Putnam
Intermediate
U.S. Government
Income Fund
ANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Reflecting the successful tenure of Fund Manager Michael Martino since
taking over the fund in July 1994, Putnam Intermediate U.S. Government
Income Fund's cumulative total return for class A shares over the three
years ended December 31, 1996, placed in the top 10% -- or 6th out of 63
- -- short-intermediate U.S. government funds tracked by Lipper Analytical
Services.*
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
15 Financial statements
25 Results of October 31, 1996, shareholder meeting
* Lipper rankings are based on total return performance, vary over time,
and do not reflect the effects of sales charges. The fund's class A,
class B, and class M shares were ranked 34, 54, and 40, respectively,
out of 89 short-intermediate U.S. government funds for 1-year
performance through 12/31/96. The fund's class B shares were ranked 15
out of 63 short-intermediate U.S. government funds for 3-year
performance through 12/31/96. Past performance is not indicative of
future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Putnam Intermediate U.S. Government Income Fund began and ended fiscal
1996 as the bond market was enjoying periods of strength. The
intervening months, however, were marked by volatility borne of
uncertainty -- largely relating to the presidential election, the state
of the economy, and the Federal Reserve Board's policy regarding
interest rates.
During the 12 months ended November 30, 1996, Fund Manager Michael
Martino was able to deliver positive performance in this challenging
environment. He accomplished the task by keeping close tabs on the
interest-rate sensitivity of your fund's portfolio, by shifting emphasis
among types of securities, and by careful selection of individual
holdings.
Mike provides details and looks at prospects for the new fiscal year in
the following report.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Michael Martino
Putnam Intermediate U.S. Government Income Fund's 1996 fiscal year,
which ended on November 30, encompassed two periods of pronounced market
strength -- the first month and the final three months of the year --
with alternating periods of turbulence and stability in between. Active
management throughout a volatile year enabled the fund to post solid
total returns and outperform most other U.S. government securities funds
that focus on short- to intermediate-maturity bonds. (Please refer to
the highlight on page 2 and to the tables on pages 8 and 9 for complete
performance information.)
Following an extended period of rising interest rates and substantial
fluctuation in bond prices, your fund enjoyed a supportive market
environment during the last three months of the period. Fiscal 1996
began with the strong bond market performance that capped off a
successful calendar 1995. Beginning in January, however, and extending
through the first four months of calendar 1996, interest rates rose
dramatically across the spectrum of bond maturities. Then, from May to
September, rates stayed in a relatively tight range of 6.7% to 7.2% for
the bellwether 30-year Treasury bond. Responding to signs of tame
inflation and to stepped-up buying activity by non-U.S. investors, bond
prices then went on to rally impressively during the September to
November period, pushing the 30-year yield to just below 6.4% by the end
of the fiscal year. (Bond prices and yields move in opposite
directions.)
* EFFECTIVE DURATION MANAGEMENT CRITICAL TO FUND'S SUCCESS
One of the key determinants of your fund's superior relative performance
over the year was active management of the portfolio's duration.
Duration is the principal indicator of interest-rate sensitivity for a
given portfolio of bonds. It is measured in years. The longer the
duration, the more sensitive a portfolio is to a given change in rates.
When rates are falling, as was the case during the first month and the
final three months of the fiscal year, bond prices rise, and a
relatively long portfolio duration enables the fund to capture a greater
portion of that price appreciation. When interest rates rise, however, a
long duration has the opposite effect, causing the portfolio's value to
decline more rapidly for a given change in rates.
As an intermediate-term bond fund, your fund's portfolio duration will
typically not exceed 4 years, which is the approximate interest-rate
sensitivity of a 5-year Treasury note. Over the course of the fiscal
year, however, we adjusted the fund's duration within a range of
approximately 2.5 to 4 years in response to changing market conditions.
At the end of the fiscal year, portfolio duration stood at 2.8 years.
* ARMS BOOST PERFORMANCE OF MORTGAGE-BACKED HOLDINGS
The bond market's advance late in the fiscal year was sparked by the
Federal Reserve Board's decision to keep the target for short-term bank-
lending rates unchanged at 5.25% -- a level it established last January
- -- based on evidence of continued moderate economic growth and minimal
inflationary pressures. Given the relative stability in short-term rates
this year, the strong performance of adjustable-rate mortgage-backed
securities (ARMs), which are particularly sensitive to movements in
short-term interest rates, is quite understandable and we sought to take
full advantage of this strength. As of November 30, 1996, over 40% of
the fund's portfolio was committed to mortgage-backed securities, with
roughly two thirds of that total in ARMs.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: COMPARATIVE PORTFOLIO
COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
Fixed-rate
mortgage-backed 16.5%
securities 15.5%
Adjustable-rate
mortgage-backed 4.6%
securities 25.2%
U.S. Treasury 64.9%
securities 56.2%
Short-term 13.7%
investments 2.0%
(BLACK BARS 11/30/95)
(GRAY BARS 11/30/96)
Footnote reads:
* Based on net assets as of 11/30/95 and 11/30/96. Composition will vary
over time.
[GRAPHIC VERTICAL BAR CHART OMITTED: EFFECTIVE MATURITY BREAKDOWN]
EFFECTIVE MATURITY BREAKDOWN*
0-1 Year 8.7%
1-5 Years 32.5%
5-10 Years 15.1%
10-15 Years 12.5%
15+ Years 31.1%
Footnote reads:
* Based on net assets as of 11/30/96. Measures of effective maturity are
derived from calculations that incorporate assumptions about prepayment
rates and cash flows of mortgage-backed securities. The actual, or
effective, maturities of mortgage-backed securities are frequently
shorter than their stated maturities. Effective maturities and the
assumptions on which they are based will vary over time.
This increase in the fund's ARM weighting was due, in part, to the
merger of Putnam Adjustable Rate U.S. Government Fund into your fund,
which was completed on November 11, 1996. We opted to retain many of
that fund's ARM investments because, at the time of the merger, we
believed they offered value that was yet to be realized. We were,
therefore, gratified by their strong end-of-year performance and now
plan to take profits on those holdings that we believe to be fully
valued.
* SLOWER GROWTH MAY PROVIDE CONTINUED SUPPORT FOR BONDS
When the Federal Reserve Board met in December, we believe it made the
right decision in taking no action on short-term interest rates. The
Fed's attempts to control inflation by adjusting monetary policy, thus
far, have been successful. Indeed, we believe the economy's growth rate
is likely to moderate, perhaps moving back toward a 2% annual level.
Moreover, should economic growth slow as we anticipate it may in the
months ahead, we believe inflation is likely to remain well behaved.
Although we cannot provide assurances, if our expectations for the
economy prove correct, then the current favorable environment for bonds
may persist for some time. Given such a scenario, we would likely
maintain a portfolio duration that is toward the long end of the fund's
permissible range in order to position the fund to participate should
market strength continue.
In light of the substantial price appreciation in U.S. Treasury
securities over the final three months of the period, we now believe
mortgage-backed securities, as a group, represent a better value.
Accordingly we currently plan to increase the fund's mortgage-backed
weighting by redeploying some assets from Treasuries. At the same time,
we will seek to restore a degree of balance between the fund's
adjustable- and fixed-rate mortgage holdings by taking profits on some
of the fund's ARM holdings and by directing those proceeds into fixed-
rate mortgage-backed investments.
While U.S. government backing of individual securities does not insure
your principal, which will fluctuate with market conditions, it does
guarantee that the fund's government-backed holdings will make timely
payments of interest and principal.
Mortgage-backed securities are subject to prepayment risk, which is the
risk that an investor's principal will be returned in full at some point
prior to the security's stated maturity date. Such prepayment may cause
an investor's actual rate of return to differ from the expected rate of
return. Prepayment risk is greatest when interest rates are falling,
since mortgage holders rush to refinance, forcing retirement of the
bonds that back their existing mortgages.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 11/30/96, there is no guarantee the fund
will continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Intermediate 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 11/30/96
Class A Class B Class M
(inception date) (2/16/93) (2/16/93) (4/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 5.71% 2.18% 5.08% 2.10% 5.33% 3.24%
- ------------------------------------------------------------------------
Life of class 21.90 17.89 19.17 18.19 15.47 13.05
Annual average 5.36 4.44 4.74 4.51 9.00 7.63
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Lehman Bros.
Intermediate
Govt. Bond Consumer
Index Price Index
- ------------------------------------------------------------------------
1 year 5.66% 3.26%
- ------------------------------------------------------------------------
Life of class A and class B 23.09 11.22
Annual average 5.69 2.85
- ------------------------------------------------------------------------
Life of class M 14.92 4.76
Annual average 8.69 2.84
- ------------------------------------------------------------------------
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
principal 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.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
(plot points for total return mountain chart)
Lehman Bros
Date/year Fund at POP Intermediate Govt Index CPI
2/16/93 9,671 10,000 10,000
11/30/93 9,907 10,422 10,224
11/30/94 9,796 10,249 10,498
11/30/95 11,153 11,650 10,771
11/30/96 11,789 12,309 11,122
Footnote reads:
Past performance is no assurance of future results. A $10,000 investment
in the fund's class B shares at inception on 2/16/93 would have been valued
at $11,917 on 11/30/96 ($11,819 with a redemption at the end of the
period). A $10,000 investment in the fund's class M shares at inception
on 4/1/95 would have been valued at $11,547 at net asset value on
11/30/96 ($11,305 at public offering price)
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 3.74% 0.30% 3.12% 0.18% 3.58% 1.54%
- ------------------------------------------------------------------------
Life of class 21.21 17.22 18.43 17.46 15.04 12.62
Annual average 5.10 4.19 4.47 4.24 8.32 7.01
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and principal 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
12 months ended 11/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions 12 12 12
- ------------------------------------------------------------------------
Income $0.289 $0.260 $0.282
- ------------------------------------------------------------------------
Total $0.289 $0.260 $0.282
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
11/30/95 $4.92 $5.09 $4.92 $4.93 $5.03
- ------------------------------------------------------------------------
11/30/96 4.90 5.06 4.90 4.90 5.00
- ------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------
Current dividend rate1 6.04% 5.85% 5.44% 5.89% 5.77%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 4.91 4.75 4.31 4.61 4.51
- ------------------------------------------------------------------------
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 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. 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.
Report of independent accountants
For the fiscal year ended November 30, 1996
To the Trustees and Shareholders of
Putnam Intermediate U.S. Government Income Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Intermediate U.S. Government Income Fund, including the portfolio
of investments owned, as of November 30, 1996, and the related statement
of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of
the fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1996, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Intermediate U.S. Government Income Fund as
of November 30, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 10, 1997
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.9%)*
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (40.7%)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corp.
$ 2,692,800 8 1/2s, June 1, 2010 $ 2,819,867
3,875,675 7 1/2s, August 1, 2007 3,961,638
Federal Home Loan Mortgage Association Adjustable
Rate Mortgage (ARM)
1,816,982 8.125s, September 1, 2021 1,896,471
1,629,948 7.771s, November 1, 2018 1,697,689
54,233 7.720s, March 1, 2019 55,360
4,124,977 7.670s, March 1, 2019 4,305,445
1,274,649 7.607s, January 1, 2018 1,316,279
1,056,500 7.581s, April 1, 2019 1,095,464
2,770,735 7.578s, with various due dates from February 1, 2018
to March 1, 2019 2,889,398
3,619,845 7.440s, February 1, 2022 3,751,064
1,815,233 7 3/8s, November 1, 2016 1,875,372
1,336,447 7.329s, April 1, 2019 1,387,192
5,085,235 7.229s, June 1, 2018 5,264,795
2,123,738 7 1/8s, February 1, 2018 2,191,443
2,769,029 6 7/8s, April 1, 2018 2,876,329
4,160,342 6 3/8s, April 1, 2017 4,246,794
Federal National Mortgage Association
152,450 11 1/4s, October 1, 2010 172,982
855,731 8s, May 1, 2013 870,974
Federal National Mortgage Association Adjustable
Rate Mortgage (ARM)
202,871 7.95s, January 1, 2017 210,890
196,948 7.690s, February 1, 2027 202,086
1,393,834 7.603s, May 1, 2020 1,454,814
1,977,340 7.556s, December 1, 2019 2,058,589
3,367,028 7.501s, September 1, 2018 3,514,335
31,558 7.275s, May 1, 2016 32,076
2,390,573 7.251s, April 1, 2022 2,495,161
6,223,247 6.975s, April 1, 2028 6,495,514
324,808 6.069s, with various due dates from September 1, 2018
to July 1, 2026 324,298
Government National Mortgage Association
4,950,001 8 1/2s, April 15, 2008 5,229,985
4,067,597 8s, with various due dates from March 15, 2023 to
September 15, 2023 4,245,026
Government National Mortgage Association
Adjustable Rate Mortgage (ARM)
14,079,946 6s, with various due dates from November 20, 2025
to July 20, 2026 14,330,616
--------------
83,267,946
U.S. Treasury Obligations (56.2%)
- --------------------------------------------------------------------------------------------
U.S. Treasury Bonds
$15,000,000 6 3/4s, August 15, 2026 $ 15,646,800
2,000,000 6s, February 15, 2026 1,885,940
U.S. Treasury Notes
5,000,000 8 1/2s, February 15, 2000 5,400,000
30,000,000 8 1/4s, July 15, 1998 31,242,300
10,000,000 8 1/8s, February 15, 1998 10,300,000
10,000,000 8s, May 15, 2001 10,853,100
1,500,000 7 3/8s, November 15, 1997 1,526,010
10,000,000 6 7/8s, May 15, 2006 10,568,700
20,000,000 6 1/2s, October 15, 2006 20,656,200
7,000,000 6 1/4s, April 30, 2001 7,118,090
--------------
115,197,140
--------------
Total U.S. Government and Agency Obligations $ 198,465,086
(cost $197,209,948)
SHORT-TERM INVESTMENTS (2.0%) *(cost $4,095,274)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$4,094,000 Interest in $732,975,000 joint repurchase agreement
November 29, 1996 with Morgan (J.P.) & Co., Inc. due
December 2, 1996 with respect to various U.S. Treasury
obligations -- maturity value of $4,095,911 for an
effective yield of 5.60% $ 4,095,274
- --------------------------------------------------------------------------------------------
Total Investments (cost $201,305,222)*** $ 202,560,360
- --------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $204,867,074.
*** The aggregate identified cost on a tax basis is $201,312,722,
resulting in gross unrealized appreciation and depreciation of
$2,519,925 and $1,272,287, respectively, or net unrealized appreciation
of $1,247,638.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996
<S> <C>
Assets
- --------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $201,305,222) (Note 1) $202,560,360
- --------------------------------------------------------------------------------------
Cash 561
- --------------------------------------------------------------------------------------
Interest and other receivables 2,927,908
- --------------------------------------------------------------------------------------
Receivable for shares of the fund sold 587,453
- --------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 12,137
- --------------------------------------------------------------------------------------
Total assets 206,088,419
Liabilities
- --------------------------------------------------------------------------------------
Distributions payable to shareholders 172,486
- --------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 453,833
- --------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 200,655
- --------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 37,537
- --------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,491
- --------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,211
- --------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 79,822
- --------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 34,973
- --------------------------------------------------------------------------------------
Other accrued expenses 227,337
- --------------------------------------------------------------------------------------
Total liabilities $ 1,221,345
- --------------------------------------------------------------------------------------
Net assets $204,867,074
Represented by
- --------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $205,315,206
- --------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (172,488)
- --------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,530,782)
- --------------------------------------------------------------------------------------
Net unrealized appreciation of investments (Note 5) 1,255,138
- --------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $204,867,074
Computation of net asset value and offering price
- --------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($143,574,835 divided by 29,329,227 shares) $4.90
- --------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $4.90)* $5.06
- --------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($56,888,698 divided by 11,621,094 shares)** $4.90
- --------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($4,403,541 divided by 898,693 shares) $4.90
- --------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $4.90)* $5.00
- --------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 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
Year ended November 30, 1996
<S> <C>
Interest income: $6,979,353
- ---------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------
Compensation of Manager (Note 2) 622,837
- ---------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 170,013
- ---------------------------------------------------------------------------
Compensation of Trustees (Note 2) 20,844
- ---------------------------------------------------------------------------
Administrative services (Note 2) 5,938
- ---------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 178,071
- ---------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 252,485
- ---------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 10,949
- ---------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 9,944
- ---------------------------------------------------------------------------
Reports to shareholders 35,768
- ---------------------------------------------------------------------------
Registration fees 6,811
- ---------------------------------------------------------------------------
Auditing 49,934
- ---------------------------------------------------------------------------
Legal 31,553
- ---------------------------------------------------------------------------
Postage 37,842
- ---------------------------------------------------------------------------
Other 6,942
- ---------------------------------------------------------------------------
Total expenses 1,439,931
- ---------------------------------------------------------------------------
Expense reduction (Note 2) (24,202)
- ---------------------------------------------------------------------------
Net expenses 1,415,729
- ---------------------------------------------------------------------------
Net investment income 5,563,624
- ---------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,507,914
- ---------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (530,704)
- ---------------------------------------------------------------------------
Net gain on investments 977,210
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $6,540,834
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
----------------------------------
1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------
Net investment income $ 5,563,624 $ 4,191,045
- ------------------------------------------------------------------------------------------
Net realized gain on investments 1,507,914 259,045
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (530,704) 5,137,752
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,540,834 9,587,842
- ------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------
From net investment income
Class A (3,860,962) (3,210,923)
- ------------------------------------------------------------------------------------------
Class B (1,444,592) (1,221,731)
- ------------------------------------------------------------------------------------------
Class M (141,936) (17,436)
- ------------------------------------------------------------------------------------------
Return of capital
Class A -- (82,490)
- ------------------------------------------------------------------------------------------
Class B -- (31,387)
- ------------------------------------------------------------------------------------------
Class M -- (448)
- ------------------------------------------------------------------------------------------
In excess of net investment income
Class A (370,887) (34,353)
- ------------------------------------------------------------------------------------------
Class B (138,769) (13,071)
- ------------------------------------------------------------------------------------------
Class M (13,634) (187)
- ------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 122,988,914 1,078,564
- ------------------------------------------------------------------------------------------
Total increase in net assets 123,558,968 6,054,380
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
Beginning of year 81,308,106 75,253,726
- ------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $172,488 and $347,815,
respectively) $204,867,074 $81,308,106
- ------------------------------------------------------------------------------------------
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
(commencement
Year ended of operations)
November 30 to November 30 Year ended November 30
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Class M Class B
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $4.93 $4.68 $4.92 $4.60
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .27 .12(a) .26 .24
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (.02) .32 (.02) .35
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .25 .44 .24 .59
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (.26) (.18) (.24) (.26)
- ---------------------------------------------------------------------------------------------------------------------
Return of capital -- (.01) -- (.01)
- ---------------------------------------------------------------------------------------------------------------------
In excess of net investment income (.02) --(e) (.02) --(e)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.19) (.26) (.27)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.90 $4.93 $4.90 $4.92
- ---------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 5.33 9.63* 5.08 13.17
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,404 $1,058 $56,889 $23,201
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(d) 1.35 .87* 1.80 1.81
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.28 3.37* 4.94 5.17
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 367.19 383.88 367.19 383.88
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
- ---------------------------------------------------------------------------------------------------------------------
For the period
February 16, 1993
(commencement
Year ended of operations) Year ended
November 30 to November 30 November 30
- ---------------------------------------------------------------------------------------------------------------------
1994 1993 1996
- ---------------------------------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $4.91 $5.00 $4.92
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .24(b) .18(a)(b) .29
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (.32) (.08) (.02)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations (.08) .10 .27
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (.21) (.19) (.26)
- ---------------------------------------------------------------------------------------------------------------------
Return of capital (.02) -- --
- ---------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.03)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.19) (.29)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.60 $4.91 $4.90
- ---------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) (1.71) 1.95* 5.71
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $21,243 $4,317 $143,575
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d) 1.69(b) .67(b)* 1.22
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 4.98(b) 3.53(b)* 5.54
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 351.62 309.80* 367.19
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
February 16, 1993
(commencement
of operations)
Year ended November 30 to November 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $4.60 $4.91 $5.00
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .27 .27(b) .21(a)(b)
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .35 (.32) (.09)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .62 (.05) .12
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (.29) (.24) (.21)
- ---------------------------------------------------------------------------------------------------------------------
Return of capital (.01) (.02) --
- ---------------------------------------------------------------------------------------------------------------------
In excess of net investment income --(e) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.30) (.26) (.21)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.92 $4.60 $4.91
- ---------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 13.85 (1.12) 2.44*
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $57,049 $53,831 $19,088
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(d) 1.20 1.09(b) 1.05(b)*
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 5.78 5.59(b) 3.13(b)*
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 383.88 351.62 309.80*
- ---------------------------------------------------------------------------------------------------------------------
* Not annualized
(a) Per share net investment income has 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. As a result of such limitation, expenses for the
fund reflect a reduction of approximately $0.01 per share for class A and class B for the periods ended
November 30, 1993 and 1994.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charge.
(d) 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 (Note 2).
(e) Distributions in excess of net investment income were less than $0.01 per share.
</TABLE>
Notes to financial statements
November 30, 1996
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. 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 and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
E) 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 nor for excise tax on income and capital
gains. At November 30, 1996, the fund had a capital loss carryover of
approximately $24,327,000. This amount includes approximately
$22,707,000 of capital loss carryovers acquired in connection with the
fund's acquisition of the net assets of Putnam Adjustable Rate U.S.
Government Fund in 1996. The amount of the capital loss carryover that
can be used to offset realized capital gains by the fund in any one year
may be limited by the Internal Revenue Code and Regulations. To the
extent that capital loss carryovers are used to offset realized capital
gains, it is unlikely that gains so offset would be distributed to
shareholders since any such distribution might be taxable as ordinary
income.
Loss Carryover Expiration
- ---------------- --------------------
$ 385,000 November 30, 1997
799,000 November 30, 1998
7,515,000 November 30, 2000
13,497,000 November 30, 2001
1,621,000 November 30, 2002
510,000 November 30, 2003
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. These differences include treatment of
losses on wash sale transactions, paydown gains and losses on mortgage
backed securities and market discount. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended November 30, 1996, the fund reclassified
$582,483 to decrease distributions in excess of net investment income,
$698,618 to decrease paid-in-capital, with a decrease to accumulated net
realized loss on investments of $116,135. The calculation of net
investment income per share in the financial highlights table excludes
these adjustments.
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 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. 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
and 0.45% of any excess over $1.5 billion.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended November 30, 1996, fund expenses were reduced by
$24,202 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $540 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
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 0.35%,
0.85% 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 0.25%, 0.85% and 0.40% of the average
net assets attributable to class A, class B and class M shares
respectively.
For the year ended November 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $65,903 and $5,282 from the
sale of class A and class M shares, respectively and $57,295 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 year ended November 30, 1996, Putnam Mutual
Funds Corp., acting as underwriter received $3,309 on class A
redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1996, purchases and sales of U.S.
government and agency obligations other than short-term investments
aggregated $365,806,352 and $315,821,905, 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 November 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 21,352,359 $ 103,080,104
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 605,304 2,935,082
- ----------------------------------------------------
Shares issued in
connection with
the merger of
Putnam
Adjustable Rate
U.S. Government
Fund 11,771,185 57,325,670
- ----------------------------------------------------
33,728,848 163,340,856
Shares
repurchased (15,993,455) (77,207,708)
- ----------------------------------------------------
Net increase 17,735,393 $ 86,133,148
- ----------------------------------------------------
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)
- ----------------------------------------------------
Year ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 7,669,855 $ 36,980,646
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 272,195 1,319,922
- ----------------------------------------------------
Shares issued in
connection with
the merger of
Putnam
Adjustable Rate
U.S. Government
Fund 4,390,784 21,383,118
- ----------------------------------------------------
12,332,834 59,683,686
Shares
repurchased (5,427,659) (26,155,445)
- ----------------------------------------------------
Net increase 6,905,175 $ 33,528,241
- ----------------------------------------------------
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
- ----------------------------------------------------
Year ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 1,450,087 $7,026,481
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 27,541 133,380
- ----------------------------------------------------
1,477,628 7,159,861
Shares
repurchased (793,749) (3,832,336)
- ----------------------------------------------------
Net increase 683,879 $3,327,525
- ----------------------------------------------------
April 1, 1995
(commencement of
operations) to
November 30, 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
- ----------------------------------------------------
Note 5
Acquisition of Putnam Adjustable Rate U.S. Government Fund
On November 11, 1996, the fund issued 11,771,185 and 4,390,784 of class
A and class B shares, respectively to the shareholders of Putnam
Adjustable Rate U.S. Government Fund to acquire that fund's net assets
in a tax-free exchange approved by the shareholders. The net assets of
the fund and Putnam Adjustable Rate U.S. Government Fund on November 8,
1996, valuation date, were $124,349,453 and $78,708,788 respectively. On
November 11, 1996, Putnam Adjustable Rate U.S. Government Fund had
unrealized appreciation of $345,189.
The aggregate net assets of the fund immediately following the
acquisition were $203,058,241.
Results of October 31, 1996 shareholder meeting
A meeting of shareholders of the fund was held on October 31, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes for Votes withheld
Jameson Adkins Baxter 12,478,661 173,085
Hans H. Estin 12,481,633 170,113
John A. Hill 12,466,273 185,473
Ronald J. Jackson 12,479,658 172,088
Elizabeth T. Kennan 12,478,661 173,085
Lawrence J. Lasser 12,486,919 164,827
Robert E. Patterson 12,479,658 172,088
Donald S. Perkins 12,456,619 195,127
William F. Pounds 12,486,919 164,827
George Putnam 12,486,919 164,827
George Putnam, III 12,486,919 164,827
Eli Shapiro 12,448,892 202,854
A.J.C. Smith 12,486,919 164,827
W. Nicholas Thorndike 12,478,818 172,928
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as
auditors for the fund was approved as follows: 12,198,959 votes for, and
130,564 votes against, with 322,223 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the voting securities of a single issuer was
approved as follows: 9,763,232 votes for, and 2,238,814 votes against,
with 649,700 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
10,126,759 votes for, and 1,866,885 votes against, with 658,102
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in senior securities was approved as follows:
10,530,921 votes for, and 1,468,294 votes against, with 652,531
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 10,334,881 votes for, and 1,701,854 votes against,
with 615,011 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 10,050,932
votes for, and 1,950,263 votes against, with 650,551 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 10,254,743 votes
for, and 1,569,686 votes against, with 827,317 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to pledging assets was approved as follows: 10,009,675
votes for, and 1,791,266 votes against, with 850,805 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 10,267,992 votes for, and 1,495,490 votes against, with 888,264
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 10,207,662 votes for, and 1,642,168 votes
against, with 801,916 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management was
approved as follows: 10,259,844 votes for, and 1,465,749 votes against,
with 926,153 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
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
William J. Curtin
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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
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
- ---------------------
29932-398/428 1/97
