Putnam
Intermediate
Government
Income Trust
SEMIANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "We believe that the fund's portfolio is positioned appropriately
for today's economy and that its strategy of investing in both U.S.
government securities and international government securities will
allow it to continue to take advantage of opportunities in fixed-income
markets around the world."
-- Kenneth J. Taubes, manager
Putnam Intermediate Government Income Trust
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
14 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Global diversification, astute currency strategies, and careful security
selection all contributed to Putnam Intermediate Government Income Trust's
performance during the semiannual period ended May 31, 1997. Supervision
of such a diverse, multinational portfolio requires a depth and breadth
of expertise your fund's management team is equipped to provide.
I am pleased to announce the addition of Kenneth J. Taubes and Gail A.
Attridge to that team. Ken becomes the fund's lead manager and will
oversee the taxable investment-grade sector. He has been managing funds
at Putnam for nearly six years. Before joining Putnam, Ken was employed
by United States Trust Company of Boston, Home Owners Savings Bank, and
Bank of New England, N.A. He has 15 years of investment experience. Gail
came to Putnam in 1993 from Keystone Custodian Funds, prior to which she
was employed by County NatWest Securities Asia and Data Resources/McGraw-
Hill. She has 12 years of investment experience. She will manage the fund's
emerging markets securities.
In the following report, your fund's managers discuss overall results for
the fiscal year's first half, then review prospects for the second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Managers
Kenneth J. Taubes, lead manager
D. William Kohli
Gail S. Attridge
Putnam Intermediate Government Income Trust's ability to seek opportunities in
the U.S. and international fixed-income markets helped cushion the effect, to
some extent, of what proved to be a challenging period for government bonds.
For the six months ended May 31, 1997, your fund recorded a total return of
- -0.87% at net asset value and 2.29% at market price. For more information,
please turn to pages 8 and 9.
*TREASURY YIELDS TAKE THE HIGH ROAD AS RATES RISE
Throughout the first three months of 1997, investors played a waiting game,
trying to anticipate when the Federal Reserve Board would respond to an
overheating U.S. economy. Major indicators supported a diagnosis of robust
economic health. Fourth-quarter 1996 gross domestic product was revised to an
above-trend 3.8%, retail sales soared in January, and lower-than-expected
unemployment figures as well as rising durable goods orders all pointed to
continued strong demand -- with few signs of inflation or wage pressures.
The wait ended on March 25, when the Fed issued a "preemptive strike" with a
quarter-point increase in the target for the federal funds rate, the first
tightening in more than two years. Although the increase was generally
expected, it triggered a substantial equity selloff and pushed the yield of
the 30-year Treasury bond past the 7% mark for the first time since the summer
of 1996. In light of this environment, our strategy was to take advantage of
the relatively higher yields and greater potential price appreciation offered
by mortgage-backed securities in the U.S portion of the fund, and the core
European markets of the international component of the fund.
* MORTGAGES DOMINATE U.S. SECTOR
The U.S. bond market has not been nearly as volatile as the U.S. equity market
in 1997. Interest rates have moved within a fairly narrow range over the past
several months, even as the stock market has swung wildly. U.S. bond
valuations are more attractive today than at any time since 1995. However,
offsetting the positive valuations are the persistent environment of economic
strength, the threat of rising inflation, and a preemptive Fed.
The U.S. government securities sector of the portfolio consists primarily of
mortgage-backed securities and U.S. Treasuries. Throughout the period, we
maintained a relatively heavy weighting of mortgage-backed securities. These
have been offering higher yields and, in our opinion, greater potential for
price appreciation than U.S. Treasury holdings and appear likely to do so for
some time.
Mortgage-backed securities pay more income to investors to compensate for the
risk of prepayment, which is most substantial when interest rates are
declining. As lower rates become available, many homeowners opt to refinance
or prepay their mortgages, forcing investors in those mortgages to reinvest
their money at lower prevailing rates. In February, when we believed
volatility would trend lower, we increased the fund's share of mortgage-backed
bonds with proceeds from the sale of U.S. Treasuries. The added income helped
boost fund performance at a time when bond prices in general were falling.
The emphasis on mortgage-backed securities remains in place as we begin the
second half of the year. However, in February, anticipating that the Fed would
begin to tighten monetary policy, we began reconfiguring our holdings into a
more defensive position -- a "barbell" strategy, which emphasizes the shorter
and longer ends of the yield curve -- in order to shorten the average maturity
of the portfolio. We established this positioning while maintaining the fund's
intermediate focus, limiting the long end of the barbell to 10-year Treasuries
rather than to holdings with longer maturities. Barbell positioning can be
beneficial in a period of rising interest rates. We took the same approach
with the fund's mortgage-backed securities, swapping current-coupon mortgages,
which had performed especially well, for a combination of shorter-duration
high-coupon mortgages and long-term mortgage securities.
[GRAPHIC OMITTED: TOP FIVE HOLDINGS PER SECTOR]
TOP FIVE HOLDINGS PER SECTOR*
U.S. GOVERNMENT OBLIGATIONS
GNMA 7.50%, 2024-2027
GNMA 8.00%, 2023-2027
FNMA 7.50%, 2025-2027
GNMA 7.00%, 2025-2026
FNMA 7.00%, 2023-2027
FOREIGN BONDS
Germany (Federal Republic of) 6.00%, 2007
France Treasury notes 7.00%, 2000
Italy (Government of) bonds 6.25%, 2002
France Treasury notes 5.50%, 2001
United Kingdom Treasury bonds 7.50%, 2006
Footnote reads:
*Based on net assets as of 5/31/97. Portfolio holdings will vary over time.
* STRENGTH OF CORE EUROPEAN MARKETS BOOSTS VALUE OF INTERNATIONAL HOLDINGS
Early in the fiscal year, the fund's international sector profited from
holdings in higher-yielding markets in Europe, such as those in Italy, Spain,
and Sweden. We had focused on bonds in these peripheral regions rather than in
core Europe because of the attractive yields they offered. These countries
have been making significant efforts to rein in fiscal budgets in order to
gain acceptance into the European Monetary Union (EMU), which intends to
create a single currency to be used among member nations. As a result of these
efforts, Italy, Spain, and Sweden made significant reductions in their
inflation levels, which resulted in lower bond yields. As yields declined, the
fund's holdings in these markets benefited from price appreciation.
During the period, we began to reduce the fund's position in peripheral
Europe, taking profits and shifting the portfolio's focus toward core European
markets, such as Germany and France. This positioning was successful, since
the higher-yielding markets later declined, while bonds from core Europe
proved less volatile and delivered strong performance.
* OUTLOOK: A DIVERGENT STRATEGY FOR A RISING-RATE ENVIRONMENT
The bond market continues to hang on almost every new economic statistic for
clues to the Fed's near-term plans. Even though the economic growth rate for
the first quarter of 1997 was revised upward slightly, there are some signs of
slower growth to support the view that policymakers will stand pat when they
meet in July. But with consumer confidence measures near their all-time highs,
consumer spending could speed up again, persuading central bank officials they
need to raise rates once more.
We anticipate strong growth in 1997, bringing about additional Fed tightenings
by year's end. This view is supported by a variety of leading and coincident
indicators. Overseas, we believe that European bond markets are now fairly
valued, and we believe that these markets offer important diversification
benefits.
In this environment, we believe the portfolio is positioned appropriately for
today's economy and that its strategy of investing in both U.S. government
securities and international government securities will allow it to continue
to take advantage of opportunities in fixed-income markets around the world.
PROPOSED MERGER WITH SIMILAR CLOSED-END FUND
After reviewing both the long-term performance for your fund and the current
environment for the securities in which it invests, in response to Putnam
Management's recommendation, the Trustees of your fund have approved a
proposed recommendation to merge the fund into Putnam Master Intermediate
Income Trust, a closed-end fund with similar objectives. Although the basic
strategies of both funds are common, Putnam Master Intermediate Income Trust
offers the advantages of a high-yield sector. Putnam believes that over the
long term, adding a high yield component to your fund will be in the
shareholders' best interest. You will have the opportunity to vote on the
proposed merger in October 1997. You will receive further details in the mail
in the coming weeks.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 5/31/97, 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.
TOTAL RETURN FOR PERIODS ENDED 5/31/97
Market
NAV price
- ------------------------------------------------------------------------------
6 months -0.87% 2.29%
- ------------------------------------------------------------------------------
1 year 7.34 10.02
- ------------------------------------------------------------------------------
5 years 40.67 27.73
Annual average 7.06 5.02
- ------------------------------------------------------------------------------
Life of fund 105.79 73.97
Annual average 8.42 6.40
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/97
Lehman Bros. Lehman Bros. Salomon Bros.
Govt. Mortgage- Non-U.S. Consumer
Intermed. Backed World Govt. Price
Bond Index Securities Index Bond Index Index
- ------------------------------------------------------------------------------
6 months 1.34% 2.19% -4.98% 0.95%
- ------------------------------------------------------------------------------
1 year 7.12 9.32 1.48 2.23
- ------------------------------------------------------------------------------
5 years 36.06 36.92 52.13 14.60
Annual average 6.35 6.49 8.75 2.76
- ------------------------------------------------------------------------------
Life of fund 98.43 115.41 114.38 35.68
Annual average 7.99 8.99 8.93 3.48
- ------------------------------------------------------------------------------
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
6 months ended 5/31/97
- ------------------------------------------------------------------------------
Distribution (number) 6
- ------------------------------------------------------------------------------
Income $0.300
- ------------------------------------------------------------------------------
Total $0.300
- ------------------------------------------------------------------------------
Share value: NAV Market price
- ------------------------------------------------------------------------------
11/30/96 $8.66 $7.625
- ------------------------------------------------------------------------------
05/31/97 8.25 7.500
- ------------------------------------------------------------------------------
Current return (end of period) NAV Market price
- ------------------------------------------------------------------------------
Current dividend rate1 7.27% 8.00%
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV
or Market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
Market
(common shares) NAV price
- ------------------------------------------------------------------------------
6 months 1.15% 1.47%
- ------------------------------------------------------------------------------
1 year 7.34 7.26
- ------------------------------------------------------------------------------
5 years 39.81 28.06
Annual average 6.93 5.07
- ------------------------------------------------------------------------------
Life (6/27/88) 107.112 70.16
Annual average 8.46 6.12
- ------------------------------------------------------------------------------
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.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, divided by
the number of outstanding common 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 of 10 years or greater.
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.
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. 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.
Portfolio of investments owned
May 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (68.4%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (49.6%)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
$ 239,025 Federal Home Loan Mortgage Corp. 6 1/2s,
September 1, 2002 $ 235,344
29,309,000 Federal National Mortgage Association TBA, 7 1/2s,
June 16, 2027 29,189,712
Federal National Mortgage Association
Pass-Through Certificates
45,788,040 7 1/2s, with due dates from May 1, 2025 to
February 1, 2027 45,601,732
35,731,622 7s, with due dates from November 1, 2023 to
April 15, 2027 34,771,183
Government National Mortgage Association
Pass-Through Certificates
51,451,585 8s, with due dates from July 15, 2023 to
February 15, 2027 52,352,691
60,415,914 7 1/2s, with due dates from May 15, 2024 to
February 15, 2027 60,170,611
41,984,504 7s, with due dates from July 15, 2025 to
June 15, 2026 40,842,964
--------------
263,164,237
U.S. Treasury Obligations (18.8%)
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
15,000,000 12 3/8s, May 15, 2004 19,750,800
20,000,000 11 5/8s, November 15, 2004 25,784,400
3,315,000 8 1/8s, 3,687,005
U.S. Treasury Notes
15,020,000 9 1/8s, May 15, 1999 15,813,206
9,819,000 6 1/2s, October 15, 2006 9,699,306
25,055,000 6 1/4s, March 31, 1999 25,090,328
--------------
99,825,045
--------------
Total U.S. Government and Agency Obligations
(cost $366,305,776) $ 362,989,282
FOREIGN GOVERNMENT BONDS AND NOTES (34.2%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
AUD 7,800,000 Australia (Government of) bonds
9 3/4s, 2002 $ 6,633,958
USD 5,387,000 Banco Nacional Comercio Exterior, 8s, 2003 5,144,585
DKK 25,845,000 Denmark (Government of) bonds 8s, 2006 4,390,012
FRF 118,547,000 France Treasury notes 7s, 2000 22,289,305
FRF 120,540,000 France Treasury notes 5 1/2s, 2001 21,596,750
FRF 30,120,000 France Treasury notes 4 1/2s, 1998 5,284,073
DEM 44,220,000 Germany (Federal Republic of) bonds
6s, 2007 26,117,032
ITL 17,445,000 Italy (Government of) bonds 7 3/4s, 2001 10,667,770
ITL 38,085,000 Italy (Government of) bonds 6 1/4s, 2002 22,025,254
ZAR 17,305,000 South Africa (Republic of) bonds
Ser. 150, 12s, 2005 3,374,223
ESP 642,800,000 Spain (Government of) bonds 7.9s, 2002 4,838,600
SEK 37,100,000 Sweden (Government of) bonds Ser. 1039,
5 1/2s, 2002 4,659,482
GBP 10,790,000 United Kingdom Treasury bonds
7 1/2s, 2006 18,044,009
GBP 10,210,000 United Kingdom Treasury bonds 7s, 2002 16,702,636
GBP 6,125,000 United Kingdom Treasury bonds 6s, 1999 9,875,643
--------------
Total Foreign Government Bonds and Notes
(cost $187,241,048) $ 181,643,332
BRADY BONDS (0.7%) * [DIAMOND]
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$1,878,890 Argentina (Republic of) deb. 6.75s, 2005 $ 1,752,065
1,904,760 Venezuela (Government of) deb. Ser. A, 6 3/4s, 2007 1,738,094
--------------
Total Brady Bonds (cost $3,490,159) $ 3,490,159
PURCHASED OPTIONS OUTSTANDING (--%)*
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
- ---------------------------------------------------------------------------------------------------------
9,700,000 U.S. Dollars in exchange for Swiss Francs (Call) June 97/
CHF 1.4555 $ 9,700
9,700,000 U.S. Dollars in exchange for Deutchemarks (Call) June 97/
DEM 1.709 63,050
9,700,000 U.S. Dollars in exchange for Japanese Yen (Call) June 97/
JPY 125.25 970
--------------
Total Purchased Options Outstanding
(cost $396,827) $ 73,720
SHORT-TERM INVESTMENTS (2.3%) * (cost $12,450,810)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$12,447,000 Interest in $950,540,000 joint repurchase agreement
dated May 30,1997 with J.P. Morgan due June 2, 1997
with respect to various U.S. Treasury obligations --
maturity value of $12,452,715 for an effective yield
of 5.51% $ 12,450,810
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $569,880,810) *** $ 560,647,303
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $531,059,286.
*** The aggregate identified cost on a tax basis is $571,415,962,resulting
in gross unrealized appreciation and depreciation of $93,167 and
$10,861,826, respectively, or net unrealized depreciation of $10,768,659.
TBA after the name of a security represents to be announced securities
(Note 1).
[DIAMOND] Brady Bonds are foreign bonds collateralized by the U.S. Government.
The rates are floating and are the current rates at May 31, 1997.
</TABLE>
<TABLE>
<CAPTION>
TBA Sale Commitments Outstanding at May 31, 1997 (Unaudited)
(proceeds receivable $29,134,978)
<S> <C> <C> <C> <C>
Principal Delivery Coupon Market
Amount Month Rate Value
- ----------------------------------------------------------------------------------------
FNMA $29,309,000 June 7.5% $29,189,712
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at May 31, 1997 (Unaudited)
(aggregate face value $164,172,979)
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
Australian Dollars $ 2,353,894 $ 2,416,636 09/17/97 $ (62,742)
British Pounds 5,098,769 5,073,182 06/18/97 25,587
Canadian Dollar 15,062,756 15,077,836 09/17/97 (15,080)
Danish Krone 1,496,182 1,505,906 09/17/97 (9,724)
Deutschemarks 65,942,655 66,031,005 06/18/97 (88,350)
Japanese Yen 53,491,520 51,473,488 06/18/97 2,018,032
New Zealand Dollar 80,310 80,072 06/18/97 238
Spanish Peseta 4,976,203 5,022,702 09/17/97 (46,499)
Swedish Krona 4,581,294 4,705,836 09/17/97 (124,542)
Swiss Franc 12,758,429 12,786,316 09/17/97 (27,887)
- ----------------------------------------------------------------------------------------
$ 1,669,033
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31, 1997 (Unaudited)
(aggregate face value $138,535,289)
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
Australian Dollars $ 5,015,008 $ 5,146,044 09/17/97 $ 131,036
British Pounds 39,400,400 39,240,248 09/17/97 (160,152)
Deutschemarks 33,512,542 33,550,625 06/18/97 38,083
French Franc 24,446,976 24,711,825 09/17/97 264,849
Italian Lira 16,080,607 16,308,899 09/17/97 228,292
Japanese Yen 5,977,708 5,669,725 06/18/97 (307,983)
Swedish Krona 3,674,500 3,776,705 09/17/97 102,205
Swiss Franc 10,114,090 10,131,218 09/17/97 17,128
- ----------------------------------------------------------------------------------------
$ 313,458
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $569,880,810) (Note 1) $560,647,303
- ---------------------------------------------------------------------------------------------------
Cash 727
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 6,903,508
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 42,733,592
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 3,096,264
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 2,447,128
- ---------------------------------------------------------------------------------------------------
Total assets 615,828,522
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,220,186
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 44,982,477
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 977,880
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 90,862
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,181
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,944
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,113,773
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 5,136,726
- ---------------------------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable $29,134,978) 29,189,712
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 41,495
- ---------------------------------------------------------------------------------------------------
Total liabilities 84,769,236
- ---------------------------------------------------------------------------------------------------
Net assets $531,059,286
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $560,513,880
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,914,643)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment and
foreign currency transactions (Note 1) (19,148,255)
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (7,391,696)
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $531,059,286
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($531,059,286 divided by
64,333,052 shares) $8.25
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1997 (Unaudited)
<S> <C>
Interest income: $ 18,524,224
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,989,531
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 326,347
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,034
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,767
- --------------------------------------------------------------------------------------------------
Reports to shareholders 16,857
- --------------------------------------------------------------------------------------------------
Auditing 16,552
- --------------------------------------------------------------------------------------------------
Postage 41,770
- --------------------------------------------------------------------------------------------------
Exchange listing fees 23,027
- --------------------------------------------------------------------------------------------------
Other 10,353
- --------------------------------------------------------------------------------------------------
Total expenses 2,442,238
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (40,677)
- --------------------------------------------------------------------------------------------------
Net expenses 2,401,561
- --------------------------------------------------------------------------------------------------
Net investment income 16,122,663
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (9,899,393)
- --------------------------------------------------------------------------------------------------
Net realized loss on forward currency transactions (3,013,517)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 5,642,532
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments,
written options, and TBA sale commitments during the period (15,585,432)
- --------------------------------------------------------------------------------------------------
Net loss on investments (22,855,810)
- --------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (6,733,147)
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1997* 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Decrease in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 16,122,663 $ 34,846,381
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (12,912,910) 7,561,592
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (9,942,900) (7,096,906)
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (6,733,147) 35,311,067
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (19,316,327) (38,008,000)
In excess of net investment income -- (959,831)
Shares repurchased (Note 4) (2,028,164) (3,254,878)
- ----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets (28,077,638) (6,911,642)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 559,136,924 566,048,566
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net investment
income of $2,914,643 and $279,021, respectively) $531,059,286 $559,136,924
- ----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 64,600,552 65,037,152
- ----------------------------------------------------------------------------------------------------------------------
Shares repurchased (Note 4) (267,500) (436,600)
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 64,333,052 64,600,552
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the year)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
(Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $8.66 $8.70 $8.07 $9.05 $9.32 $9.21
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .25 .54 .58 .56 .55 .60
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.36) .01 .65 (.84) .21 .28
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.11) .55 1.23 (.28) .76 .88
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.30) (.59) (.60) (.39) (.55) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.01) -- -- (.04) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.07) (.44) (.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.24) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.30) (.60) (.60) (.70) (1.03) (.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net asset value
from shares repurchased (c) -- .01 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year $8.25 $8.66 $8.70 $8.07 $9.05 $9.32
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of year $7.500 $7.625 $7.750 $7.250 $8.125 $9.125
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 2.29 * 6.44 15.58 (2.38) (.01) 8.69
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Net assets, end of year
(in thousands) $531,059 * $559,137 $566,049 $525,592 $589,227 $601,573
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Ratio of expenses to
average net assets (%)(b) .45 * .90 1.00 .87 .89 .92
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Ratio of net investment income
to average net assets (%) 3.00 * 6.31 6.85 6.64 5.98 6.51
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Portfolio turnover (%) 162.70 * 326.92 416.86 242.42 303.68 216.24
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* Not annualized.
(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 and thereafter,
includes amounts paid through expense offest arracngements. Prior period ratios exclude these
amounts. (Note 2).
(c) See (Note 4) to the financial statements.
</TABLE>
Notes to financial statements
May 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Intermediate Government Income Trust (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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. 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) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
E) 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 appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the value
of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F) 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 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.
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.
H) 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 1.0% 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. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by a 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 underlying
security. If the fund delivers securities under the commitment, the fund
realizes a gain or a loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
J) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At November 30, 1996, the fund had a capital loss carryover of approximately
$4,700,000 available to offset future net capital gain, if any, which will
expire on November 30, 2002.
K) Distributions to shareholders Distributions to shareholders from net
investment income 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 to be distributed are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment advisory
services, is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.75 % 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 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.
Custodial functions for the fund's assets 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 six months ended May 31, 1997, fund expenses were reduced by $40,677
under expense offset arrangements with PFTC. Investor servicing and custodian
fees reported in the Statement of operations exclude these credits. The fund
could have invested a portion of the assets utilized in connection with the
expense offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the fund receive an annual Trustees fee of $900 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
The fund 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 certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $358,916,854 and
$342,286,085, respectively. Purchases and sales of U.S. government obligations
aggregated $498,523,128 and $497,208,998, respectively. In determining the net
gain or loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Share Repurchase Program
The Trustees 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 and at 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.
For the period ended May 31, 1997, the fund repurchased 267,500 shares for
$2,028,164, which reflects a discount from net asset value of $241,931 or
10.64%. As of May 31, 1997, 765,200 shares had been repurchased since the
inception of the program.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Kenneth J. Taubes
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Gail S. Attridge
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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U.S. Postage
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Putnam
Investments
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34402-076 7/97
