PUTNAM
INTERMEDIATE
U.S. GOVERNMENT
INCOME FUND
[GRAPHIC OMITTED:
art work]
SEMIANNUAL REPORT
May 31, 1995
[LOGO:
BOSTON - LONDON - TOKYO]
<PAGE>
PERFORMANCE HIGHLIGHTS
o According to Lipper Analytical Services, the fund's 7.92% total return for
class A shares at net asset value for the 12 months ended May 31, 1995,
surpassed 81% of the total returns posted by short-term U.S. government funds
over the same period.*
--------------------------------------------------------------------------
SEMIANNUAL RESULTS AT A GLANCE
--------------------------------------------------------------------------
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
--------------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
6 months ended 5/31/95 7.27% 3.88% 6.95% 3.95%
CLASS A CLASS B CLASS M
SHARE VALUE: NAV POP NAV NAV POP
--------------------------------------------------------------------------
11/30/94 $4.60 $4.75 $4.60 -- --
4/1/95 (commencement
of class M shares) -- -- -- $4.68 $4.78
5/31/95 4.78 4.94 4.78 4.78 4.88
DISTRIBUTIONS: NO. INCOME CAPITAL GAINS TOTAL
--------------------------------------------------------------------------
Class A 6 $0.148837 -- $0.148837
Class B 6 0.134788 -- 0.134788
Class M 2 0.047094 -- 0.047094
CLASS A CLASS B
CURRENT RETURN: NAV POP NAV
--------------------------------------------------------------------------
End of period
Current dividend rate(1) 6.16% 5.96% 5.52%
Current 30-day
SEC yield(2) 4.67 4.51 4.08
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Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 3.25%
maximum sales charge for class A shares and 2.00% for class M shares. CDSC
assumes 3% maximum contingent deferred sales charge. Performance for class M
shares, which commenced operations on 4/1/95, is not shown because of the
brevity of the reporting period. Performance data for periods before 4/10/95
do not reflect current investment policies. (1)Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period. (2)Based
only on investment income, calculated using SEC guidelines.
*Lipper Analytical Services, an independent research organization, ranks funds
according to total-return performance. Their rankings vary over time, and do
not reflect the effects of sales charges. For the period ended 5/31/95, the
fund's class A and class B shares ranked 24 and 51, respectively, out of 129
short-term U.S. government funds for 1-year performance. Past performance is
not indicative of future results. Rankings for other share classes will vary.
While Lipper ranks the fund in its short-term U.S. government fund category,
the fund's duration may be lengthened to the intermediate-term range.
<PAGE>
FROM THE CHAIRMAN
[GRAPHIC OMITTED:
Photo of
George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
Your fund has made an impressive debut under its new name, Putnam Intermediate
U.S. Government Income Fund, which became effective on April 10, 1995. This
change more accurately identifies the fund as one that invests primarily in
intermediate-term U.S. government or government-related securities.
During the first five months of calendar 1995, the fixed-income markets made
considerable progress in recovering from some of the most challenging market
conditions in years. By skillfully identifying, then taking advantage of
opportunities as they presented themselves, Fund Manager Michael Martino
successfully navigated your fund through the unsettled six months ended May 31,
1995.
In the report that follows, he reviews his strategy during the first half of
fiscal 1995 and lays out his plans for the second half.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
July 19, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
MICHAEL MARTINO
The recently renamed Putnam Intermediate U.S. Government Income Fund
generated solid performance in the first six months of fiscal 1995, as the
world's fixed-income markets rebounded convincingly from their 1994
difficulties. However, as various sectors of the U.S. bond market rallied at
different times -- with mortgage-backed securities at first outperforming and
then falling behind Treasury securities -- the need for more flexible
investment allocation requirements for your fund became apparent.
As a result, on April 10, 1995, in conjunction with the name change (from
Putnam Balanced Government Fund), your fund's allocation requirements were
adjusted to allow greater flexibility between bond-market sectors, including
a lower minimum allocation to mortgage-backed securities. We believe the new
requirements will enable us to better capitalize on prevailing bond market
trends. However, the fund's objective and basic investment strategies remain
very much the same.
Due in large part to this added overall flexibility, your fund posted total
returns of 7.27% and 6.95% at net asset value for class A and class B shares,
respectively, for the six-month period ended May 31, 1995. Two specific
changes we made to the portfolio during this period proved particularly
beneficial: a slight lengthening of the portfolio's duration and careful
management of the fund's allocations to mortgage-backed securities and
Treasuries.
o LONGER DURATION POSITIONS FUND FOR APPRECIATION
As long-term Treasury rates declined during the semiannual period, we
lengthened the portfolio's actual duration somewhat. Duration is a measure of
the price sensitivity of a portfolio of bonds
<PAGE>
to changes in interest rates. Like maturity, with which it is often confused,
duration is measured in years.
Extending duration in an environment of falling interest rates often entails
purchasing bonds with longer-term maturities. Typically, these bonds
appreciate in value as long-term rates decline. While such an approach can
work against the fund if interest rates begin to rise again, it proved an
integral contributor to performance over the six-month period just ended.
o EFFECTIVE SECTOR ALLOCATION BOOSTS PERFORMANCE
From the beginning of the semiannual fiscal period (December) through early
April, mortgage-backed securities outperformed Treasuries. For this reason,
and in order to comply with the portfolio's sector allocation requirements at
the time, we kept over 60% of the portfolio invested in fixed-rate mortgage
(FRM) and adjustable-rate mortgage (ARM) securities. During this period, the
fund's FRM holdings -- which included securities issued by the Federal Home
Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage
Association (Fannie Mae), and the Government National Mortgage Association
(Ginnie Mae) -- benefited considerably from declining long-term interest
rates. The performance of this sector was largely responsible for the fund's
solid total return.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION
Black bars White bars
represent 11/30/94 represent 5/31/95
FRMs 54.2% 27.2%
ARMs 28.2% 7.4%
U.S. Treasuries 6.4% 62.2%
Short-term investments 11.1% 3.8%
Caption reads:
Based on percentage of total net assets. Holdings may vary over time.]
<PAGE>
In April, as Treasuries began to outperform mortgage-backed securities, we
took advantage of the increased flexibility afforded by the fund's allocation
requirement changes and shifted a significant portion of assets into
Treasuries. As it turned out, the timing was ideal: our ability to make such
a move at this particular time considerably boosted the portfolio's overall
performance. On May 31, 1995, 62.2% of the portfolio was invested in
Treasuries, and 34.6% in mortgage-backed securities.
Toward the end of the six-month period, Treasuries continued to offer better
investment opportunities than most mortgage-backed securities. At the same
time, mortgage-backed securities began to suffer from an increase in mortgage
prepayments. Prepayments typically accelerate as falling long-term rates
diminish the value of mortgage-backed securities and mortgage holders rush to
refinance. However, of the mortgage-backed securities that remain in the
portfolio, most are classified as "seasoned" securities, which have shorter
average maturities and are typically less prone to prepayment.
o OUTLOOK: ECONOMIC GROWTH SHOULD CONTINUE TO SLOW
As we move into the second half of the fund's fiscal year, we expect that the
U.S. economy's rate of growth will remain below the non inflationary 2.5%
pace targeted by the Federal Reserve. While there is little evidence at the
moment that a recession is on the horizon, the Fed may decide to reduce
short-term interest rates in the coming months to ensure that economic growth
remains stable, although there can be no guarantee that this will occur.
Furthermore, the Fed's interest-rate increases earlier this year have kept
inflation under control, and inflation typically remains subdued as economic
growth slows. An environment such as this -- with low inflation and falling
interest rates -- is typically advantageous for fixed-income markets.
We anticipate that Treasuries will continue to outperform mortgage-backed
securities in the near term, driving the prices of mortgage-backed securities
lower. As a result, we expect that in the coming weeks mortgage-backed
securities will begin to offer better value opportunities. We may increase
the fund's allocation if this occurs.
<PAGE>
[GRAPHIC OMITTED: vertical bar chart MATURITY BREAKDOWN OF TREASURY SECURITIES*
showing (left to right) percentages of 2.66%, 53.05%, 4.09% and 0.00%.
X-axis reads (left to right) 0-3 years, 3-5 years, 5-10 years and 10-30 years.
Y-axis reads (top to bottom) 60%, 50, 40, 30, 20, 10 and 0.
Footnote reads:
*Based on percentage of net assets on 5/31/95. Holdings may vary over time.]
Going forward, we plan to keep approximately two thirds of the portfolio
invested in Treasuries -- with a concentration in short- and
intermediate-maturity issues. We expect the remaining one third of the
portfolio will consist primarily of fixed-rate mortgage-backed securities,
with a small allocation to ARM securities. Using these percentages as guides,
we will capitalize on the enhanced flexibility provided by the portfolio's
revised allocation requirements to emphasize market sectors that offer the
best returns and decrease allocations to sectors that are underperforming.
Overall, we believe the fund now offers risk-averse investors a very
attractive opportunity to seek current income consistent with preservation of
capital.
The views expressed in this report are exclusively those of Putnam Management
and are not meant as investment advice. Although the described holdings were
viewed favorably as of 5/31/95, there is no guarantee the fund will continue
to hold these securities in the future. While U.S. government backing of
individual securities does not insure your principal, which will fluctuate,
it does guarantee that the fund's government-backed holdings will make timely
payments of interest and principal.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods.
Performance should always be considered in light of a fund's investment
strategy. Putnam Intermediate U.S. Government Income Fund is designed for
investors seeking as high a level of current income as is consistent with
preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 5/31/95
LEHMAN BROS.
INTERMEDIATE
CLASS A CLASS B GOVT BOND
NAV POP NAV CDSC INDEX CPI
- ------------------------------------------------------------------------------
6 months 7.27% 3.88% 6.95% 3.95% 8.69% 1.67%
1 year 7.93 4.37 7.51 4.51 9.08 3.19
- ------------------------------------------------------------------------------
Life-of-class 8.64 5.07 7.17 5.25 13.04 6.73
Annual average 3.69 2.18 3.07 2.26 5.39 2.89
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most recent calendar quarter)
CLASS A CLASS B
NAV POP NAV CDSC
- ------------------------------------------------------------------------------
1 year 9.82% 6.16% 9.16% 6.16%
- ------------------------------------------------------------------------------
Life-of-class 10.33 6.85 8.78 6.85
Annual average 4.22 2.82 3.60 2.82
- ------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions. The fund commenced operations for class A and class
B shares on 2/16/93, and for class M shares on 4/1/95. Performance for class M
shares is not shown because of the brevity of the reporting period. Performance
data represent past results and will differ for each share class. Investment
returns and principal value will fluctuate so an investor's shares, when sold,
may be worth more or less than their original cost. Performance data for periods
before 4/10/95 do not reflect current investment policies.
<PAGE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 3.25% sales charge for class A shares and 2.00% for class M
shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 3% maximum during the first year to 1% during
the fourth year. After the fourth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX is composed of all bonds
covered by the Lehman Brothers Government Bond Index with maturities between
one and 9.9 years. The index does not take into account brokerage commissions or
other costs, may include bonds different from those in the fund, and may pose
different risks than the fund. Since the fund's holdings consist largely of
short- and intermediate-term Treasury and agency securities, it is Putnam
Management's opinion that this index is a more appropriate benchmark than the
Lehman Brothers Mortgage-Backed Securities Index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
<PAGE>
THE PUTNAM FUND SELECTOR(TM)
The Putnam Fund Selector shows the many opportunities for investors within every
investment strategy. All investors should first accumulate a base of
conservative, cash-equivalent investments. Then, with the help of your
investment advisor, diversify your portfolio by investing in the Putnam Family
of Funds.
[GRAPHIC OMITTED: a pyramid showing (top to bottom):
PUTNAM GROWTH FUNDS
PUTNAM GROWTH AND INCOME FUNDS
PUTNAM INCOME OR TAX-FREE FUNDS
MOST CONSERVATIVE INVESTMENTS
A two-headed arrow captioned RISK / REWARD is along the left slope.]
<PAGE>
PUTNAM FAMILY OF FUNDS
<TABLE>
<C> <C>
PUTNAM GROWTH FUNDS PUTNAM TAX-FREE INCOME FUNDS
Asia Pacific Growth Fund Intermediate Tax Exempt Fund
Capital Appreciation Fund (1) Municipal Income Fund
Diversified Equity Trust Tax Exempt Income Fund
Europe Growth Fund Tax-Free High Yield Fund
Global Growth Fund Tax-Free Insured Fund
Health Sciences Trust
STATE TAX-FREE INCOME FUNDS (2)
Investors Fund
Arizona, California, Florida, Massachusetts,
Natural Resources Trust Michigan, Minnesota, New Jersey, New York,
Ohio, and Pennsylvania
New Opportunities Fund
OTC Emerging Growth Fund LIFESTAGES(SM) FUNDS
Overseas Growth Fund Putnam Asset Allocation Funds -- three
investment portfolios that spread your money
Vista Fund across a variety of stocks, bonds, and money
market investments to help maximize your return
Voyager Fund and reduce your risk.
The three portfolios:
PUTNAM GROWTH AND INCOME FUNDS
Putnam Asset Allocation: Balanced Portfolio
Balanced Retirement Fund
Putnam Asset Allocation: Conservative Portfolio
Convertible Income-Growth Trust
Putnam Asset Allocation: Growth Portfolio
Equity Income Fund
The George Putnam Fund of Boston MOST CONSERVATIVE INVESTMENTS (3)
The Putnam Fund for Growth and Income PUTNAM MONEY MARKET FUNDS:
Growth and Income Fund II California Tax Exempt Money Market Fund
Utilities Growth and Income Fund Money Market Fund
New York Tax Exempt Money Market Fund
PUTNAM INCOME FUNDS
Tax Exempt Money Market Fund
Adjustable Rate U.S. Government Fund
American Government Income Fund CDS AND SAVINGS ACCOUNTS (4)
Diversified Income Trust (1) Temporarily closed to new investors.
(2) Not available in all states.
Federal Income Trust (3) Relative to above.
(4) Not offered by Putnam Investments.
Global Governmental Income Trust Certificates of deposit offer a fixed rate
of return and may be insured, up to certain
High Yield Advantage Fund limits, by federal/state agencies. Savings
accounts may also be insured up to certain
High Yield Trust limits.
Income Fund Please call your financial advisor or Putnam
at 1-800-225-1581 to obtain a prospectus for
Intermediate U.S. Government Income Fund any Putnam fund. It contains more complete
information, including charges and expenses.
Preferred Income Fund Please read it carefully before you invest
or send money.
U.S. Government Income Trust
</TABLE>
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
May 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.8%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
$ 2,317,163 Federal Home Loan Corp. Adjustable Rate Mortgages (ARMs)
6.845s, November 1, 2018 $ 2,391,747
Federal National Mortgage Association
5,000,000 8.55s, December 10, 2004 5,212,500
1,373,913 8s, May 1, 2013 1,404,826
2,207,455 6 1/2s, with various due date from April 1, 1999
to January 1, 2001 2,197,102
1,910,832 Federal National Mortgage Association ARMs
6.451s, June 1, 2018 1,960,394
Government National Mortgage Association
2,705,403 9s, with various due dates from April 14, 2016 to
July 15, 2021 2,864,217
1,316,736 9s, with various due dates from August 15, 2008 to
May 15, 2009 1,396,561
1,370,367 8 1/4s, with various due dates from October 15, 2006 to
July 15, 2008 1,414,048
4,970,034 8s, with various due dates from March 15, 2023 to
September 15, 2023 5,092,693
67,871 8s, with various due dates from March 15, 2001
to April 15, 2008 70,608
975,408 Government National Mortgage Association ARMs
6 1/2s, October 1, 2024 989,887
U.S. Treasury Notes
2,000,000 8 7/8s, July 15, 1995 2,006,560
6,200,000 6 7/8s, March 31, 2000 6,403,422
7,900,000 6 3/4s, April 30, 2000 8,123,411
28,000,000 6 1/2s, May 15, 2005 28,428,680
- -------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $69,643,558) $69,956,656
- -------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (3.8%)<F1> (cost $2,777,133)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
$ 2,800,000 Federal Home Loan Mortgage Corp. 5.88s due
July 20, 1995 $ 2,777,133
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $72,420,691)<F2> $72,733,789
- -------------------------------------------------------------------------------------------
<FN>
<F1> Percentages are based on net assets of $72,325,491, which correspond to a net asset
value per class A share, class B share, and class M share of $4.78.
<F2> The aggregate identified cost on a tax cost basis is $72,420,691, resulting in gross
unrealized appreciation and depreciation of $761,791 and $448,693, respectively, or
net unrealized appreciation of $313,098.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
- -------------------------------------------------------------------------------------------
<S> <C>
Investments, at value (identified cost $72,420,691) (Note 1) $72,733,789
- -------------------------------------------------------------------------------------------
Cash 76,074
- -------------------------------------------------------------------------------------------
Interest and other receivables 676,069
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 185,101
- -------------------------------------------------------------------------------------------
Unamortized organizational expenses (Note 1) 26,999
- -------------------------------------------------------------------------------------------
TOTAL ASSETS 73,698,032
LIABILITIES
- -------------------------------------------------------------------------------------------
Payable for securities purchased 989,393
- -------------------------------------------------------------------------------------------
Distribution payable to shareholders 77,857
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 65,607
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 108,783
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 174
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 24,818
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 997
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 36,650
- -------------------------------------------------------------------------------------------
Payable for organizational costs (Note 1) 49,893
- -------------------------------------------------------------------------------------------
Other accrued expenses 18,369
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,372,541
- -------------------------------------------------------------------------------------------
NET ASSETS $72,325,491
REPRESENTED BY
- -------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $77,225,620
- -------------------------------------------------------------------------------------------
Distribution in excess of net investment income (403,219)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (4,810,008)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 313,098
- -------------------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES OUTSTANDING $72,325,491
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($50,816,112 divided by 10,634,815 shares) $4.78
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $4.78)* $4.94
- -------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($21,488,215 divided by 4,498,229 shares)+ $4.78
- -------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($21,164 divided by 4,431 shares) $4.78
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $4.78)* $4.88
- -------------------------------------------------------------------------------------------
* On single retail sales of less than $100,000. On sales of $100,000 or more and on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended May 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
INTEREST INCOME $2,640,348
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 219,302
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 44,971
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 4,002
- -------------------------------------------------------------------------------
Reports to shareholders 20,921
- -------------------------------------------------------------------------------
Auditing 9,618
- -------------------------------------------------------------------------------
Legal 6,191
- -------------------------------------------------------------------------------
Postage 4,312
- -------------------------------------------------------------------------------
Administrative services (Note 2) 2,475
- -------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 5,109
- -------------------------------------------------------------------------------
Distribution fees -- class A (Note 2) 64,476
- -------------------------------------------------------------------------------
Distribution fees -- class B (Note 2) 90,406
- -------------------------------------------------------------------------------
Distribution fees -- class M (Note 2) 4
- -------------------------------------------------------------------------------
Registration fees 538
- -------------------------------------------------------------------------------
Other 708
- -------------------------------------------------------------------------------
TOTAL EXPENSES 473,033
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,167,315
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,191,652)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 4,010,197
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 2,818,545
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,985,860
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
MAY 31 NOVEMBER 30
1995* 1994
- -------------------------------------------------------------------------------
DECREASE IN NET ASSETS
- -------------------------------------------------------------------------------
OPERATIONS:
- -------------------------------------------------------------------------------
Net investment income $ 2,167,315 $ 5,116,142
- -------------------------------------------------------------------------------
Net realized loss on investments (1,191,652) (3,902,597)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 4,010,197 (2,920,007)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 4,985,860 (1,706,462)
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
- -------------------------------------------------------------------------------
Net investment income
- -------------------------------------------------------------------------------
Class A (1,652,646) (3,404,487)
- -------------------------------------------------------------------------------
Class B (617,583) (992,855)
- -------------------------------------------------------------------------------
Class M (101) --
- -------------------------------------------------------------------------------
Tax return of capital
- -------------------------------------------------------------------------------
Class A -- (355,268)
- -------------------------------------------------------------------------------
Class B -- (103,607)
- -------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (5,643,765) (33,118,455)
- -------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (2,928,235) (39,681,134)
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of period 75,253,726 114,934,860
- -------------------------------------------------------------------------------
END OF PERIOD (including distributions
in excess of net investment income
of $403,219 and $300,204, respectively) $72,325,491 $ 75,253,726
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
APRIL 1, 1995 SIX FEBRUARY 16, 1993 SIX FEBRUARY 16, 1993
(COMMENCEMENT OF MONTHS (COMMENCEMENT MONTHS (COMMENCEMENT
OPERATIONS) TO ENDED YEAR ENDED OF OPERATIONS) ENDED YEAR ENDED OF OPERATIONS)
MAY 31 MAY 31 NOVEMBER 31 TO NOVEMBER 30 MAY 31 NOVEMBER 30 TO NOVEMBER 30
- ---------------------------------------------------------------------------------------------------------------------------------
1995<F1> 1995<F1> 1994 1993 1995<F1> 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS M CLASS B CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $4.68 $4.60 $4.91 $5.00 $4.60 $4.91 $5.00
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .05 .13 .24<F3> .18<F2><F3> .14 .27<F3> .21<F2><F3>
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .10 .18 (.32) (.08) .19 (.32) (.09)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .15 .31 (.08)<F3> .10<F3> .33 (.05)<F3> .12<F3>
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (.05) (.13) (.21) (.19) (.15) (.24) (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
Tax return of capital <F4> -- -- (.02) -- -- (.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.05) (.13) (.23) (.19) (.15) (26) (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $4.78 $4.78 $4.60 $4.91 $4.78 $4.60 $4.91
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) <F5> 3.16<F6> 6.95<F6> (1.71) 1.95<F6> 7.27<F6> (1.12) 2.44<F6>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $21 $21,488 $21,423 $4,317 $50,816 $53,831 $19,088
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) .11<F6> .86<F6> 1.69<F3> .67<F3><F6> .56<F6> 1.09 1.05<F3><F6>
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .73<F6> 2.75<F6> 4.98<F3> 3.53<F3><F6> 3.05<F6> 5.59 3.13<F3><F6>
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 171.45<F6> 171.45<F6> 351.62 309.80<F6> 171.45<F6> 351.62 309.80<F6>
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Unaudited
<F2> Per share net investment income for the period ended November 30, 1993 has been determined on the basis of the weighted
average number of shares outstanding during the period.
<F3> Reflects an expense limitation in effect during the period February 16, 1993 (commencement of operations) to November 30,
1993. As a result of such limitation, expenses of the fund for the period reflect a reduction of $0.01 per share for class A
and $0.01 per share for class B. For the year ended November 30, 1994 the reduction is less than $0.01 per share for both
class A and class B.
<F4> Distributions from return of capital for the year ended November 30, 1994 have been calculated in accordance with Statement
of Position 93-2 "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of
Capital Distributions by Investment Companies".
<F5> Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
<F6> Not annualized.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1995 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The fund seeks high
current income consistent with preservation of capital, through investments
primarily in U.S. government securities.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 3.25%. Class B shares do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than class A
shares, and are subject to a contingent deferred sales charge, if those shares
are redeemed within four years of purchase. Class M shares commenced operations
on April 10, 1995 and are sold with a maximum front end sales charge of 2.00%
and pay ongoing distribution fees that are lower than class B shares and higher
than class A shares. Expenses of the fund are borne pro-rata by the holders of
both classes of shares, except that each class bears expenses unique to that
class (including the distribution fees applicable to such class). Each votes as
a class only with respect to its own distribution plan or other matters on which
a class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
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 last
reported bid and asked prices. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which approximates
market value, and other investments are stated at fair market value following
procedures approved by the Trustees.
B JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the Securities
and Exchange Commission the fund may transfer uninvested cash balances into a
joint trading account, along with the cash of other registered investment
companies 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.
<PAGE>
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. The fund's Manager is responsible
for determining that the value of these underlying securities is at all times at
least equal to the resale price, including accrued interest.
D SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis.
E FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid imposition
of any excise tax under Section 4982 of the Internal Revenue Code of 1986.
Therefore, no provision has been made for federal taxes on income, capital gains
or unrealized appreciation of securities held and excise tax on income and
capital gains.
At November 30, 1994, the fund had a capital loss carryover of approximately
$3,618,000, which may be available to offset realized gains, if any, to the
extent provided by regulations. Of this amount $297,000 and $3,321,000 will
expire November 30, 2001 and 2002 respectively. In order to provide more level
daily distributions, the fund may at times pay taxable distributions from net
realized short-term gains that could have been retained by the fund and offset
by the capital loss carryover. In such circumstances, the fund would lose the
benefit of the carryover.
F DISTRIBUTIONS TO SHAREHOLDERS Income dividends are recorded daily by the fund
and are distributed monthly. Capital gains distributions, if any, are only
recorded on the ex-dividend date and paid no less frequently than annually.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of GNMA paydowns.
Reclassifications are made to the fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryovers) under
income tax regulations.
G UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in connection
with its organization aggregated $49,893. These expenses are being amortized on
a straight-line basis over a five-year period.
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 for the
quarter. Such fee is based on the following annual rates: 0.65% of the first
$500 million of average net assets, 0.55% of the next $500 million, 0.50% of the
next $500 million, and 0.45% of the next $5 billion, subject to reduction in any
year to the extent that expenses (exclusive of distribution fees, brokerage,
interest and taxes) of the fund exceed 2.5% of the first $30 million of average
net assets, 2% of the next $70 million, and 1.5% of any excess over $100 million
and by the amount of certain brokerage
<PAGE>
commissions and fees (less expenses) received by affiliates of the Manager on
the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $530 or any additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust Company
(PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent
functions are currently provided by Putnam Investor Services, a division of
PFTC. Investor servicing and custodian fees reported in the Statement of
operations for the six months ended May 31, 1995 have been reduced by credits
allowed by PFTC.
The fund has adopted distribution plans (the "Plans") with respect to its class
A, class B and class M shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual
Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services
provided and expenses incurred by it in distributing shares of the fund. The
Trustees have approved payment by the fund at an annual rate of 0.25%, 0.85% and
1.00% of the average net assets attributable to class A, class B and class M
shares, respectively.
For the six months ended May 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $4,431 and $54 from the sale of class A
shares and class M shares, respectively, and $45,668 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of up
to 1% is assessed on certain redemptions of class A shares purchased as part of
an investment of $1 million or more.
NOTE 3
PURCHASES AND SALES OF SECURITIES
Purchases and sales of U.S. government obligations other than short-term
investments aggregated $111,750,334 and $111,431,373, respectively. In
determining the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
NOTE 4
CAPITAL SHARES
At May 31, 1995, there was an unlimited number of shares of beneficial interest
authorized, divided into three classes. Class A, class B and class M capital
shares transactions were as follows:
<PAGE>
SIX MONTHS ENDED MAY 31 YEAR ENDED NOVEMBER 30
1995 1994
- --------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 1,358,669 $ 6,308,816 6,328,904 $ 30,343,192
Shares issued in connection
with reinvestment of
distributions 248,950 1,160,369 644,768 3,091,225
- --------------------------------------------------------------------------------
1,607,619 7,469,185 6,973,672 33,434,417
Shares repurchased (2,668,992) (12,398,139) (14,365,493) (68,320,646)
- --------------------------------------------------------------------------------
NET DECREASE (1,061,373) $(4,928,954) (7,391,821) $(34,886,229)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31 YEAR ENDED NOVEMBER 30
1995 1994
- --------------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 915,048 $4,259,679 3,048,911 $14,623,970
Shares issued in connection
with reinvestment of
distributions 114,164 532,154 174,536 830,767
- --------------------------------------------------------------------------------
1,029,212 4,791,833 3,223,447 15,454,737
Shares repurchased (1,187,096) (5,527,336) (2,884,188) (13,686,963)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) (157,884) $ (735,503) 339,259 $ 1,767,774
- --------------------------------------------------------------------------------
APRIL 1, 1995
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31
1995
- -----------------------------------------------------
CLASS M SHARES AMOUNT
- -----------------------------------------------------
Shares sold 9,179 $43,197
Shares issued in connection
with reinvestment of
distributions 21 103
- -----------------------------------------------------
9,200 43,300
Shares repurchased (4,769) (22,608)
- -----------------------------------------------------
NET INCREASE 4,431 $20,692
- -----------------------------------------------------
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
o CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal every
year since the award's 1990 inception. DALBAR, an independent research firm,
ran more than 10,000 tests of 38 shareholder service components. In every
category, Putnam outperformed the industry standard.
o HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from
a Putnam money market fund or from your checking or savings account.*
o SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or
termination.)
o ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative.
o To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number: 1-800-225-1581.
*Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER OFFICERS
Putnam Investment George Putnam
Management, Inc. President
One Post Office Square
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES
Putnam Mutual Funds Corp. Patricia C. Flaherty
One Post Office Square Senior Vice President
Boston, MA 02109
Lawrence J. Lasser
CUSTODIAN Vice President
Putnam Fiduciary Trust Company
Gordon H. Silver
LEGAL COUNSEL Vice President
Ropes & Gray
Gary N. Coburn
TRUSTEES Vice President
George Putnam, Chairman
Alan J. Bankart
William F. Pounds, Vice Chairman Vice President
Jameson Adkins Baxter Michael Martino
Vice President and Fund Manager
Hans H. Estin
William N. Shiebler
John A. Hill Vice President
Elizabeth T. Kennan Paul M. O'Neil
Vice President
Lawrence J. Lasser
John D. Hughes
Robert E. Patterson Vice President and Treasurer
Donald S. Perkins Beverly Marcus
Clerk and Assistant Treasurer
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
This report is for the information of shareholders of Putnam Intermediate U.S.
Government Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information or to
request a prospectus, call toll free: 1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION; ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY; AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<PAGE>
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