Putnam
Intermediate
U.S. Government
Income Fund
SEMIANNUAL REPORT
May 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam Intermediate U.S. Government Income Fund continues to provide
above-average performance. For the 12-month period ended June 30, 1998,
the fund's class A share total return ranked 14 out of 99
short/intermediate U.S. government funds tracked by Lipper Analytical
Services, placing it in the top 14% of this category.*
* "Inflation -- a bond buyer's worst enemy -- could fall as low as 1%
this year, many economists say. Further Asian economic weakness could
also help boost bonds in the months ahead."
-- The Wall Street Journal, May 8, 1998
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
14 Financial statements
* Past performance is not indicative of future results. Lipper Analytical
Services, an independent research organization, ranks funds according to
total-return performance. Its rankings vary over time and do not reflect
the effects of sales charges. The fund's class A shares were ranked 6 out
of 48 short/intermediate U.S. government funds for 5-year performance
through 6/30/98. The fund's class A, class B, and class M shares were
ranked 14, 38, and 23, respectively, for 1-year performance.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The rush of funds to the safety of the U.S. bond market during the first half
of Putnam Intermediate U.S. Government Income Fund's fiscal year pulled down
yields on most bonds -- as the brisk demand moved their prices higher. This
was especially the case for the U.S. Treasury issues that make up more than
two thirds of your fund's portfolio.
The Federal Reserve Board kept close watch on the economy and the markets but
in the end remained on the sidelines, apparently content that the U.S.
economic engine was still sufficiently under control.
During the period, Fund Manager Michael Martino focused on a strategy aimed at
minimizing the effects of market volatility while maximizing the returns on
Treasury securities. Toward the end of the period, he began increasing the
fund's mortgage-backed security holdings.
In the following report, Mike discusses the fund's strategy during the six
months ended May 31, 1998, and looks at prospects for the fiscal year's second
half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 15, 1998
Report from the Fund Manager
Michael Martino
The U.S. bond markets enjoyed healthy rallies during the winter and spring of
1998, spurred by a positive economic backdrop in the United States and strong
demand for U.S. dollar-denominated assets. For the six months ended May 31,
1998, Putnam Intermediate U.S. Government Income Fund provided a 3.32% return
at net asset value for its class A shares. Taking the fund's maximum initial
sales charge into account, the fund's class A shares provided a 0.05% return
at public offering price. For more information on the fund's performance,
including returns for other share classes, please see pages 8 and 9.
* DURATION STRATEGY MAXIMIZES TREASURY RETURNS
The fund's solid performance is largely the result of its stake in the
Treasury sector. During the period, the prices of Treasury securities
benefited from a combination of low inflation and heightened demand for U.S.
dollar-denominated assets with intermediate Treasuries returning 3.5% as
measured by the Lehman Brothers Intermediate Treasury Index. The economy grew
at an annualized rate of 4.8% in the first quarter of 1998 and consumer
spending soared, yet inflation recorded its smallest increase in 30 years.
Investors took the rapid economic growth in stride, counting on the negative
trade effects of the Asian slump to offset any price increases. In fact, the
economic crisis in Asia added to the demand for U.S. dollar assets --
particularly Treasuries -- as investors from Japan and other Pacific Rim
nations sought safer havens for their investments.
With an intermediate-term focus, your fund strives to reduce unwanted
fluctuations in net asset value by limiting its sensitivity to changes in
interest rates. The fund's mix of securities is managed so that the
portfolio's average duration -- a measure of interest-rate sensitivity --
remains between 2.5 and 4 years. Essentially, the shorter a portfolio's
duration, the less likely the chance that its net asset value will be
adversely affected by an increase in rates. The tradeoff for this protection
is that a short duration restricts a fund's participation in market rallies.
To make the most of the rally in Treasury prices during the period, we
concentrated assets in relatively long-term Treasury notes -- those with
durations greater than 4 years -- and cash. In particular, 5- and 10-year
notes helped the fund achieve an above-average total return for the period,
while a 12% cash position helped keep the fund's overall duration within the
bounds of an intermediate-term investment vehicle. (The fund's duration was
2.7 years at the end of the period.) In May, we sold the fund's 10-year notes,
with the view that a mild correction in that segment of the market was more
likely than any meaningful appreciation in the near future.
* MORTGAGE-BACKED SECURITIES PERFORM WELL DESPITE HIGHER PREPAYMENTS
Usually when Treasuries are this strong, mortgage-backed securities suffer
because of prepayment concerns. As interest rates fall, many homeowners
refinance their mortgages, returning the principal to mortgage investors. In
addition to disrupting an investor's income stream, this prepayment of
principal forces the investor to reinvest at lower prevailing rates. In
January, mortgage refinancing reached an all-time high, as measured by the
Mortgage Bankers Refinancing Index.
[GRAPHIC OMITTED: horizontal bar chart of COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
11/30/97 5/31/98
Fixed-rate
mortgage-backed
securities 13.7% 36.4%
Adjustable-rate
mortgage-backed
securities 1.5% 1.1%
U.S. Treasury
securities 66.8% 49.9%
Cash and
short-term
investments 17.3% 11.9%
Footnote reads:
* Based on net assets. Composition will vary over time.
[GRAPHIC OMITTED: vertical bar chart of EFFECTIVE MATURITY OVERVIEW]
EFFECTIVE MATURITY OVERVIEW*
0-1 years 20.67%
1-5 years 58.02%
5+ years 21.31%
Footnote reads:
* Based on net assets as of 5/31/98. 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.
Investors did not abandon mortgage-backed securities, however. Many, seeking
the relatively higher yields offered by these securities, simply reinvested
their prepaid principal, keeping demand strong. For the six-month period, the
Lehman Brothers Mortgage-Backed Securities Index returned 3.82% while
intermediate Treasuries returned 3.5% as measured by the Lehman Brothers
Intermediate Treasury Index.
Using cash and proceeds from the sale of 10-year Treasuries, we added to the
fund's mortgage-backed weighting late in the period. To reduce prepayment
risk, we focused on GNMA 7% coupon bonds and seasoned 8% coupon bonds. (A
coupon is a bond's stated yield at issuance.) A 7% coupon bond is considered
relatively safe from prepayment because the owner of that mortgage has little
to gain by refinancing. Seasoned mortgages are those that could have been
refinanced in the past but were not thus, they are not likely to be refinanced
now. Traditionally the summer is a less volatile time for mortgage-backed
securities, since homeowners tend to be more interested in taking vacations
than refinancing their mortgages. We expect to increase the fund's
mortgage-backed position again this summer.
* BOND MARKET OUTLOOK FAVORABLE
We are optimistic about the prospects for continued positive performance in
the bond market. At this point, we believe inflation poses no real threat to
fixed-income investors. In fact, we expect GDP growth in the second quarter of
1998 will slow to roughly half that of the first quarter, sparking renewed
interest in the bond market.
The widely anticipated federal budget surplus this year should also be a plus
for bonds, since it means less Treasury issuance -- and therefore less supply
relative to demand -- in the future. That said, if Treasuries rally much
further this summer, we will rein in the fund's duration toward the low end of
our designated range (approximately 2.5 years). As always, we will continue to
seek opportunities for income and price appreciation in sectors of the bond
market we believe will benefit from the current economic and interest-rate
environment.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 5/31/98, there is no guarantee the fund will continue to hold
these securities in the future. While U.S. government backing of individual
securities does not insure principal, which will fluctuate, it does guarantee
that the fund's government-backed holdings will make timely payments of
interest and principal. This fund includes investments in mortgage-backed
securities, which are subject to prepayment risk.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Intermediate U.S. Government Income Fund is designed for investors seeking
as high a level of current income as is consistent with preservation of
capital.
TOTAL RETURN FOR PERIODS ENDED 5/31/98
Class A Class B Class M
(inception date) (2/16/93) (2/16/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 3.32% 0.05% 3.00% 0.00% 3.23% 1.17%
- ------------------------------------------------------------------------------
1 year 8.10 4.63 7.44 4.44 7.92 5.73
- ------------------------------------------------------------------------------
5 years 32.01 27.65 28.35 28.35 31.34 28.76
Annual average 5.71 5.00 5.12 5.12 5.60 5.19
- ------------------------------------------------------------------------------
Life of fund 33.43 29.04 29.52 29.52 32.51 29.93
Annual average 5.61 4.95 5.02 5.02 5.48 5.08
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/98
Lehman Bros.
Intermediate Consumer
Govt. Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 4.09% 0.80%
- ------------------------------------------------------------------------------
1 year 11.23 1.69
- ------------------------------------------------------------------------------
5 years 39.54 12.90
Annual average 6.89 2.46
- ------------------------------------------------------------------------------
Life of fund 40.93 13.77
Annual average 6.75 2.49
- ------------------------------------------------------------------------------
Past performance is not indicative of future results. Returns for class A
and class M shares reflect the current maximum initial sales charges of
3.25% and 2.00%, respectively. Class B share returns for the 1-, 5-, and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 3.00% in the first year, declines to 1% in the
fourth year, and is eliminated thereafter. Returns shown for class M
shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect the initial
sales charge currently applicable to class M shares, and the higher
operating expenses applicable to such shares. Returns shown for class A
shares have not been adjusted to reflect payments under the class A
distribution plan prior to its implementation. All returns assume
reinvestment of distributions at NAV. Investment return and principal
value will fluctuate so that an investor's shares when redeemed may be
worth more or less than their original cost. Performance data for periods
before 4/10/95 do not reflect current investment policies.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.141000 $0.126102 $0.137272
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.141000 $0.126102 $0.137272
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/97 $4.90 $5.06 $4.91 $4.91 $5.01
- ------------------------------------------------------------------------------
5/31/98 4.92 5.09 4.93 4.93 5.03
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 6.00% 5.80% 5.37% 5.83% 5.71%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 5.00 4.84 4.67 5.16 5.06
- ------------------------------------------------------------------------------
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.
TOTAL RETURN FOR PERIODS ENDED 6/30/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (2/16/93) (2/16/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 3.11% -0.34% 3.01% 0.01% 3.02% 0.97%
- ------------------------------------------------------------------------------
1 year 7.85 4.39 7.42 4.42 7.67 5.49
- ------------------------------------------------------------------------------
5 years 32.08 27.72 28.42 28.42 31.37 28.80
Annual average 5.72 5.02 5.13 5.13 5.61 5.19
- ------------------------------------------------------------------------------
Life of fund 34.34 29.92 30.34 30.34 33.40 30.79
Annual average 5.65 5.00 5.06 5.06 5.51 5.13
- ------------------------------------------------------------------------------
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. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
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 3.25% maximum 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.
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Portfolio of investments owned
May 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (87.4%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Obligations (37.5%)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$ 2,757,837 Federal Home Loan Mortgage Corp. 7 1/2s,
August 1, 2007 $ 2,841,427
Federal National Mortgage Association
29,300,000 5 3/4s, with due dates from April 15, 2003 to
February 15, 2008 29,045,727
5,785,000 5 5/8s March 15, 2001 5,771,460
267,672 Federal National Mortgage Association Adjustable
Rate Mortgage 6.237s, with due dates from
November 1, 2024 to July 1, 2026 269,179
Federal National Mortgage Association Pass-Through
Certificates
109,325 11 1/4s, October 1, 2010 124,015
484,029 8s, May 1, 2013 492,146
12,736,432 7s, Dwarf, with due dates from October 1, 2010 to
January 1, 2013 12,987,088
692,916 Government National Mortgage Association 7s,
May 15, 2028 703,739
3,541,174 Government National Mortgage Association
Adjustable Rate Mortgage 7s, July 20, 2026 3,625,277
Government National Mortgage Association Pass-Through
Certificates
3,515,860 8 1/2s, October 15, 2008 3,734,502
18,663,317 8s, with due dates from May 15, 2024 to
March 15, 2028 19,411,170
539,330 7 1/2s, with due dates from April 15, 2026 to
December 15, 2027 555,844
25,314 7s, with due dates from September 15, 2025 to
May 15, 2028 49,760,801
--------------
129,322,375
U.S. Treasury Obligations (49.9%)
- -------------------------------------------------------------------------------------------------------------
5,000,000 U.S. Treasury Bonds 5 7/8s, July 31, 1999 5,016,400
U.S. Treasury Notes
30,000,000 8 1/4s, July 15, 1998 30,112,500
10,000,000 8s, May 15, 2001 10,648,400
50,000,000 6s, July 31, 2002 50,703,000
25,000,000 5 3/4s, October 31, 2002 25,125,000
25,000,000 5 3/4s, November 15, 2000 25,105,500
25,000,000 5 5/8s, December 31, 2002 25,019,500
--------------
171,730,300
--------------
Total U.S. Government and Agency Obligations
(cost $301,264,987) $ 301,052,675
SHORT-TERM INVESTMENTS (11.9%) (a) (cost $41,012,619)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
41,000,000 Interest in $459,951,000 joint repurchase agreement
dated May 29, 1998 with Morgan (J.P.) & Co., Inc.
due June 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $41,018,928 for an
effective yield of 5.54% $ 41,012,619
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $342,277,606) (b) $ 342,065,294
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $344,273,857.
(b) The aggregate identified cost on a tax basis is $342,683,075, resulting in gross unrealized appreciation
and depreciation of $1,192,869 and $1,810,650, respectively, or net unrealized depreciation of $617,781.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $342,277,606) (Note 1) $342,065,294
- ---------------------------------------------------------------------------------------------------
Cash 516,929
- ---------------------------------------------------------------------------------------------------
Interest receivable 3,624,589
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,650,131
- ---------------------------------------------------------------------------------------------------
Total assets 347,856,943
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 152,938
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,528,255
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 508,070
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 60,818
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,442
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,100
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 121,614
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 8,416
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 191,433
- ---------------------------------------------------------------------------------------------------
Total liabilities 3,583,086
- ---------------------------------------------------------------------------------------------------
Net assets $344,273,857
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 347,028,230
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,105,041)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,437,020)
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (212,312)
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $344,273,857
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($147,054,098 divided by 29,869,489 shares) $4.92
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $4.92)* $5.09
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($80,009,310 divided by 16,236,814 shares)** $4.93
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($7,495,898 divided by 1,519,030 shares) $4.93
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $4.93)* $5.03
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($109,714,551 divided by 22,292,112 shares) $4.92
- ---------------------------------------------------------------------------------------------------
* 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
Six months ended May 31, 1998 (Unaudited)
<S> <C>
Interest income $10,358,408
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,016,371
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 310,521
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,881
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,287
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 191,033
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 297,053
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 13,217
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,575
- --------------------------------------------------------------------------------------------------
Other 13,901
- --------------------------------------------------------------------------------------------------
Total expenses 1,854,839
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (100,862)
- --------------------------------------------------------------------------------------------------
Net expenses 1,753,977
- --------------------------------------------------------------------------------------------------
Net investment income 8,604,431
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,529,378
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (1,041,782)
- --------------------------------------------------------------------------------------------------
Net gain on investments 2,487,596
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $11,092,027
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 8,604,431 $ 12,568,098
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 3,529,378 827,510
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,041,782) (425,668)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,092,027 12,969,940
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (4,088,492) (7,851,870)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,872,463) (3,172,610)
- ----------------------------------------------------------------------------------------------------------------------
Class M (201,476) (264,827)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (3,547,041) (1,186,579)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 12,425,039 125,105,135
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 13,807,594 125,599,189
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 330,466,263 204,867,074
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $1,105,041 and $- respectively) $344,273,857 $330,466,263
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Feb. 16, 1993+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $4.90 $4.90 $4.92 $4.60 $4.91 $5.00
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .13 (a) .28 .29 .27 .27 (b) .21 (a)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .03 -- (.02) .35 (.32) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 .28 .27 .62 (.05) .12
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.28) (.26) (.29) (.24) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.01) (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) -- (e) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.28) (.29) (.30) (.26) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.92 $4.90 $4.90 $4.92 $4.60 $4.91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 3.32* 5.98 5.71 13.85 (1.12) 2.44*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $147,054 $135,283 $143,575 $57,049 $53,831 $19,088
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .53* 1.15 1.22 1.20 1.09 (b) 1.05(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.58* 5.77 5.54 5.78 5.59 (b) 3.13(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 98.45* 188.39 367.19 383.88 351.62 309.80*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Feb. 16, 1993+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $4.91 $4.90 $4.92 $4.60 $4.91 $5.00
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .11(a) .26 .26 .24 .24(b) .18(a)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 - (.02) .35 (.32) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 .26 .24 .59 (.08) .10
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.13) (.25) (.24) (.26) (.21) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.01) (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) -- (e) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.25) (.26) (.27) (.23) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.93 $4.91 $4.90 $4.92 $4.60 $4.91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 3.00* 5.56 5.08 13.17 (1.71) 1.95*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $80,009 $68,137 $56,889 $23,201 $21,243 $4,317
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .83* 1.75 1.80 1.81 1.69(b) .67(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.29* 5.16 4.94 5.17 4.98(b) 3.53(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 98.45* 188.39 367.19 383.88 351.62 309.80*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Year ended Apr. 3, 1995+
operating performance (Unaudited) November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $4.91 $4.90 $4.93 $4.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .12(a) .28 .27 .12(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .01 (.02) .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 .29 .25 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.28) (.26) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) --(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.28) (.28) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.93 $4.91 $4.90 $4.93
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 3.23* 6.03 5.33 9.63*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,496 $7,158 $4,404 $1,058
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .60* 1.30 1.35 .87*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.51* 5.55 5.28 3.37*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 98.45* 188.39 367.19 383.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Oct. 1, 1997+
operating performance (Unaudited) to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $4.90 $4.90
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .13 (a) .05
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .17 .05
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.15) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.92 $4.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 3.45* 1.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $109,715 $119,889
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .40* .15*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.70* .96*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 98.45* 188.39
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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
May 31, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam Intermediate U.S. Government Income Fund (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, class M and class Y 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 within approximately six to 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 higher than class A shares but lower than class B shares. Class Y
shares, which are sold at net asset value, are generally subject to the same
expenses as class A shares, class B and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans that
invest at least $250 million in a combination of Putnam Funds and other
accounts managed by affiliates of Putnam Management.
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
that 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At November 30, 1997, the fund had a capital loss carryover of approximately
$22,832,000. This amount includes approximately $21,210,000 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
- ------------------ ------------------------
$ 7,198,000 November 30, 2000
13,497,000 November 30, 2001
1,622,000 November 30, 2002
515,000 November 30, 2003
F) Distributions to shareholders The fund declares a distribution each day
based upon the projected net investment income, for a specified period,
calculated as if earned prorata throughout the period on a daily basis. Such
distributions are recorded daily and paid monthly. Capital gain distributions,
if any, are recorded on the ex-dividend date and paid at least annually. The
amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $49,893. The expenses have been fully amortized over a five
year period as of May 31, 1998.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services, is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.60% of the first $1 billion of
average net assets, 0.50% of the next $500 million, 0.45% of the next $5
billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39%
of the next $5 billion, and 0.38% thereafter.
The fund reimburses Putnam Management an allocated amount 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 subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended May 31, 1998, fund expenses were reduced by $100,862
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.
Each Trustee of the fund receives an annual Trustee fee, of which $550 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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 accordance with the
Deferral Plan.
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 currently limit payment by the fund to 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 six months ended May 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $29,837 and $1,184 from the sale of
class A and class M shares, respectively and $55,984 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the six
months ended May 31, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $12,527 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1998, purchases and sales of U.S.
government and agency obligations other than short-term investments aggregated
$436,563,182 and $290,628,618, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At May 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 15,301,938 $75,407,336
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 591,035 2,913,657
- ------------------------------------------------------------
15,892,973 78,320,993
Shares
repurchased (13,612,085) (67,073,109)
- ------------------------------------------------------------
Net increase 2,280,888 $11,247,884
- ------------------------------------------------------------
Year ended
November 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 33,183,898 $161,148,766
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,158,074 5,623,653
- ------------------------------------------------------------
34,341,972 166,772,419
Shares
repurchased (36,082,598) (175,289,231)
- ------------------------------------------------------------
Net decrease (1,740,626) $(8,516,812)
- ------------------------------------------------------------
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 13,393,462 $66,061,725
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 301,069 1,484,255
- ------------------------------------------------------------
13,694,531 67,545,980
Shares
repurchased (11,346,261) (55,943,583)
- ------------------------------------------------------------
Net increase 2,348,270 $11,602,397
- ------------------------------------------------------------
Year ended
November 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 13,830,235 $67,106,523
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 525,298, 2,552,021
- ------------------------------------------------------------
14,355,533 69,658,544
Shares
repurchased (12,088,083) (58,652,639)
- ------------------------------------------------------------
Net increase 2,267,450 $11,005,905
- ------------------------------------------------------------
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 560,773 $2,766,826
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 35,007 172,883
- ------------------------------------------------------------
595,780 2,939,709
Shares
repurchased (533,966) (2,634,934)
- ------------------------------------------------------------
Net increase 61,814 $304,775
- ------------------------------------------------------------
Year ended
November 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,807,401 $8,795,356
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 47,321 230,423
- ------------------------------------------------------------
1,854,722 9,025,779
Shares
repurchased (1,296,199) (6,300,796)
- ------------------------------------------------------------
Net increase 558,523 $2,724,983
- ------------------------------------------------------------
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 2,993,377 $14,691,814
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 710,252 3,547,041
- ------------------------------------------------------------
3,703,629 18,238,855
Shares
repurchased (5,874,928) (28,968,872)
- ------------------------------------------------------------
Net decrease (2,171,299) $(10,730,017)
- ------------------------------------------------------------
For the period
October 1, 1997
(commencement of
operations) to
November 30, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 26,232,360 $128,541,407
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 241,958 1,186,579
- ------------------------------------------------------------
26,474,318 129,727,986
Shares
repurchased (2,010,907) (9,836,927)
- ------------------------------------------------------------
Net increase 24,463,411 $119,891,059
- ------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
*Formerly Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
**An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
Michael Martino
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA036-43762/398/428/674 7/98
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ------------------------------------------------------------------------
Putnam Intermediate U.S. Government Income Fund
Supplement to Semiannual Report dated May 31, 1998
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to defined contribution plans
investing $250 million or more in one or more of Putnamis funds or
private accounts. Performance of class Y shares, which incur neither a
front-end load, distribution fee, nor contingent deferred sales charge,
will differ from performance of class A, B, and M shares, which are
discussed more extensively in the semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
- ------------------------------------------------------------------------
Total return: NAV
Six months ended 5/31/98 3.40%
One year ended 5/31/98 8.25
Annual average (since class A inception, 2/16/93) 5.65
- ------------------------------------------------------------------------
Share value: NAV
11/30/97 $4.90
5/31/98 4.92
- ------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.145003 $0.0000 $0.145003
- ------------------------------------------------------------------------
Current return (end of period) Total
Current dividend rate1 6.28%
Current 30-day SEC yield2 5.40
1Income portion of most recent distribution, annualized and divided by
NAV at end of period.
2Based only on investment income, calculated using SEC guidelines.
Class Y shares are offered without an initial sales charge or CDSC.
The class Y share returns shown for periods before their inception
October 1, 1997 are derived from the historical performance of class A
shares for such periods, but have not been adjusted to reflect
differences in expenses, which are lower for class Y shares than for
class A shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return will fluctuate and may involve the loss of principal.
Performance of other share classes will vary. See full report for
information on comparative benchmarks. If you have questions, please
consult your fund prospectus or call Putnam toll free at 1-800-752-9894.
