Putnam
Intermediate
U.S.
Government
Income Fund
SEMIANNUAL REPORT
May 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* According to Lipper Analytical Services, Putnam Intermediate U.S.
Government Income Fund's class A share total return ranked 10 out of 91
short intermediate U.S. government funds for the 12 months ended June
30, 1996, placing the fund in the top 11% in this category.*
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
13 Financial statements
*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 periods ended
6/30/96: the fund's class A shares ranked 9 out of 56 short intermediate
U.S. government funds for 3-year performance; class B shares ranked 20
out of 91 and 26 out of 56 funds for 1- and 3-year performance,
respectively; class M shares ranked 8 out of 91 funds for 1-year
performance. Class M shares were not ranked over longer periods.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The ability to maintain an even keel when the water becomes rough is the
mark of an experienced sailor. Maintaining portfolio stability in a
volatile bond market suggests similar seasoning. We are pleased to
report that Putnam Intermediate U.S. Government Income Fund, with
Michael Martino at the helm, was among the handful of bond funds to
weather this spring's bond market turbulence with equanimity.
During the semiannual period that ended on May 31, 1996, Mike devoted a
lot of attention to adjusting the portfolio's duration and shifting the
asset mix in response to unfolding events. At the same time, he kept his
eye on the horizon as he positioned the fund to take advantage of what
he believes will be opportunities arising over the months ahead.
In the report that follows, Mike provides details of his strategy thus
far in fiscal 1996 and discusses prospects for the fiscal year's second
half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
July 17, 1996
Report from the Fund Manager
Michael Martino
During 1995, bond funds largely demonstrated that they could perform
well amid a rallying market. So far in 1996, however, far fewer have met
the more difficult task of remaining stable as bond markets have
faltered. One of the few to maintain its composure is Putnam
Intermediate U.S. Government Income Fund. Over the six-month period
ended May 31, 1996, careful management of your fund's exposure to
interest-rate changes and prudent allocation among market sectors
enabled it to stand its ground as the market retreated. As a result,
total return numbers for class A shares at net asset value outperformed
the Lehman Brothers Intermediate Government Bond Index, the fund's
benchmark. Complete performance information appears on pages 8 and 9.
* DURATION MANAGEMENT PROVES KEY TO STABILITY
The most significant contribution to your fund's performance over the
past six months came from our management of the portfolio's duration.
Duration is a measure of the price sensitivity of a portfolio of bonds
to changes in interest rates. Like maturity, with which it is often
confused, duration is measured in years.
Because bond prices rise as interest rates fall, a longer duration gives
the fund the potential to derive greater benefit when long-term rates
are in decline. Through the first few months of the fiscal period, we
kept the portfolio's duration relatively long, seeking to enhance the
fund's value as long-term interest rates continued to decline. Of
course, a longer duration can have a negative impact on the fund; when
rates rise bond prices fall and a longer duration can magnify the fund's
decline.
In February of this year, as economic growth picked up steam and 1995's
bond-market rally showed signs of slowing, we began to shorten your
portfolio's duration. Our goal was to reduce declines in the portfolio's
value as bond prices declined. By shifting much of the fund's Treasury
holdings into bonds with maturities of two and three years, we were able
to prevent a substantial decline in the value of the portfolio.
* FUND BENEFITS AS MORTGAGE-BACKED SECURITIES STRENGTHEN
At the outset of the fund's fiscal year last December, mortgage-backed
securities had lagged Treasuries for several months. This
underperformance was due primarily to accelerating prepayments, the
result of increased refinancing among mortgage holders as long-term
interest rates declined. However, this trend gradually changed direction
early in calendar 1996. As interest rates began to climb in January,
refinancing no longer offered a significant advantage to mortgage
holders and prepayment activity began to slow.
Your fund began the fiscal year with slightly more than 20% of the
portfolio allocated to mortgage-backed securities. These holdings
consisted primarily of fixed-rate mortgage securities (FRMs), with a
small allocation to adjustable-rate mortgage securities (ARMs). The
portfolio's FRM holdings included bonds 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). FRMs typically offer higher yields than
Treasuries -- in the area of a full percentage point more -- and were
instrumental in helping the fund maintain its value as the bond market
struggled during the period. As the bond-market rally waned, we
increased your fund's combined FRM and ARM holdings to roughly 30% of
the portfolio to take advantage of their improved performance relative
to Treasuries.
[GRAPHIC OMITTED: vertical bar chart PORTFOLIO COMPOSITION*]
11/30/95 5/31/96
- ------------------------------------------------------
FRMs 16.5% 9.1%
ARMs 4.6% 1.8%
U.S. Treasuries 64.9% 77.0%
Short-term investments 13.7% 10.0%
Footnote reads:
*Based on percentage of total net assets. Holdings will vary over time.
By the end of April, the rally among mortgage-backed securities had
improved demand for these bonds considerably, driving their prices
higher. Higher prices, in turn, reduced demand for these securities
somewhat, enabling Treasuries to regain some of the ground they had lost
earlier in the year. In May, as mortgage-backed securities prices rose,
we took advantage of the resulting profit opportunities by selling a
portion of the portfolio's FRM and ARM holdings and again emphasizing
Treasury securities.
* OUTLOOK: BONDS MAY REMAIN STABLE DESPITE STURDY ECONOMIC GROWTH
At the beginning of 1996, the consensus among market observers called
for slowing economic growth and continued strength in domestic bond
markets. However, over the past several months, economic indicators have
provided convincing evidence that the U.S. economy is again growing at
an above-average pace. The combination of lower-than-expected
unemployment, increases in commodity and oil prices, and a breakdown in
federal budget talks in recent months conspired to boost economic growth
and interrupt the recent bond-market rally.
The widely held outlook for the coming few months is one of strong
economic growth. But this scenario doesn't necessarily guarantee a rough
ride for bond holders. Because economists and investors alike foresee
continued growth, the bond market has, to some extent, already taken
this expected growth into account. This means that a portion of the
yield increases (and corresponding price declines) we've experienced
recently reflects assumptions about the future. While there can be no
guarantees, this may suggest only modest bond-market declines if
economic growth is in line with expectations. On the other hand, if
growth proves to be slower than expected, the market may compensate for
its earlier pessimism, and bond values may again start to improve.
We believe that economic growth will begin to settle down later this
year, although there can be no assurances. To prepare your fund for such
a development, we recently lengthened the portfolio's duration to enable
the fund to benefit if the bond market improves. Of course, this
approach entails some risk; substantial increases in interest rates
could adversely affect the fund.
In light of the currently high prices among mortgage-backed securities,
demand for these securities may continue to subside, and prices may
return to attractive levels. If these events occur, we may increase the
portfolio's allocation to FRMs. Overall, we will continue to emphasize
intermediate-term bonds in an effort to minimize interest-rate risk
while keeping the fund prepared to benefit from market rallies.
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 5/31/96, 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.
[GRAPHIC OMITTED: vertical bar chart MATURITY OVERVIEW OF TREASURY
SECURITIES*]
0-3 years 10.5%
3-5 years 41.1%
5-10 years 25.4%
10-30 years 0.0%
Footnote reads:
* Based on percentage of total net assets as of 5/31/96. Holdings will
vary over time.
Perforamnce summary
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.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 5/31/96
Class A Class B Class M
(inception date) (2/16/93) (2/16/93) (4/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 0.14% -3.21% -0.16% -3.08% -0.15% -2.13%
- ------------------------------------------------------------------------
1 year 6.28 2.84 5.65 2.65 6.12 3.94
- ------------------------------------------------------------------------
Life of class 15.47 11.68 13.22 12.26 9.47 7.17
Annual average 4.47 3.41 3.85 3.58 8.11 6.16
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/96
Lehman Bros.
Intermediate
Govt. Bond Consumer
Index Price Index
- ------------------------------------------------------------------------
6 months -0.04% 1.95%
- ------------------------------------------------------------------------
1 year 4.53 2.89
- ------------------------------------------------------------------------
Life of class A & B 16.45 9.82
Annual average 4.79 2.89
- ------------------------------------------------------------------------
Life of class M 8.73 3.44
Annual average 7.42 2.95
- ------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions. Performance data represent past
results and will differ for each share class. Investment returns and net
asset value will fluctuate so an investor's shares, when sold, may be
worth more or less than their original cost. POP assumes 3.25% maximum
sales charge for class A shares and 2.00% for class M shares. CDSC for
class B shares assumes 3.00% maximum contingent deferred sales charge.
Performance data for periods before 4/10/95 do not reflect current
investment policies.
TOTAL RETURN FOR PERIODS ENDED 6/30/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months -0.28% -3.59% -0.58% -3.48% -0.36% -2.32%
- ------------------------------------------------------------------------
1 year 5.58 2.19 4.96 1.98 5.63 3.49
- ------------------------------------------------------------------------
Life of class 16.50 12.68 14.18 13.22 10.66 8.34
Annual average 4.64 3.60 4.01 3.75 8.44 6.62
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and net asset value 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 5/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------
Income $0.147839 $0.133119 $0.144060
- ------------------------------------------------------------------------
Total $0.147839 $0.133119 $0.144060
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
11/30/95 $4.92 $5.09 $4.92 $4.93 $5.03
- ------------------------------------------------------------------------
5/31/96 4.78 4.94 4.78 4.78 4.88
- ------------------------------------------------------------------------
Current return (end of period) NAV POP NAV NAV POP
- ------------------------------------------------------------------------
Current dividend rate1 5.79% 5.60% 5.19% 5.64% 5.52%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 4.93 4.77 4.32 4.78 4.68
- ------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
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 sixth year. After the sixth 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 or 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. It is not
possible to invest directly in an index.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
International New Opportunities Fund
Investors Fund
Natural Resources Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments to help maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS+
Putnam money market funds:
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of deposit offer a
fixed rate of return and may be insured up to certain limits by
federal/state agencies. Savings accounts may also be insured up to
certain limits. Please call your financial advisor or Putnam at 1-800-
225-1581 to obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Please read it
carefully before you invest or send money.
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31,1996 (Unaudited)
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (87.9%)*
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (10.9%)
- ---------------------------------------------------------------------------------------------------------------
Federal Home Loan Corp. Adjustable Rate Mortgages (ARMs)
$1,726,437 7.85s, November 18, 2018 $1,777,160
Federal National Mortgage Association
1,013,935 8s, May 1, 2013 1,019,005
1,559,203 7.276s, June 1, 2018 1,595,019
1,858,505 6 1/2s, Balloon, with various due dates from April 1, 1999 to January 1, 2001 1,813,774
4,529,812 Government National Mortgage Association 8s,
with various due dates from March 15, 2023 to September 15, 2023 4,577,923
------------
10,782,881
U.S. Treasury Obligations (77.0%)
- ---------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
5,000,000 8 1/2s, February 15, 2000 5,314,050
10,000,000 8 1/8s, February 15, 1998 10,303,100
10,000,000 8s, May 15, 2001 10,562,500
25,000,000 6 7/8s, May 15, 2006 25,039,000
25,000,000 6 1/4s, April 30, 2001 24,578,000
------------
75,796,650
------------
Total U.S. Government and Agency Obligations (cost $88,629,745) $86,579,531
SHORT-TERM INVESTMENTS (10.0%) * (cost $9,889,453)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
$9,888,000 Interest in $530,273,000 joint repurchase agreement dated May 31, 1996 with
Morgan Stanley & Co., Inc. due June 3, 1996 with respect to various
U.S. Treasury obligations-maturity value of $9,892,359
for an effective yield of 5.29%. $9,889,453
- ---------------------------------------------------------------------------------------------------------------
Total Investments (cost $98,519,198)*** $96,468,984
- ---------------------------------------------------------------------------------------------------------------
* Percentages are based on net assets of $98,490,676.
*** The aggregate identified cost on a tax cost basis is $98,519,198, resulting in gross unrealized appreciation
and depreciation of $19,248 and $2,069,462, respectively, or net unrealized appreciation of $2,050,214.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1996 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $98,519,198) (Note 1) $96,468,984
- -----------------------------------------------------------------------------------------------------------------
Cash 985
- -----------------------------------------------------------------------------------------------------------------
Interest receivable 684,812
- -----------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,911,153
- -----------------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 17,137
- -----------------------------------------------------------------------------------------------------------------
Total assets 99,083,071
Liabilities
- -----------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 108,463
- -----------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 210,735
- -----------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 138,947
- -----------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 27,398
- -----------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 209
- -----------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 855
- -----------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 47,798
- -----------------------------------------------------------------------------------------------------------------
Payable for organizational expenses (Note 1) 34,973
- -----------------------------------------------------------------------------------------------------------------
Other accrued expenses 23,017
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 592,395
- -----------------------------------------------------------------------------------------------------------------
Net assets $98,490,676
Represented by
- -----------------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $103,295,325
- -----------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (523,524)
- -----------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,230,911)
- -----------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,050,214)
- -----------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $98,490,676
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares ($68,717,357 divided by 14,384,409 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 ($27,235,886 divided by 5,702,460 shares) ** $4.78
- -----------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares ($2,537,433 divided by 530,648 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.
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1996 (Unaudited)
<S> <C>
Interest income: $2,960,831
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) $266,496
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 66,234
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 3,870
- -------------------------------------------------------------------------------
Administrative services (Note 2) 2,521
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 76,655
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 107,816
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,084
- -------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 4,945
- -------------------------------------------------------------------------------
Reports to shareholders 9,093
- -------------------------------------------------------------------------------
Auditing 16,500
- -------------------------------------------------------------------------------
Legal 2,928
- -------------------------------------------------------------------------------
Postage 3,493
- -------------------------------------------------------------------------------
Registration fees 6,561
- -------------------------------------------------------------------------------
Other expenses 179
- -------------------------------------------------------------------------------
Total expenses 571,375
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (23,156)
- -------------------------------------------------------------------------------
Net expenses 548,219
- -------------------------------------------------------------------------------
Net investment income 2,412,612
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 923,920
- -------------------------------------------------------------------------------
Net unrealized depreciation on investments (3,490,867)
- -------------------------------------------------------------------------------
Net loss on investments (2,566,947)
- -------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (154,335)
- -------------------------------------------------------------------------------
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
1996* 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Increase in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income $2,412,612 $4,191,045
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments 923,920 259,045
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (3,490,867) 5,137,752
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (154,335) 9,587,842
- --------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income
- --------------------------------------------------------------------------------------------------------
Class A (1,842,001) (3,210,923)
- --------------------------------------------------------------------------------------------------------
Class B (687,545) (1,221,731)
- --------------------------------------------------------------------------------------------------------
Class M (58,775) (17,436)
In excess of net investment income
- --------------------------------------------------------------------------------------------------------
Class A -- (34,353)
- --------------------------------------------------------------------------------------------------------
Class B -- (13,071)
- --------------------------------------------------------------------------------------------------------
Class M -- (187)
- --------------------------------------------------------------------------------------------------------
From return of capital
- --------------------------------------------------------------------------------------------------------
Class A -- (82,490)
- --------------------------------------------------------------------------------------------------------
Class B -- (31,387)
- --------------------------------------------------------------------------------------------------------
Class M -- (448)
- --------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 19,925,226 1,078,564
- --------------------------------------------------------------------------------------------------------
Total increase in net assets 17,182,570 6,054,380
- --------------------------------------------------------------------------------------------------------
Net assets
- --------------------------------------------------------------------------------------------------------
Beginning of period 81,308,106 75,253,726
- --------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $523,524 and $347,815 respectively) $98,490,676 $81,308,106
- --------------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout the period)
For the period
April 1, 1995
Six months (commencement Six months
ended of operations) ended
May 31 to November 30 May 31
- ----------------------------------------------------------------------------------------------------------------------
1996 * 1995 1996 *
- ----------------------------------------------------------------------------------------------------------------------
Class M
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $4.93 $4.68 $4.92
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .14 .12 (a) .13
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.15) .32 (.14)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .44 (.01)
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (.14) (.18) (.13)
- ----------------------------------------------------------------------------------------------------------------------
Return of capital -- (.01) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.19) (.13)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.78 $4.93 $4.78
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(c) (.15)(d) 9.63 (d) (.16)(d)
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,537 $1,058 $27,236
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(e) .61 (d) .87 (d) .86 (d)
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.68 (d) 3.37 (d) 2.51 (d)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 211.40 (d) 383.88 211.40 (d)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
For the period
February 16, 1993
(commencement
Year ended of operations)
November 30 to November 30
- ----------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
Class B
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $4.60 $4.91 $5.00
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .24 .24 (b) .18 (a)(b)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .35 (.32) (.08)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .59 (.08)(b) .10 (b)
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (.26) (.21) (.19)
- ----------------------------------------------------------------------------------------------------------------------
Return of capital (.01) (.02) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.23) (.19)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.92 $4.60 $4.91
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(c) 13.17 (1.71) 1.95 (d)
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $23,201 $21,243 $4,317
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(e) 1.81 1.69 (b) .67 (b)(d)
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.17 4.98 (b) 3.53 (b)(d)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 383.88 351.62 309.80
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
Six months
ended
May 31 Year ended November 30
- ----------------------------------------------------------------------------------------------------------------------
1996 * 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Class A
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $4.92 $4.60 $4.91
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .14 .27 .27 (b)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.13) .35 (.32)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .62 (.05)(b)
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (.15) (.29) (.24)
- ----------------------------------------------------------------------------------------------------------------------
Return of capital -- (.01) (.02)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.30) (.26)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.78 $4.92 $4.60
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(c) .14 (d) 13.85 (1.12)
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $68,717 $57,049 $53,831
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(e) .56 (d) 1.20 1.09
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.81 (d) 5.78 5.59
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 211.40 (d) 383.88 351.62
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
For the period
February 16, 1993
(commencement
of operations)
to November 30
- ---------------------------------------------------------------------------------
1993
- ---------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $5.00
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income .21 (a)(b)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.09)
- ---------------------------------------------------------------------------------
Total from investment operations .12 (b)
- ---------------------------------------------------------------------------------
Distributions to shareholders from:
- ---------------------------------------------------------------------------------
Net investment income (.21)
- ---------------------------------------------------------------------------------
Return of capital --
- ---------------------------------------------------------------------------------
Total distributions (.21)
- ---------------------------------------------------------------------------------
Net asset value, end of period $4.91
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%)(c) 2.44 (d)
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $19,088
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(e) 1.05 (b)(d)
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.13 (b)(d)
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 309.08
- ---------------------------------------------------------------------------------
* Unaudited
(a) Per share net investment income for the periods ended November 30,
1993, for class A and class B, and November 30, 1995, for class
M, have been determined on the basis of the weighted average
number of shares outstanding during the periods.
(b) Reflects an expense limitation in effect during the period. (See Note 2).
As a result of such limitation, expenses for the fund reflect a reduction
of approximately $0.01 per share for the period ended November 30, 1993.
Expenses for the period ended November 30, 1994 relfect a reduction of less
than $0.01 per share for class A and class B, respectively.
(c) Total investment return assumes dividend reinvestment and does not relflect
the effect of sales charge.
(d) Not annualized
(e) The ratio of expenses to average net assets for the periods ended November 30,
1995 and thereafter, includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts (See Note 2).
</TABLE>
Notes to financial statements
May 31, 1996 (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,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within four years of purchase.
Class M shares are sold with a maximum front-end sales charge of 2.00%
and pay an ongoing distribution fee that is lower than class B shares
and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if 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 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, 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.
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) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At November 30, 1995, the fund had a capital loss carryover of
approximately $3,155,000 available to offset future net capital gain, if
any, which will expire on November 30, 2002.
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain distributions if any,
are recorded on the ex-dividend date and paid annually. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $49,893. These expenses are being amortized
on a straight-line basis over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
Note 2
Management fee,
administrative services
and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.60% of the
first $1 billion of average net assets, 0.50% of the next $500 million,
0.45% of any amount over $1.5 billion subject, under current law, to
reduction in any year by the amount of certain brokerage commissions and
fees (less expenses) received by affiliates of Putnam Management on the
fund's portfolio transactions.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $530 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 invested in
certain Putnam funds until distribution in accordance with the Plan.
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, 1996, fund expenses were reduced by
$23,156 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.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to .35%, .85%
and 1.00% of the average net assets attributable to class A, class B and
class M shares, respectively. The Trustees have approved payment by the
fund at an annual rate of .25%, .85% and .40% of the average net assets
attributable to class A, class B and class M shares, respectively.
For the six months ended May 31, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $32,536 and $2,798 from the
sale of class A and class M shares, respectively and $21,436 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended May 31, 1996, Putnam Mutual
Funds Corp., acting as underwriter received $634 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1996, purchases and sales of U.S.
government and agency obligations other than short-term investments
aggregated $191,781,165 and $172,626,607, 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, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 7,546,942 $ 36,694,607
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 272,614 1,330,895
- ----------------------------------------------------
7,819,556 38,025,502
Shares
repurchased (5,028,981) (24,479,287)
- ----------------------------------------------------
Net increase 2,790,575 $ 13,546,215
- ----------------------------------------------------
Year ended
November 30, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 3,635,834 $ 17,320,323
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 426,252 2,016,383
- ----------------------------------------------------
4,062,086 19,336,706
Shares
repurchased (4,164,440) (19,624,855)
- ----------------------------------------------------
Net decrease (102,354) $ (288,149)
- ----------------------------------------------------
Six months ended
May 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 2,078,440 $10,136,776
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 127,398 622,050
- ----------------------------------------------------
2,205,838 10,758,826
Shares
repurchased (1,219,297) (5,937,837)
- ----------------------------------------------------
Net increase 986,541 $4,820,989
- ----------------------------------------------------
Year ended
November 30, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 2,532,117 $12,093,732
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 198,942 941,425
- ----------------------------------------------------
2,731,059 13,035,157
Shares
repurchased (2,671,253) (12,701,553)
- ----------------------------------------------------
Net increase 59,806 $333,604
- ----------------------------------------------------
Six months ended
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 598,546 $ 2,931,408
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,944 53,341
- ----------------------------------------------------
609,490 2,984,749
Shares
repurchased (293,656) (1,426,727)
- ----------------------------------------------------
Net increase 315,834 $ 1,558,022
- ----------------------------------------------------
April 1, 1995
(commencement of
operations) to
November 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 273,507 $1,318,280
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,194 10,635
- ----------------------------------------------------
275,701 1,328,915
Shares
repurchased (60,887) (295,806)
- ----------------------------------------------------
Net increase 214,814 $1,033,109
- ----------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* 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.*
* 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.)
* 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.
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.
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
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Alan Bankart
Vice President
Michael Martino
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
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- -------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- -------------
25863-398/428/674 7/96
