PROSPECTUS
MARCH 30,
1997,
as revised OCTOBER
30, 1997
Putnam Intermediate U.S. Government Income Fund
Class A, B and M shares
INVESTMENT STRATEGY: INCOME
This prospectus explains concisely what you should know before
investing in Putnam Intermediate U.S. Government Income Fund (the
"fund"). Please read it carefully and keep it for future
reference. You can find more detailed information in the March
30, 1997 statement of additional information (the "SAI"), as
amended from time to time. For a free copy of the SAI or other
information, call Putnam Investor Services at 1-800-225-1581.
The SAI has been filed with the Securities and Exchange
Commission (the "Commission") and is incorporated into this
prospectus by reference. The Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated
by reference into this prospectus and the SAI, and other
information regarding registrants that file electronically with
the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
Expenses summary
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes of the
fund's shares. Use it to help you estimate the impact of
transaction costs on your investment over time.
Financial highlights
Study this table to see, among other things, how the fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.
Objective
Read this section to make sure the fund's objective is consistent
with your own.
How the fund pursues its objective
This section explains in detail how the fund seeks its investment
objective.
Risk factors. All investments entail some risk. Read this
section to make sure you understand the risks that are associated
with an investment in the fund.
How performance is shown
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
How the fund is managed
Consult this section for information about the fund's management,
allocation of its expenses, and how purchases and sales of
securities are made.
Organization and history
In this section, you will learn when the fund was introduced, how
it is organized, how it may offer shares, and who its Trustees are.
ABOUT YOUR INVESTMENT
Alternative sales arrangements
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
How to buy shares
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on each class
of shares.
Distribution plans
This section tells you what distribution fees are charged against
each class of shares.
How to sell shares
In this section you can learn how to sell fund shares, either
directly to the fund, by check or through an investment dealer.
How to exchange shares
Find out in this section how you may exchange fund shares for
shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.
How the fund values its shares
This section explains how the fund determines the value of its
shares.
How the fund makes distributions to shareholders; tax information
This section describes the various options you have in choosing
how to receive fund dividends. It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
<PAGE>
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs
from investing in the fund and expenses based on the most recent
fiscal year. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified
periods.
Class A Class B Class M
shares shares shares
Shareholder transaction
expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 3.25% NONE* 2.00%*
3.0% in the
Deferred sales charge first year,
(as a percentage declining to 1.0%
of the lower of original in the fourth year, and
purchase price or eliminated
redemption proceeds) NONE** thereafter NONE
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees fees expenses expenses
- ---------- ----- --------- -----------
Class A .60% 0.25% .37% 1.22%
Class B .60% 0.85% .35% 1.80%
Class M .60% 0.40% .35% 1.35%
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. The
expenses shown in the table do not reflect the application of
credits that reduce fund expenses.
<PAGE>
Examples
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 3 5 10
year years years years
Class A $45 $70 $97 $175
Class B $68 $87 $117 $196***
Class B (no redemption) $18 $57 $97 $196***
Class M $33 $62 $92 $179
The examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the examples to assume a 5% annual return,
but actual annual return varies.
* The higher 12b-1 fees borne by class B and class M shares
may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales
charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were purchased
without an initial sales charge. See "How to buy shares --
Class A shares."
*** Reflects conversion of class B shares to class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase. See "Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A, B and M shares. This information has been derived from
the financial statements, which have been audited and reported on
by the independent accountants. The "Report of independent
accountants" and financial statements included in the fund's
annual report to shareholders for the 1996 fiscal year are
incorporated by reference into this prospectus. The fund's
annual report, which contains additional unaudited performance
information, is available without charge upon request. The
Trustees of the fund approved changes to the fund's investment
policies on April 6, 1995. As a result, the fund is no longer
required to invest primarily in mortgage-backed securities.
Performance data prior to that date do not reflect the fund's
performance under its current investment policies.
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE> <CAPTION>
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
<PAGE>
Financial highlights (continued)
(For a share outstanding throughout the period)
<TABLE> <CAPTION>
For the period
February 16, 1993
(commencement
Year ended of operations) Year ended
November 30 to November 30 November 30
1994 1993 1996
Class B 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>
<PAGE>
Financial highlights (continued)
(For a share outstanding throughout the period)
<TABLE> <CAPTION>
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 period.
(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.
(e) Distributions in excess of net investment income were less
than $0.01 per share.
</TABLE>
OBJECTIVE
Putnam Intermediate U.S. Government Income Fund seeks as high a
level of current income as Putnam Investment Management, Inc.
("Putnam Management") believes is consistent with preservation of
capital. The fund is not intended to be a complete investment
program, and there is no assurance it will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic investment strategy
The fund will seek its objective by investing, under normal
market conditions, in a portfolio of U.S. government securities
(as defined below) with a dollar-weighted average maturity of 3
to 10 years, but may purchase individual securities with longer
or shorter maturities. For purposes of computing average
portfolio maturity, Putnam Management will use the effective
maturities of mortgage-backed securities determined by reference
to published market statistics.
Under normal market conditions, the fund will invest exclusively
in U.S. government securities, and in forward commitments and
repurchase agreements with respect to such securities. "U.S.
government securities" are debt securities issued or guaranteed
by the U.S. government, by various of its agencies, or by various
instrumentalities established or sponsored by the U.S.
government. Some of these obligations are supported by the full
faith and credit of the United States. These obligations include
U.S. Treasury bills, notes, and bonds, mortgage participation
certificates guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), and Federal Housing Administration
debentures.
Other U.S. government securities issued or guaranteed by federal
agencies or government-sponsored enterprises are not supported by
the full faith and credit of the United States. These securities
include obligations supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of Federal
Home Loan Banks, and obligations supported only by the credit of
the instrumentality, such as Federal National Mortgage
Association ("Fannie Mae") bonds.
The fund may invest in U.S. government securities that are
mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed
securities. CMOs and other mortgage-backed securities represent
participations in, or are secured by, mortgage loans and include:
- - Certain securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities;
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage-backed securities
issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities; and
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage loans or mortgage-
backed securities without a government guarantee but usually
having some form of private credit enhancement.
Stripped mortgage-backed securities are usually structured with
two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The fund
may invest in both the interest-only or "IO" class and the
principal-only or "PO" class. See "Risk factors" below.
It is the fund's current policy to qualify as an eligible
investment for federal credit unions. Accordingly, the fund will
limit its investments in CMOs, stripped mortgage-backed
securities, zero coupon securities, repurchase agreements and
forward commitments in accordance with the provisions of the
Federal Credit Union Act. This policy is a non-fundamental
investment policy and may be changed by the fund's Trustees
without shareholder approval.
Defensive strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the fund's assets.
In implementing these defensive strategies, the fund may invest
in any type of U.S. government securities of any maturity and may
invest primarily in short-term U.S. government securities. In
such cases, the fund's dollar-weighted average maturity may be
less than 3 years. The fund may also invest without limit in
cash or in any other securities Putnam Management considers
consistent with such defensive strategies.
It is impossible to predict when, or for how long, the fund will
use such alternative strategies.
Risk factors
Market risk. U.S. government securities are considered among the
safest of fixed-income investments, but their values, like those
of other debt securities, will fluctuate with changes in interest
rates. Changes in the value of portfolio securities will not
affect interest income from those securities but will be
reflected in the fund's net asset value. Thus, a decrease in
interest rates will generally result in an increase in the value
of fund shares. Conversely, during periods of rising interest
rates, the value of fund shares will generally decline. The
magnitude of these fluctuations will generally be greater when
the fund's average maturity is longer. Because of their added
safety, the yields available from U.S. government securities are
generally lower than the yields available from comparable
corporate debt securities.
Default risk. While certain U.S. government securities, such as
U.S. Treasury obligations and Ginnie Mae certificates, are backed
by the full faith and credit of the U.S. government, other
securities in which the fund may invest are subject to varying
degrees of risk of default. These risk factors include the
credit-worthiness of the issuer and, in the case of
mortgage-backed securities, the ability of the underlying
mortgagors or other borrowers to meet their obligations.
Prepayment risk. Mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying assets.
Unlike traditional debt securities, which may pay a fixed rate of
interest until maturity when the entire principal amount comes
due, payments on certain mortgage-backed securities include both
interest and a partial payment of principal. Besides the
scheduled repayment of principal, payments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates. Prepayments may also significantly
shorten the effective maturities of these securities, especially
during periods of declining interest rates. Conversely, during
periods of rising interest rates, a reduction in prepayments may
increase the effective maturities of these securities, subjecting
them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a
premium. At times, some of the mortgage-backed securities in
which the fund may invest will have higher than market interest
rates and therefore will be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.
CMOs. CMOs are issued with a number of classes or series that
have different maturities and that may represent interests in
some or all of the interest or principal on the underlying
collateral. Payment of interest or principal on some classes or
series of CMOs may be subject to contingencies or some classes or
series may bear some or all of the risk of default on the
underlying mortgages. CMOs of different classes or series are
generally retired in sequence as the underlying mortgage loans in
the mortgage pool are repaid. If enough mortgages are repaid
ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their
maturities. Thus, the early retirement of particular classes or
series of a CMO would have the same effect as the prepayment of
mortgages underlying other mortgage-backed securities.
Conversely, slower than anticipated prepayments can extend the
effective maturities of CMOs, subjecting them to a greater risk
of decline in market value in response to rising interest rates
than traditional debt securities, and, therefore, potentially
increasing the volatility of the fund.
Stripped mortgage-backed securities. The yield to maturity on an
IO or PO class of stripped mortgage-backed securities is
extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on the fund's
yield to maturity to the extent it invests in IOs. If the assets
underlying the IOs experience greater than anticipated
prepayments of principal, the fund may fail to recoup fully its
initial investment in these securities. Conversely, POs tend to
increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated.
In either event, the secondary market for stripped mortgage-
backed securities may be more volatile and less liquid than that
for other mortgage-backed securities, potentially limiting the
fund's ability to buy or sell those securities at any particular
time.
Investments in premium securities
At times, the fund may invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities
are typically purchased at prices greater than the principal
amounts payable on maturity.
The fund does not amortize the premium paid for these securities
in calculating its net investment income. As a result, the
purchase of premium securities provides a higher level of
investment income distributable to shareholders on a current
basis than if the fund purchased securities bearing current
market rates of interest. Because the value of premium
securities tends to approach the principal amount as they
approach maturity (or call price in the case of securities
approaching their first call date), the purchase of such
securities may increase the risk of capital loss if such
securities are held to maturity (or first call date).
During a period of declining interest rates, many of the fund's
portfolio investments will likely bear coupon rates that are
higher than the current market rates, regardless of whether the
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of fund shares. As a result,
an investor who purchases fund shares during such periods would
initially receive higher taxable monthly distributions (derived
from the higher coupon rates payable on the fund's investments)
than might be available from alternative investments bearing
current market interest rates, but the investor may face an
increased risk of capital loss as these higher coupon securities
approach maturity (or first call date). In evaluating the
potential performance of an investment in the fund, investors may
find it useful to compare the fund's current dividend rate with
its "yield," which is computed on a yield-to-maturity basis in
accordance with SEC regulations and which reflects amortization
of market premiums. See "How performance is shown."
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions its portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other
securities. These transactions may result in realization of
taxable capital gains. Portfolio turnover rates are shown in the
section "Financial highlights."
Other investment practices
The fund may also engage in the following investment practices,
each of which involves certain special risks. The SAI contains
more detailed information about these practices, including
limitations designed to reduce these risks.
Securities loans, repurchase agreements and forward commitments.
The fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements up to 25% of its assets. These transactions must be
fully collateralized at all times. The fund may also purchase
securities for future delivery (but not beyond 120 days), which
may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk if the
other party should default on its obligation and the fund is
delayed or prevented from recovering the collateral or completing
the transaction.
Derivatives
Certain of the instruments in which the fund may invest, such as
CMOs, are considered to be "derivatives." Derivatives are
financial instruments whose value depends upon, or is derived
from, the value of an underlying asset, such as a security or an
index. Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.
Except for investment policies designated as fundamental in this
prospectus or the SAI, the investment policies described in this
prospectus and in the SAI are not fundamental policies. The
Trustees may change any non-fundamental investment policy without
shareholder approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Yield" for each class of shares is calculated by
dividing the annualized net investment income per share during a
recent 30-day period by the maximum public offering price per
share of the class on the last day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for tax purposes. SEC
regulations require that net investment income be calculated on a
"yield-to-maturity" basis, which has the effect of amortizing any
premiums or discounts in the current market value of fixed-income
securities. The current dividend rate is based on net investment
income as determined for tax purposes, which may not reflect
amortization in the same manner. See "How the fund pursues its
objective -- Investments in premium securities."
Yield is based on the price of the shares, including the maximum
initial sales charge in the case of class A and class M shares,
but does not reflect any contingent deferred sales charge in the
case of class B shares.
"Total return" for the one-, five- and ten-year periods (or for
the life of a class, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in the fund invested at the maximum
public offering price (in the case of class A and class M shares)
or reflecting the deduction of any applicable contingent deferred
sales charge (in the case of class B shares). Total return may
also be presented for other periods or based on investment at
reduced sales charge levels. Any quotation of investment
performance not reflecting the maximum initial sales charge or
contingent deferred sales charge would be reduced if the sales
charge were used.
All data are based on past investment results and do not predict
future performance. Investment performance, which will vary, is
based on many factors, including market conditions, portfolio
composition, fund operating expenses and the class of shares the
investor purchases. Investment performance also often reflects
the risks associated with the fund's investment objective and
policies. These factors should be considered when comparing the
fund's investment results with those of other mutual funds and
other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. Fund performance may be
compared to that of various indexes. See the SAI.
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the conduct
of fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for the fund and makes investment decisions on its
behalf. Subject to the control of the Trustees, Putnam
Management also manages the fund's other affairs and business.
The fund pays Putnam Management a quarterly fee for these
services based on average net assets. See "Expenses summary" and
the SAI.
The following officer of Putnam Management has had primary
responsibility for the day-to-day management of the fund's
portfolio since the year stated below:
Business experience
Year (at least 5 years)
---- -------------------------
Michael Martino 1994 Employed as an investment
Managing Director professional by Putnam
Management since 1994. Prior
to January, 1994, Mr. Martino
was employed by Back Bay
Advisors in the positions of
Executive Vice President and
Chief Investment Officer from
1992 to 1994, and Senior Vice
President and Senior Portfolio
Manager from 1990 to 1992.
The fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under
its distribution plans (which are in turn allocated to the
relevant class of shares). The fund also reimburses Putnam
Management for the compensation and related expenses of certain
fund officers and their staff who provide administrative
services. The total reimbursement is determined annually by the
Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of fund
shares (and, if permitted by law, of the other Putnam funds) as a
factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam Intermediate U.S. Government Income Fund is a
Massachusetts business trust organized on November 20, 1990. A
copy of the Agreement and Declaration of Trust, which is governed
by Massachusetts law, is on file with the Secretary of State of
The Commonwealth of Massachusetts. Prior to April 10, 1995, the
fund was known as Putnam Balanced Government Fund.
The fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. The Trustees may, without shareholder
approval, create two or more series of shares representing
separate investment portfolios. Any such series of shares may be
divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. The fund's shares are not
currently divided into series. Only class A, B and M shares are
offered by this prospectus. The fund may also offer other
classes of shares with different sales charges and expenses.
Because of these different sales charges and expenses, the
investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of all classes will vote together as a
single class. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if the fund were
liquidated, would receive the net assets of the fund. The fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the fund is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.
If you own fewer shares than the minimum set by the Trustees
(presently 20 shares), the fund may choose to redeem your shares.
You will receive at least 30 days' written notice before the fund
redeems your shares, and you may purchase additional shares at
any time to avoid a redemption. The fund may also redeem shares
if you own shares above a maximum amount set by the Trustees.
There is presently no maximum, but the Trustees may establish one
at any time, which could apply to both present and future
shareholders.
The fund's Trustees: George Putnam,* Chairman. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill, Chairman
and Managing Director, First Reserve Corporation; Ronald J.
Jackson, Former Chairman, President and Chief Executive Officer
of Fisher-Price, Inc. , Trustee of Salem Hospital and the
Peabody Essex Museum; Elizabeth T. Kennan, President Emeritus and
Professor, Mount Holyoke College; Lawrence J. Lasser,* Vice
President of the Putnam funds. President, Chief Executive
Officer and Director of Putnam Investments, Inc. and Putnam
Management. Director, Marsh & McLennan Companies, Inc.; Robert
E. Patterson, Executive Vice President and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Lucent Technologies, Inc., Springs Industries,
Inc. and Time Warner Inc.; George Putnam, III,* President, New
Generation Research, Inc.; A.J.C. Smith,* Chairman and Chief
Executive Officer, Marsh & McLennan Companies, Inc.; W. Thomas
Stephens, President and Chief Executive Officer of MacMillan
Bloedel Ltd., Director of Mail-Well Inc., Qwest Communications,
The Eagle Picher Trust and New Century Energies; and W.
Nicholas Thorndike, Director of various corporations and
charitable organizations, including Data General Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Massachusetts General Hospital and Eastern Utilities
Associates. The Trustees are also Trustees of the other Putnam
funds. Those marked with an asterisk (*) are or may be deemed to
be "interested persons" of the fund, Putnam Management or Putnam
Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
Class A shares. An investor who purchases class A shares pays a
sales charge at the time of purchase. As a result, class A
shares are not subject to any charges when they are redeemed,
except for certain sales at net asset value that are subject to a
contingent deferred sales charge ("CDSC"). Certain purchases of
class A shares qualify for reduced sales charges. Class A shares
bear a lower 12b-1 fee than class B and class M shares. See "How
to buy shares -- Class A shares" and "Distribution plans."
Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a specified
period after purchase. Class B shares also bear a higher 12b-1
fee than class A and class M shares. Class B shares
automatically convert into class A shares, based on relative net
asset value, approximately eight years after purchase. For more
information about the conversion of class B shares, see the SAI.
This discussion includes information about how shares acquired
through reinvestment of distributions are treated for conversion
purposes. The discussion also notes certain circumstances under
which a conversion may not occur. Class B shares provide an
investor the benefit of putting all of the investor's dollars to
work from the time the investment is made. Until conversion,
class B shares will have a higher expense ratio and pay lower
dividends than class A and class M shares because of the higher
12b-1 fee. See "How to buy shares -- Class B shares" and
"Distribution plans."
Class M shares. An investor who purchases class M shares pays a
sales charge at the time of purchase that is lower than the sales
charge applicable to class A shares. Certain purchases of class
M shares qualify for reduced sales charges. Class M shares bear
a 12b-1 fee that is lower than class B shares but higher than
class A shares. Class M shares are not subject to any CDSC and
do not convert into any other class of shares. See "How to buy
shares -- Class M shares" and "Distribution plans."
Which arrangement is best for you? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider class A or
class M shares. Investors who prefer not to pay an initial sales
charge might consider class B shares. Orders for class B shares
for $250,000 or more will be treated as orders for class A shares
or declined. For more information about these sales
arrangements, consult your investment dealer or Putnam Investor
Services. Shares may only be exchanged for shares of the same
class of another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
Buying shares through Putnam Mutual Funds. Complete an order
form and write a check for the amount you wish to invest, payable
to the fund. Return the completed form and check to Putnam
Mutual Funds, which will act as your agent in purchasing shares
through your designated investment dealer.
Buying shares through systematic investing. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
Class A shares
The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, in its discretion, allocates the entire amount to
your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 100,000 3.36% 3.25% 3.00%
100,000 but under 250,000 2.56 2.50 2.25
250,000 but under 500,000 2.04 2.00 1.75
500,000 but under 1,000,000 1.52 1.50 1.25
- -----------------------------------------------------------------
No initial sales charge applies to purchases of
class A shares of $1 million or more or to purchases by
employer-sponsored retirement plans that have at
least 200 eligible employees. However, a CDSC of 1.00% or
0.50% is imposed on redemptions of these shares
within the first or second year , respectively, after
purchase , unless the dealer of record waived its
commission with Putnam Mutual Funds' approval , or
unless the purchaser is a class A qualified benefit plan (a
retirement plan for which Putnam Fiduciary Trust Company or its
affiliates provide recordkeeping or other services in connection
with the purchase of class A
shares).
Class A qualified benefit plans may also purchase class A shares
with no initial sales charge. However, except as stated below, a
CDSC of 0.75% of the total amount redeemed (1.00% in the case of
plans for which Putnam Mutual Funds and its affiliates do
not act as trustee or recordkeeper) is imposed on redemptions of
these shares if, within two years of a plan's initial purchase of
class A shares, it redeems 90% or more of its cumulative
purchases. Thereafter, such a plan is no longer liable for any
CDSC. The two-year CDSC applicable to class A qualified benefit
plans for which Putnam Mutual Funds or its
affiliates serve as trustee or recordkeeper ("full service
plans") is 0.50% of the total amount redeemed for
full service plans that initially invest at least
$5 million but less than $10 million in Putnam funds
and other investments managed by Putnam Management or its
affiliates ("Putnam Assets"), and is 0.25% of the total amount
redeemed for full service plans that initially invest at
least $10 million but less than $20 million in Putnam Assets.
Class A qualified benefit plans that initially invest at least
$20 million in Putnam Assets, or whose dealer or record has, with
Putnam Mutual Funds' approval, waived its commission or agreed to
refund its commission to Putnam Mutual Funds in the event
a CDSC would otherwise be applicable, are not subject to any
CDSC.
A class A qualified benefit plan participating in a
"multi-fund" program approved by Putnam Mutual Funds may include
amounts invested in other mutual funds participating in such
program for purposes of determining whether the plan may purchase
class A shares at net asset value. These investments will also
be included for purposes of the discount privileges and programs
described elsewhere in this prospectus and in the SAI.
As described in the SAI, Putnam Mutual Funds pays the dealer
of record a commission of up to 1% on sales to class A qualified
benefit plans. Putnam Mutual Funds pays dealers of record
commissions on sales of class A shares of $1 million or more and
sales of class A shares to employer-sponsored retirement plans
that have at least 200 eligible employees and that are not class
A qualified benefit plans based on an investor's cumulative
purchases during the one-year period beginning with the date of
the initial purchase at net asset value. Each subsequent one-
year measuring period for these purposes will begin with the
first net asset value purchase following the end of the prior
period. Such commissions are paid at the rate of 1.00% of the
first $3 million of shares purchased, 0.50% of the next $47
million and 0.25% thereafter.
Class B shares
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below. The
following types of shares may be redeemed without charge at any
time: (i) shares acquired by reinvestment of distributions, and
(ii) shares otherwise exempt from the CDSC, as described in "How
to buy shares -- General" below. For other shares, the amount of
the charge is determined as a percentage of the lesser of the
current market value or the cost of the shares being redeemed.
Year 1 2 3 4 5+
- -------------------------------------------------------------
Charge 3% 3% 2% 1% 0%
Putnam Mutual Funds pays a sales commission equal to 2.75% of
the amount invested (including a prepaid service fee of 0.25% of
the amount invested) to dealers who sell class B shares. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
Class M shares
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 100,000 2.04% 2.00% 1.80%
100,000 but under 250,000 1.52 1.50 1.30
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
Class M qualified benefit plans (retirement plans for which
Putnam Fiduciary Trust Company or its affiliates provide
recordkeeping or other services in connection with the purchase
of class M shares) and members of qualified groups may
purchase class M shares without a sales charge.
General
You may be eligible to buy fund shares at reduced sales charges
or to sell fund shares without a CDSC .
Consult your investment dealer or Putnam Mutual Funds for details
about Putnam's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, employer-
sponsored retirement plans and other plans. Descriptions are
also included in the order form and in the SAI.
The fund may sell class A, class B and class M shares at net
asset value without an initial sales charge or a CDSC to current
and retired Trustees (and their families), current and retired
employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of fund shares), financial
institution trust departments investing an aggregate of $1
million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds and investors meeting certain requirements who sold
shares of certain Putnam closed-end funds pursuant to a tender
offer by the closed-end fund.
In addition, the fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by the fund of assets of an investment company or
personal holding company. The CDSC will be waived on redemptions
of shares arising out of the death or post-purchase disability of
a shareholder or settlor of a living trust account, and on
redemptions in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares at reduced sales charges.
In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed first, followed
by shares held longest during the CDSC period. Any CDSC will be
based on the lower of the shares' cost and net asset value. For
this purpose, the amount of any increase in a share's value above
its initial purchase price is not regarded as a share exempt from
the CDSC. Thus, when you redeem a share that has appreciated in
value during the CDSC period, a CDSC is assessed on its initial
purchase price. Shares acquired by reinvestment of distributions
may be redeemed without a CDSC at any time. For information on
how sales charges are calculated if you exchange your shares, see
"How to exchange shares." Putnam Mutual Funds receives the
entire amount of any CDSC you pay. See the SAI for more
information about the CDSC.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares at net asset value.
If you are considering redeeming shares or transferring shares to
another person shortly after purchase, you should pay for those
shares with a certified check to avoid any delay in redemption or
transfer. Otherwise , payment may be delayed until the purchase
price of those shares has been collected or, if you redeem by
telephone, until 15 calendar days after the purchase date. To
eliminate the need for safekeeping, certificates will not be
issued for your shares unless you request them.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
DISTRIBUTION PLANS
Class A distribution plan. The class A plan provides for
payments by the fund to Putnam Mutual Funds at the annual rate of
up to 0.35% of average net assets attributable to class A shares.
The Trustees currently limit payments under the class A plan to
the annual rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares attributable to shareholders for
whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value by shareholders investing $1 million
or more. Also excluded until one year after purchase are shares
purchased at net asset value by participant-directed qualified
retirement plans with at least 200 eligible employees. These
shares are not subject to the one-year exclusion provision in
cases where certain shareholders who invested $1 million or more
have made arrangements with Putnam Mutual Funds and the dealer of
record waived the sales commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.25% of such average net asset
value.
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on shares
purchased at net asset value are 100% of the rate stated above if
average plan assets in Putnam funds (excluding money market
funds) during the quarter are less than $20 million, 60% of the
stated rate if average plan assets are at least $20 million but
under $30 million, and 40% of the stated rate if average plan
assets are $30 million or more.
For all other participant-directed qualified retirement plans
purchasing shares at net asset value, Putnam Mutual Funds makes
quarterly payments to qualifying dealers at the annual rate of
0.10% of the average net asset value of such shares.
Class B and class M distribution plans. The class B and class M
plans provide for payments by the fund to Putnam Mutual Funds at
the annual rates of up to 0.85% and 1.00% of average net assets
attributable to class B shares and class M shares, respectively.
The Trustees currently limit payments under the class M plan to
the annual rate of 0.40% of such assets.
The amount paid to dealers at the time of the sale of class M
shares is set forth above under "How to buy shares -- Class M
shares." In addition, to further compensate dealers (including
qualifying financial institutions) for services provided in
connection with sales of class B shares and class M shares and
the maintenance of shareholder accounts, Putnam Mutual Funds
makes quarterly payments to qualifying dealers.
The payments are based on the average net asset value of class B
shares and class M shares attributable to shareholders for whom
the dealers are designated as the dealer of record. Putnam
Mutual Funds makes the payments at an annual rate of 0.25% of
such average net asset value of class B shares and class M
shares, as the case may be.
Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of class M shares, 0.15% of
such average net asset value of class M shares. For class M
shares, the total annual payment to dealers equals 0.40% of such
average net asset value.
General. Payments under the plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers mentioned above. Putnam Mutual Funds may
suspend or modify such payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of service agreements between
dealers and Putnam Mutual Funds, and any applicable limits
imposed by the National Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York Stock
Exchange is open, either directly to the fund, by check, or
through your investment dealer. The fund will only redeem shares
for which it has received payment.
Selling shares directly to your fund. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the fund receives your request in proper form
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee. Stock
power forms are available from your investment dealer, Putnam
Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, a signature
guarantee is required. Putnam Investor Services usually requires
additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
Your fund generally sends you payment for your shares the
business day after your request is received. Under unusual
circumstances, the fund may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 unless you have notified Putnam
Investor Services of an address change within the preceding 15
days. Unless an investor indicates otherwise on the account
application, Putnam Investor Services will be authorized to act
upon redemption and transfer instructions received by telephone
from a shareholder, or any person claiming to act as his or her
representative, who can provide Putnam Investor Services with his
or her account registration and address as it appears on Putnam
Investor Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to
unauthorized or fraudulent instructions. For information,
consult Putnam Investor Services.
During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone. In this event, you may wish to submit a
written redemption request, as described above, or contact your
investment dealer, as described below. The Telephone Redemption
Privilege is not available if you were issued certificates for
shares that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.
Selling shares by check. If you would like to use the fund's
check-writing service, mark the proper box on the order form and
complete the signature card and, if applicable, the resolution.
Upon receiving the properly completed order form, signature card,
and resolution, the fund will send you checks which may be made
payable to the order of any person in the amount of $500 or more.
When a check is presented for payment, a sufficient number of
full and fractional shares in your account will be redeemed at
that day's net asset value to cover the amount of the check. An
additional amount of shares will be redeemed to cover any
applicable CDSC. Shares to be redeemed by this method may not be
represented by share certificates.
Shareholders utilizing fund checks are subject to the bank's
rules governing checking accounts. There is currently no charge
to shareholders for the use of checks. You should make sure that
there are sufficient shares in the account to cover the amount of
any check drawn, since the net asset value of shares will
fluctuate. If insufficient shares are in the account, the check
will be returned and no shares will be redeemed. Because
dividends declared on shares held in your account, prior
redemptions, and possible changes in net asset value may cause
the value of your account to change, it is impossible to
determine in advance your account's total value. Accordingly,
you should not write a check for the entire value of your account
or close your account by writing a check. The check-writing
service is not available for tax-qualified retirement plans.
Selling shares through your investment dealer. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value. Not all Putnam
funds offer all classes of shares. If you exchange shares
subject to a CDSC, the transaction will not be subject to the
CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending
upon when you originally purchased the shares. The CDSC will be
computed using the schedule of any fund into or from which you
have exchanged your shares that would result in your paying the
highest CDSC applicable to your class of shares. Class B shares
of most other Putnam funds have a higher CDSC than the fund. For
purposes of computing the CDSC, the length of time you have owned
your shares will be measured from the date of original purchase
and will not be affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services. The
form is available from Putnam Investor Services. For federal
income tax purposes, an exchange is treated as a sale of shares
and generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available for amounts up to
$500,000. Putnam Investor Services' procedures for telephonic
transactions are described above under "How to sell shares." The
Telephone Exchange Privilege is not available if you were issued
certificates for shares that remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of your fund, the
fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Consult Putnam Investor Services before requesting an
exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less liabilities, by
the number of its shares outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange each
day the Exchange is open.
Portfolio securities for which market quotations are readily
available are valued at market value.
Short-term investments that will mature in 60 days or less are
valued at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund will declare a distribution each day in an amount which
is based on Putnam Management's projections of the fund's
estimated net investment income. Normally, the fund will pay
these distributions monthly. The amount of each daily
distribution may differ from actual net investment income
determined in accordance with generally accepted accounting
principles. See "Distributions" in the SAI. The fund will
distribute any net realized capital gains at least annually.
Distributions from capital gains are made after applying any
available capital loss carryovers. A capital loss carryover is
currently available. Distributions paid on class A shares will
generally be greater than those paid on class B and class M
shares because expenses attributable class B and class M shares
will generally be higher.
You begin earning distributions on the business day that Putnam
Mutual Funds receives payment for your shares. It is your
responsibility to see that your dealer forwards payment promptly.
You can choose from three distribution options:
- - Reinvest all distributions in additional shares without a
sales charge;
- - Receive distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares
without a sales charge; or
- - Receive all distributions in cash.
You can change your distribution option by notifying Putnam
Investor Services in writing. If you do not select an option
when you open your account, all distributions will be reinvested.
All distributions not paid in cash will be reinvested in shares
of the class on which the distributions are paid. You will
receive a statement confirming reinvestment of distributions in
additional shares (or in shares of other Putnam funds for
Dividends Plus accounts) promptly following the quarter in which
the reinvestment occurs.
If a check representing a fund distribution is not cashed within a
specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting the
distribution in the fund or in another Putnam fund. If Putnam
Investor Services does not receive your election, the distribution
will be reinvested in the fund. Similarly, if correspondence sent
by the fund or Putnam Investor Services is returned as
"undeliverable," fund distributions will automatically be
reinvested in the fund or in another Putnam fund.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal taxes
on income and gains it distributes to shareholders. The fund
will distribute substantially all of its ordinary income and
capital gain net income on a current basis.
Fund distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains
will be taxable as such, regardless of how long you have held
the shares. Distributions will be taxable as described above
whether received in cash or in shares through the reinvestment
of distributions.
To the extent distributions consist of interest from securities
of the U.S. government and certain of its agencies and
instrumentalities, they may be exempt from state and local
income taxes. Interest from obligations that are merely
guaranteed by the U.S. government or one of its agencies, such
as mortgage participation certificates guaranteed by Ginnie
Mae, generally is not entitled to this exemption. Although
there is no assurance that any such state and local exemptions
will be available, Putnam Investor Services will advise
shareholders of the portion of fund distributions that might
qualify for such an exemption.
Early in each year Putnam Investor Services will notify you of
the amount and tax status of distributions paid to you for the
preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including possible
liability for state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the fund
and of other Putnam funds. Putnam Fiduciary Trust Company is
the custodian of the fund. Putnam Investor Services, a
division of Putnam Fiduciary Trust Company, is the investor
servicing and transfer agent for the fund.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary
Trust Company are subsidiaries of Putnam Investments, Inc.,
which is wholly owned by Marsh & McLennan Companies, Inc., a
publicly-owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
One Post Office Square
Boston, MA 02109
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
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
