayment activity was not as vast as was being priced into the market.
Toward the end of the period, we shifted approximately 5% of the U.S.
government sleeve of the portfolio into the international sleeve. This move
was based on our belief that international bond markets might begin to benefit
from a period of stable to declining interest rates worldwide. At fiscal
year's-end, the U.S. government sleeve represented 64.4% of net assets.
[GRAPHIC OMITTED: horizontal bar chart ALLOCATIONS BY COUNTRY*
showing:
AUSTRALIA 0.6%
CANADA 4.8%
DENMARK 2.3%
FRANCE 4.3%
GERMANY 7.0%
ITALY 3.4%
NETHERLANDS 1.1%
SPAIN 3.3%
UNITED KINGDOM 5.2%]
*Based on net assets as of 11/30/95. Holdings will vary over time.
* INTERNATIONAL SECTOR PICKS UP PACE AS YEAR PROGRESSES
After a disappointing first quarter, performance in the fund's international
sleeve turned around significantly during the remainder of fiscal 1995. Early
in the year, when we felt that bonds in general were undervalued around the
world, we invested in longer-term bonds within core markets like Germany,
Japan, and the Netherlands, as well as in France and Denmark. While
performance was positive in these markets, our ability to take advantage of
gains was hampered by the fund's currency hedging strategies. Hedges are
typically used to protect the fund against adverse foreign-currency movements
by locking in specific exchange rates. Unfortunately, early in the year, these
hedges dampened performance as the U.S. dollar progressively weakened against
other currencies. In March, we eliminated U.S. dollar hedges and moved back to
a neutral currency position.
At the fiscal year's midpoint, as U.S. economic growth continued to slow and
world bond markets continued to rally, we increased the fund's exposure to
higher-yielding peripheral markets, such as Italy, Spain, and Sweden. Over the
next four months, this allocation proved beneficial to the fund as these
markets strengthened, especially in July and August, when they exhibited some
of the strongest performance among bond markets worldwide.
Also at this point, as we saw signs that the U.S. dollar might begin to
strengthen, we cautiously reintroduced hedges against several currencies -- a
strategy that proved extremely positive for the fund, especially during the
last few months of the period when the U.S. dollar rallied against the yen and
deutschemark. The higher-yielding markets also exhibited strong performance
during the last two months of the fiscal year. Leading the way was France,
where the market rallied after news of the French government's strengthened
commitment to reducing budget deficits.
* MODERATE ECONOMIC PACE EXPECTED TO CONTINUE
As the fund enters fiscal 1996, we expect that economic conditions will
remain favorable, with low inflation and slow to moderate economic growth
worldwide. We're also fundamentally positive on the value of the U.S. dollar
and expect its strength to continue in the months ahead.
In the U.S. government sleeve, we plan to continue to pursue opportunities in
mortgage-backed securities while maintaining a relatively long duration for
the portfolio. Within the international sector, we expect to focus on Europe,
both core markets and the higher-yielding peripheral markets, while remaining
underweighted in Japanese bonds. We expect that continued budget deficit
reduction programs in many countries should help to lower interest rates
worldwide.
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 11/30/95, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
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 government securities
with limited maturities.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/95
NAV Market price
- ------------------------------------------------------------------------------
1 year 16.56% 15.58%
- ------------------------------------------------------------------------------
5 years 52.54 37.10
Annual average 8.81 6.51
- ------------------------------------------------------------------------------
Life of fund
(since 6/27/88) 92.70 59.64
Annual average 9.23 6.50
- ------------------------------------------------------------------------------
COMPARATIVE RETURNS FOR PERIODS ENDED 11/30/95
Salomon Bros.
Lehman Bros. Non-U.S. Consumer
Govn't Intermediate World Govt. Price
Bond Index Bond Index Index
- ------------------------------------------------------------------------------
1 year 13.66% 18.13% 2.61%
- ------------------------------------------------------------------------------
5 years 48.95 68.55 14.80
Annual average 8.30 11.01 2.80
- ------------------------------------------------------------------------------
Life of fund
(since 6/27/88) 85.32 106.68 30.17
Annual average 8.67 10.28 3.61
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future performance.
They do not take into account any adjustment for taxes payable on reinvested
distributions. Investment returns, net asset value and market price will
fluctuate so that an investor's shares, when sold, may be worth more or less
than their original cost.
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
NAV Market price
- ------------------------------------------------------------------------------
1 year 17.42% 14.93%
- ------------------------------------------------------------------------------
5 years 52.42 33.70
Annual average 8.79 5.98
- ------------------------------------------------------------------------------
Life of fund
(since 6/27/88) 94.47 57.06
Annual average 9.26 6.20
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future performance.
They do not take into account any adjustment for taxes payable on reinvested
distributions. Investment returns, net asset value and market price will
fluctuate so that an investor's shares, when sold, may be worth more or less
than their original cost.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/95
- ------------------------------------------------------------------------------
Distributions (number) 12
- ------------------------------------------------------------------------------
Income $0.60
- ------------------------------------------------------------------------------
Total $0.60
- ------------------------------------------------------------------------------
Share value: NAV Market price
- ------------------------------------------------------------------------------
11/30/94 $8.07 $7.25
- ------------------------------------------------------------------------------
11/30/95 $8.70 7.75
- ------------------------------------------------------------------------------
Current return:
End of year
- ------------------------------------------------------------------------------
Current dividend rate1 6.90% 7.74%
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV or
market price at end of year.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of the 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 Government Intermediate Bond Index is composed of all bonds
covered by the Lehman Brothers Government Bond Index* with maturities between
1 and 9.99 years.
Salomon Brothers Non-U.S. World Government Bond Index is a market
capitalization-weighted benchmark that tracks the performance of the
government bond markets tracked by the Salomon Brothers World Government Bond
Index, excluding the United States.
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. It is not possible to invest directly in an index.
*The Lehman Brothers Government Bond Index is an unmanaged list of U.S.
government and mortgage-backed securities.
Report of independent accountants
For the Fiscal Year Ended November 30, 1995
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, 1995, 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,
1995 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 16, 1996
<TABLE>
Portfolio of investments owned
November 30, 1995
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (64.4%) *
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
$ 525,607 Federal Home Loan Mortgage Corp.
6 1/2s, September 1, 2002 $522,159
18,718,986 Federal National Mortgage Association
7s, August 1, 2025 18,707,193
Government National Mortgage Association
73,295 8s, July 15, 2023 75,837
9,119,283 7 1/2s, with various due dates from February 15, 2022
9,323,226 to October 15, 2025
52,810,000 TBA, 7 1/2s, December 15, 2025 +++ 53,898,942
58,766,191 7s, with various due dates from June 15, 2023
58,894,296 to October 15, 2025 58,898,942
18,025,000 TBA, 6 1/2s, December 15, 2025 +++ 17,698,207
15,000,000 U.S. Treasury Bonds 12 3/8s, May 15, 2004 21,532,050
20,000,000 U.S. Treasury Bonds 11 5/8s, November 15, 2004 28,046,800
8,600,000 U.S. Treasury Bonds 10 3/4s, August 15, 2005 11,694,733
28,380,000 U.S. Treasury Notes 7 1/2s, February 15, 2005 31,785,600
67,195,000 U.S. Treasury Notes 6 1/2s, May 15, 2005 70,691,156
21,980,000 U.S. Treasury Notes 6 1/2s, August 15, 2005 23,130,433
9,125,000 U.S. Treasury Notes 6 1/4s, February 15, 2003 9,425,851
8,830,000 U.S. Treasury Notes 6 1/8s, September 30, 2000 9,036,975
- ----------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations
(cost $357,292,170) $364,463,458
- ----------------------------------------------------------------------------------------
<CAPTION>
FOREIGN GOVERMENT BONDS AND NOTES (32.0%) *
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUD 4,205,000 Australia (Government of) notes, 8 3/4s, 2001 $3,244,666
CAD 6,165,000 Canada (Government of) bonds, 9s, 2004 5,083,437
CAD 15,810,000 Canada (Government of) bonds, 7s, 1997 11,814,743
CAD 14,530,000 Canada (Government of) bonds, 6 1/2s, 2004 10,264,773
DKK 69,000,000 Denmark (Government of) bonds, 8s, 2003 12,976,064
FRF 33,720,000 France (Government of) OAT deb. 8 1/2s, 2002 7,446,472
FRF 78,480,000 France (Government of) 7 3/4s, 2000 16,624,190
DEM 18,400,000 Germany (Republic of) bonds, 7 3/8s, 2005 13,749,464
DEM 14,460,000 Germany (Republic of) notes, 7 1/8s, 2003 10,705,376
DEM 21,100,000 Germany (Republic of) bonds, 6 7/8s, 2005 15,285,946
ITL 18,335,000,000 Italy (Government of) bonds, 12s, 2003 11,937,800
ITL 4,590,000,000 Italy (Government of) bonds, 10 1/2s, 2005 2,761,460
ITL 8,105,000,000 Italy (Government of) notes, 8 1/2s, 1999 4,761,618
NLG 8,505,000 Netherlands (Government of) bonds, 9s, 2000 6,053,997
ESP 1,138,400,000 Spain (Government of) bonds, 12 1/4s, 2000 9,972,190
ESP 1,100,000,000 Spain (Government of) bonds, 10s, 2005 8,799,472
GBP 4,655,000 United Kingdom Treasury Bills 9 1/2s, 2005 8,028,431
GBP 14,220,000 United Kingdom Treasury notes, 7s, 2001 21,641,398
- ----------------------------------------------------------------------------------------
Total Foreign Government Bonds and Notes
(cost $178,387,133) $181,151,497
<CAPTION>
PURCHASED CALL OPTIONS OUTSTANDING (0.0%) *
EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ITL 21,825,600,000 Italian (Government of) deb. 10 1/2s,
April 2005 Jan. 96/ ITL 96.5 $140,590
$ 16,480,000 U.S. Dollar In Exchange for
Deutschemarks Dec. 95/DEM 1.490 20,600
$ 13,400,000 U.S. Dollar In Exchange for
Japanese Yen Dec. 95/JPY 102.5 103,180
- ----------------------------------------------------------------------------------------
Total Purchased Options (cost $557,918) $264,370
- ----------------------------------------------------------------------------------------
<CAPTION>
SHORT-TERM INVESTMENTS (15.0%) * (cost $85,127,855)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
$85,114,000 Interest in $798,484,000 joint repurchase
agreement dated November 30, 1995 with
Morgan (J.P.) & Co., Inc. due December 1, 1995
with respect to various U.S. Treasury obligations-
maturity value of $85,127,855 for an effective
yield of 5.86% $85,127,855
- ----------------------------------------------------------------------------------------
Total Investments (cost $621,365,076) *** $631,007,180
- ----------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $566,048,566.
+++ TBA's are mortgage backed securities traded under delayed delivery commitments,
settling after November 30, 1995. Although the unit price has been established, the
principal value has not been finalized. However, the amount of the commitments will not
fluctuate more than 2% from the principal amount. Income on the securities will not be
earned until settlement date. The cost of TBA purchases held at November 30, 1995 was
$71,182,451.
*** The aggregate identified cost for federal income tax purposes is $621,677,449,
resulting in gross unrealized appreciation and depreciation of $9,654,605 and $324,874,
respectively, or net unrealized appreciation of $9,329,731.
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ----------------------------------------------------------------------------------------
<CAPTION>
WRITTEN CALL OPTIONS OUTSTANDING (premium received $70,864)
EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
16,480,000 U.S. Dollar in Exchange for
Deutschmarks Dec. 95/DEM 1.565 $1,648
- ----------------------------------------------------------------------------------------
</TABLE>
Forward Currency Contracts to Buy Outstanding at November 30, 1995
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date Depreciation
- --------------------------------------------------------------------------
Australian Dollar $6,737,224 $6,843,226 12/13/95 ($106,002)
Canadian Dollars 12,929,718 13,065,730 12/13/95 (136,012)
Deutschmarks 34,428,769 34,532,724 12/13/95 (103,955)
Japanese Yen 2,404,234 2,439,122 12/13/95 (34,888)
Japanese Yen 20,234,158 20,764,878 12/14/96 (530,720)
Spanish Peseta 5,450,163 5,303,040 12/13/95 147,123
Swedish Krona 5,417,875 5,443,791 12/13/95 (25,916)
- --------------------------------------------------------------------------
$87,602,141 $88,392,511 ($790,370)
Forward Currency Contracts to Sell Outstanding at November 30, 1995
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date Depreciation
- --------------------------------------------------------------------------
Australian Dollars $1,350,413 $1,351,823 12/13/95 1,410
British Pounds 13,458,109 13,750,520 12/13/95 292,411
Canadian Dollars 20,722,872 20,771,953 12/13/95 49,081
Danish Krona 7,850,111 7,908,485 3/13/96 58,374
Deutschmarks 55,336,269 55,165,107 12/13/95 (171,162)
Deutschmarks 9,362,436 9,357,062 3/13/96 (5,374)
French Francs 4,015,449 4,075,508 3/13/96 60,059
Italian Lira 7,098,841 7,113,402 3/13/96 14,561
Japanese Yen 9,835,721 9,815,286 12/13/95 (20,435)
Netherland Guilder 5,967,708 6,075,000 3/13/96 107,292
Spanish Peseta 8,422,242 8,148,235 12/13/96 (274,007)
Spanish Peseta 9,377,341 9,505,023 3/13/96 127,682
Swiss Francs 16,990,952 17,443,522 12/13/95 452,570
- --------------------------------------------------------------------------
$169,788,464 $170,480,926 $692,462
- --------------------------------------------------------------------------
<TABLE>
Forward Cross Currency Contracts Outstanding at November 30, 1995
(Aggregate face value $28,954,832)
<CAPTION>
In Unrealized
Market Exchange Market Delivery Appreciation/
Value For Value Date Depreciation
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
British Pounds (Buy) $13,082,148 Deutschmarks $13,040,032 3/13/96 $42,116
Deutschmarks (Sell) 10,886,480 Italian Lira 10,941,523 12/13/95 55,043
Deutschmarks (Sell) 4,837,842 Danish Krona 4,853,258 3/13/96 15,416
- -----------------------------------------------------------------------------------------
$112,575
</TABLE>
Diversification of Foreign Bonds and Notes at November 30, 1995
(as a percentage of net assets):
- ---------------------------------------------------------------
Australia 0.6% Italy 3.4%
Canada 4.8 Netherlands 1.1
Denmark 2.3 Spain 3.3
France 4.3 United Kingdom 5.2
Germany 7.0
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30,1995
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $536,237,221) (Note 1) $545,879,325
- ---------------------------------------------------------------------------------------------------
Repurchase agreement, at value
(identified cost $85,127,855) (Note 1) 85,127,855
- ---------------------------------------------------------------------------------------------------
Cash 356
- ---------------------------------------------------------------------------------------------------
Interest receivable and other assets 9,480,744
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 67,780,831
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 2,486,473
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,295,456
- ---------------------------------------------------------------------------------------------------
Total assets 712,051,040
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 134,776,687
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,251,732
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,027,305
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,327
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 20
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 141,415
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,280,789
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 5,264,015
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 256,536
- ---------------------------------------------------------------------------------------------------
Written options outstanding at value (premium received $70,864) 1,648
- ---------------------------------------------------------------------------------------------------
Total liabilities 146,002,474
- ---------------------------------------------------------------------------------------------------
Net assets $566,048,566
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $570,679,412
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,643,637)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Note 1) (10,635,319)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, written options and
assets and liabilities in foreign currencies 9,648,110
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $566,048,566
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share
($566,048,566 divided by 65,037,152 shares) $8.70
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30,1995
<S> <C>
Investment Income
- ---------------------------------------------------------------------------------------------------
Interest (net of foreign tax of $373,510) $42,758,208
Expenses:
- ---------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,051,749
- ---------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 731,268
- ---------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 21,697
- ---------------------------------------------------------------------------------------------------
Reports to shareholders 195,325
- ---------------------------------------------------------------------------------------------------
Auditing 91,293
- ---------------------------------------------------------------------------------------------------
Legal 8,837
- ---------------------------------------------------------------------------------------------------
Postage 287,110
- ---------------------------------------------------------------------------------------------------
Administrative services (Note 2) 14,343
- ---------------------------------------------------------------------------------------------------
Exchange listing fees 60,643
- ---------------------------------------------------------------------------------------------------
Registration fees 3,141
- ---------------------------------------------------------------------------------------------------
Other expenses 14,065
- ---------------------------------------------------------------------------------------------------
Total expenses 5,479,471
- ---------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (182,512)
- ---------------------------------------------------------------------------------------------------
Net expenses 5,296,959
- ---------------------------------------------------------------------------------------------------
Net investment income 37,461,249
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 27,019,953
- ---------------------------------------------------------------------------------------------------
Net realized loss on forward currency contracts and translation of
foreign currency (Notes 1 and 3) (7,556,394)
- ---------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 14,899
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of forward currency contracts
and foreign currency translation during the year (2,895,093)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and
written options during the year 25,932,058
- ---------------------------------------------------------------------------------------------------
Net gain on investments 42,515,423
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $79,976,672
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
----------------------
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Increase in net assets
- -----------------------------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income $ 37,461,249 $ 36,746,590
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments, written
options and foreign currency transactions 19,478,458 (39,650,968)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments, written options and assets and
liabilities in foreign currency 23,036,965 (14,966,979)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 79,976,672 (17,871,357)
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- -----------------------------------------------------------------------------------------------------------------------
From net investment income (39,052,373) (25,519,203)
From net realized gain on investments -- (4,319,003)
Return of capital -- (15,925,598)
- -----------------------------------------------------------------------------------------------------------------------
Shares repurchased (Note 4) (467,593) --
- -----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 40,456,706 (63,635,161)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Beginning of year 525,591,860 589,227,021
- -----------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $3,643,637 and $6,034,059,
respectively) $566,048,566 $525,591,860
- -----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- -----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 65,098,252 65,098,252
- -----------------------------------------------------------------------------------------------------------------------
Shares repurchased (61,100) --
- -----------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 65,037,152 65,098,252
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
Financial highlights
(For a share outstanding throughout the period)
Year ended November 30
<CAPTION>
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.07 $9.05 $9.32 $9.21 $9.08
- --------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------
Net investment income .58 .56 .55 .60 .68
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .65 (.84) .21 .28 .34
- --------------------------------------------------------------------------------------------------
Total from investment operations 1.23 (.28) .76 .88 1.02
- --------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------
From net investment income (.60) (.39) (.55) (.60) (.68)
- --------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.04) -- --
- --------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.07) (.44) (.17) (.05)
- --------------------------------------------------------------------------------------------------
Return of capital -- (.24) -- -- (.16)
- --------------------------------------------------------------------------------------------------
Total distributions (.60) (.70) (1.03) (.77) (.89)
- --------------------------------------------------------------------------------------------------
Increase in net asset value from
shares repurchased (c) -- -- -- -- --
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $8.70 $8.07 $9.05 $9.32 $9.21
- --------------------------------------------------------------------------------------------------
Market value, end of period $7.75 $7.25 $8.125 $9.125 $9.125
- --------------------------------------------------------------------------------------------------
Total investment return
at market value (%) (a) 15.58 (2.38) (.01) 8.69 11.80
- --------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $566,049 $525,592 589,227 $601,573 $585,649
- --------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.00 .87 .89 .92 1.01
- --------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 6.85 6.64 5.98 6.51 7.51
- --------------------------------------------------------------------------------------------------
Portfolio turnover (%) 416.86 242.42 303.68 216.24 255.49
- --------------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales
charges
(b) The ratio of expenses to average net assets for the year ended November 30, 1995 includes amounts
paid through brokerage services and expense offset arrangements. Prior period ratios exclude
these amounts. See Note 2.
(c) See Note 4 to financial statements.
</TABLE>
Notes to financial statements
November 30, 1995
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 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.
C) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized gains and losses on foreign currency
transactions arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the period end,
resulting from changes in the exchange rate.
D) 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 Management, Inc. ("Putnam
Management"), 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.
E) 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
102% of the resale price, including accrued interest. Putnam Management is
responsible for determining that the value of these underlying securities is
at all times at least equal to the resale price, including accrued interest.
F) TBA purchase commitments The fund, may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 2.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or high-
grade debt obligations in an amount sufficient to meet the purchase price, or
the fund may enter into offsetting contracts for the forward sale of other
securities it owns. 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 their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded over-the-
counter are valued using prices supplied by dealers.
Forward currency contracts The fund may engage in forward currency contracts,
which are agreements between two parties to buy and sell currencies at a set
price on a future date, to protect against a decline in value relative to the
U.S. dollar of the currencies in which its portfolio securities are
denominated or quoted (or an increase in the value of a currency in which
securities a fund intends to buy are denominated, when a fund holds cash
reserves and short-term investments). The U.S. dollar value of forward
currency contracts is determined using forward currency exchange rates
supplied by a quotation service. 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 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. The fund could be exposed to risk if the
value of the currency changes unfavorably, if the counterparties to the
contracts are unable to meet the terms of their contracts or if the fund is
unable to enter into a closing position.
H) 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. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held and for excise tax
on income and capital gains.
At November 30, 1995, the fund had a capital loss carryover of approximately
$10,854,000 available to offset future capital gains, if any, which will
expire on November 30, 2002.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid
annually. 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 are determined in accordance with
income tax regulations may differ from generally accepted accounting
principles.
These differences include treatment of realized and unrealized gains and
losses on forward foreign currency contracts, losses on wash sale
transactions, paydown, gains and losses on mortgagebacked securities and
dividends payable. 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, 1995, the fund reclassified $3,981,546 to
decrease distributions in excess of net investment income and $1,526,950 to
decrease paid-in-capital, with an increase to accumulated net realized loss of
$2,454,596. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
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, and 0.55% of any amount over $1.5 billion.
The fund reimburses Putnam Management 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 Trustees fee of $1,320 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.
During the year ended November 30, 1995, the fund adopted a Trustee Fee
Deferral Plan (the "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 the fund or in other
Putnam funds until distribution in accordance with the Plan.
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.
For the year ended November 30, 1995, fund expenses were reduced by $182,512
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested the assets
utilized in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Note 3
Purchases and sales of securities
During the year ended November 30, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $418,956,011 and $428,450,254, respectively. Purchases and sales of
U.S. government obligations aggregated $1,757,573,107 and $1,769,918,324,
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:
Contract Amounts Premiums Received
Contracts outstanding
at beginning of year -- --
Options opened 84,146,000 $ 967,792
Options expired (24,184,000) (327,160)
Options closed (43,482,000) (569,768)
----------------------------------------
Written options
outstanding at end of year 16,480,000 $ 70,864
========================================
Note 4
Shares repurchase program
The Trustees have authorized the fund to repurchase up to 3,250,000 of its
shares in the open market. Repurchases will only be made when the fund's
shares are trading at less than net asset value at such times and amounts as
are believed to be in the best interests 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.
For the year ended November 30, 1995, the fund repurchased 61,100 shares for
$467,593 which reflects a discount from net asset value of $59,600 or
approximately 11.31%.
<TABLE>
Selected quarterly data
(Unaudited)
<CAPTION>
Net realized Net increase
Total and unrealized (decrease) in net
Investment Net investment gain (loss) assets resulting Net assets at
income income on investments from operations end of period
- --------------------------------------------------------------------------------------------------------- --------------
Quarter Per Per Per Per Per
Ended Total Share Total Share Total Share Total Share Total Share
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/28/94 $ 9,658,271 $.15 $ 8,376,468 $.13 $ (7,496,765) $(.11) $ 879,703 $ .02 $574,368,277 $8.82
5/31/94 10,370,334 .16 9,094,386 .14 (27,030,125) (.42) (17,935,739) (.28) 545,936,464 8.39
8/31/94 10,443,409 .16 9,255,437 .14 (4,746,051) (.07) 4,509,386 .07 540,681,196 8.31
11/30/94 11,066,280 .17 10,020,299 .15 (15,345,006) (.24) (5,324,707) (.09) 525,591,860 8.07
2/28/95 11,199,913 .17 10,026,658 .15 8,837,178 .14 18,863,836 .29 534,674,367 8.21
5/31/95 10,928,771 .17 9,577,920 .15 25,929,267 .40 35,507,187 .55 560,416,938 8.61
8/31/95 10,891,091 .17 9,320,623 .14 (6,498,439) (.10) 2,822,184 .04 553,474,504 8.50
11/30/95 9,738,433 .15 8,536,048 .14 14,247,417 .21 22,783,465 .35 566,048,566 8.70
</TABLE>
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 term. Such
distributions at times may exceed the current earnings of the fund, resulting
in a return of capital to shareholders.
SHAREHOLDER MEETING
The fall 1996 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.
Results of October 5, 1995 shareholder meeting
An annual meeting of shareholders of the fund was held on October 5, 1995. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes for Votes withheld
Jameson Adkins Baxter 57,980,195 3,119,112
Hans H. Estin 58,016,322 3,082,985
John A Hill 57,982,123 3,117,184
Elizabeth T. Kennan 57,965,743 3,133,564
Lawrence J. Lasser 58,008,608 3,090,699
Robert E. Patterson 58,027,643 3,071,664
Donald S. Perkins 58,003,154 3,096,153
William F. Pounds 57,993,110 3,106,197
George Putnam 57,972,965 3,126,342
George Putnam, III 57,993,923 3,105,384
E. Shapiro 57,908,734 3,190,573
A.J.C. Smith 58,005,471 3,093,836
W. Nicholas Thorndike 58,015,204 3,084,103
A proposal to ratify the selection of Price Waterhouse LLP as auditors for the
fund was approved as follows: 59,068,325 votes for, and 1,351,925 votes
against, with 679,057 abstentions and broker non-votes. A proposal to convert
the Fund from closed-end to open-end status and authorize certain related
amendments to the Agreement and Declaration of Trust: 9,229,832 votes for, and
23,691,762 votes against, with 2,194,063 abstinations. All tabulations have
been rounded to the nearest whole number.
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
Eli Shapiro
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
Neil Powers
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
William N. Shiebler
Vice President
Mark Siegel
Vice President and Fund Manager
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Senior Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
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.
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The Putnam Funds
One Post Office Square
Boston Massachusetts, 02109
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