Putnam
Intermediate
U.S. Government
Income Fund
ANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam Intermediate U.S. Government Income Fund's performance continues
to stand out among its peers. For the 3 years ended December 31, 1997, the
fund's class A share total return ranked 4 out of 66 short/intermediate
U.S. government funds tracked by Lipper Analytical Services, placing it in
the top 6% of this category.*
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
14 Financial statements
* 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 B shares
were ranked 17 out of 66 short/intermediate U.S. government funds for
3-year performance through 12/31/97. The fund's class A, class B, and
class M shares were ranked 16, 42, and 17 out of 92 funds, respectively,
for 1-year performance. Past performance is not indicative of future
results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The sharp decline in global equity markets triggered by the devaluation of
certain Southeast Asian currencies in late October was accompanied by dramatic
advances in fixed-income markets, as investors around the world abandoned
stocks and turned to bonds for safety. The bonds, already overvalued, became
even more so, leading many central banks outside the United States to apply
coolant in the form of interest-rate increases and increasing demand for U.S.
government securities.
This flurry of activity provided a dramatic climax to Putnam Intermediate U.S.
Government Income Fund's fiscal year on November 30, 1997. U.S. Treasury bonds
seem to have been the major beneficiary of this flight to more solid ground,
providing a welcome enhancement to your fund's results. Many other factors
played important roles in the fund's positive performance, of course, not the
least of which were timely shifts in weightings among the various types of
securities in the portfolio.
In the following report, Fund Manager Michael Martino provides the details as
well as his views of what may lie ahead as your fund begins its new fiscal
year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1998
Report from the Fund Manager
Michael Martino
With the exception of a brief setback in the weeks leading up to the Federal
Reserve Board's March rate increase, U.S. fixed-income markets enjoyed
relatively smooth sailing throughout Putnam Intermediate U.S. Government
Income Fund's 1997 fiscal year. Although economic growth was consistently
strong, inflation failed to materialize. Even the threat of rising prices, a
source of constant worry in the first few weeks of 1997, appeared to have
faded from investors' minds by midyear.
Your fund navigated both tides of investor sentiment this year, ending the
12-month period through November 30, 1997, with a 5.98% return at net asset
value for its class A shares. At public offering price, the fund's class A
shares returned 2.63%. For more performance information, including returns for
other share classes, please see pages 8 through 10.
*DEFENSIVE POSTURE MAINTAINED THROUGH YEAR'S END
With an intermediate-term orientation, the fund naturally limits its
sensitivity to changes in interest rates. One important way we try to further
this is by keeping portfolio duration between 2.5 and 4 years. A widely used
tool for investment professionals, duration (expressed in years) measures
interest-rate sensitivity and is managed by altering a portfolio's mix of
securities. Basically the shorter the duration, the less a fund's net asset
value will be adversely affected by an increase in rates. On the flip side, a
shorter duration limits a fund's participation in market rallies and,
consequently, dampens its appreciation potential.
In the first few months of the fiscal year, the case for inflation's return
appeared to be a convincing one. Bond investors dislike inflation because it
means the fixed payments of interest from the bonds they hold will buy less in
the future. So the combination of strong economic growth, low levels of
unemployment, and factories running at full tilt -- all traditional harbingers
of inflation -- produced a rather negative investor sentiment and heightened
volatility in the markets.
Toward the latter part of the fiscal year, we pared the fund's duration to
roughly 2.8 years, indicating a defensive outlook. In doing so, we increased
the fund's cash position to roughly 17% of net assets while concentrating
investments in the 10-year maturity range. This is what we call a barbell
strategy, since assets are concentrated on the short-term and long-term ends
of the yield curve rather than in the middle. In fact, we maintained the
fund's defensive posture for the remainder of the fiscal year. Our strategy
was rewarded during the year as bonds in the 10-year maturity range turned in
some of the government market's best performance.
*TREASURIES TAKE LEAD IN SECOND HALF
We believe the fund's flexibility to invest in a variety of government
securities -- including fixed-rate mortgages, adjustable-rate mortgages, and
Treasuries -- is one of its greatest competitive strengths. This year,
although we had chosen to pursue a defensive strategy in terms of duration, we
sought to take advantage of investment opportunities by altering the fund's
mix of securities.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
11/30/96 11/30/97
Fixed-rate mortgage-backed securities 15.5% 13.7%
Adjustable-rate mortgage-backed securities 25.2% 1.5%
U.S. Treasury securities 56.2% 66.8%
Cash and short-term investments 2.0% 17.3%
Footnote reads:
*Based on net assets as of 11/30/96 and 11/30/97. Composition will vary over
time.
In the first half of the year, we focused investments in the mortgage sector.
Mortgages typically perform better than Treasuries during times when interest
rates are stable or rising. Mortgage-backed securities, such as GNMAs, carry
higher yields than Treasuries in order to compensate investors for the risk of
prepayment. (The premature payment of mortgage principal produces an uneven
stream of income and forces investors to reinvest their money at lower
prevailing rates.)
In the second half of the year, as investor confidence grew, rates came down
and the risk of mortgage prepayment intensified. The prices of mortgage-backed
securities suffered as a result, and in late spring we reduced the portfolio's
mortgage weighting in favor of Treasuries, which tend to perform better when
interest rates are heading lower. The increased Treasury position (66.8% of
net assets as of fiscal year's end) provided a significant boost to the fund's
return for the year.
As was mentioned in your fund's semiannual report, we began reducing the
fund's adjustable-rate mortgage position in early 1997, when we suspected a
rate increase was imminent. In a rising interest-rate environment, certain
types of ARMs can be relative underperformers, since the lag in coupon
resetting means these securities could offer less income than fixed-rate
mortgages of equivalent quality. In all, we reduced the fund's adjustable-rate
mortgage holdings from 25% of portfolio holdings on November 30, 1996, to
nearly 2% at the end of the period.
*OUTLOOK: NOT QUITE OUT OF WOODS YET
At an annualized growth rate of 3.3% in the third quarter, economic activity
in the United States continues to be above trend, or what the Fed has
suggested is sustainable growth without inflation (roughly 2.5% per year).
Some economists are suggesting that the crisis in Southeast Asia will put a
damper on U.S. growth in the coming year. We believe this is true but expect
the effect to be less significant than many are anticipating.
In our estimation, the U.S. economy continues to simmer just below the boiling
point and may require another Fed-engineered increase in short-term rates
before we're truly out of the woods. Until then, we expect to keep the fund's
duration stance relatively defensive, seeking opportunities in sectors of the
bond market that 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 11/30/97, 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.
[GRAPHIC OMITTED: vertical bar chart EFFECTIVE MATURITY BREAKDOWN]
EFFECTIVE MATURITY BREAKDOWN*
0-1 years 12.3%
1-5 years 42.6%
5-15 years 7.5%
15+ years 19.6%
Footnote reads:
*Based on net assets as of 11/30/97. 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.
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 11/30/97
Class A Class B Class M
(inception date) (2/16/93) (2/16/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 5.98% 2.63% 5.56% 2.56% 6.03% 3.90%
- ------------------------------------------------------------------------------
Life of fund 29.20 24.96 25.79 25.79 28.42 25.91
Annual average 5.49 4.76 4.91 4.91 5.36 4.93
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/97
Lehman Bros.
Intermediate Consumer
Govt. Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 6.28% 1.83%
- ------------------------------------------------------------------------------
Life of fund 30.81 12.86
Annual average 5.81 2.58
- ------------------------------------------------------------------------------
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-year 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 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 and represent past performance; they
do not guarantee future results. 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 2/16/93
Plot points read:
Lehman Bros.
Fund class A Intermediate Consumer
shares at POP Government Index Price Index
2/16/93 9525 10000 10000
6/30/93 9700 10234 10091
12/31/93 9969 10465 10189
6/30/94 9717 10214 10343
12/31/94 9824 10283 10462
6/30/95 10673 11211 10657
12/31/95 11301 11765 10728
6/30/96 11274 11764 10951
12/31/96 11724 12243 11083
6/30/97 12048 12580 11202
11/30/97 12496 13081 11286
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $12,579 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$12,842 ($12,591 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.282544 $0.253313 $0.275117
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.282544 $0.253313 $0.275117
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/96 $4.90 $5.06 $4.90 $4.90 $5.00
- ------------------------------------------------------------------------------
11/30/97 4.90 5.06 4.91 4.91 5.01
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 6.25% 6.05% 5.64% 6.09% 5.97%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 5.37 5.19 4.71 5.14 5.04
- ------------------------------------------------------------------------------
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 12/31/97
(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
- ------------------------------------------------------------------------------
1 year 7.49% 4.06% 6.85% 3.85% 7.31% 5.15%
- ------------------------------------------------------------------------------
Life of fund 30.29 26.01 26.53 26.53 29.48 26.96
Annual average 5.58 4.86 4.95 4.95 5.45 5.02
- ------------------------------------------------------------------------------
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 maximum 3.25% sales charge for class A
shares and 2.00% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 3% maximum during the first year
to 1% during the fourth year. After the fourth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Intermediate Government Bond Index is composed of all
bonds covered by the Lehman Brothers Government Bond Index with maturities
between one and 9.9 years. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in the
fund, and may pose different risks than the fund. It is not possible to
invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
For the fiscal year ended November 30, 1997
To the Trustees and Shareholders of
Putnam Intermediate U.S. Government Income Fund
We have audited the accompanying statement of assets and liabilities of Putnam
Intermediate U.S. Government Income Fund, including the portfolio of
investments owned, as of November 30, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Intermediate U.S. Government Income Fund as of November 30, 1997, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P
Boston, Massachusetts
January 14, 1998
Portfolio of investments owned
November 30, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (82.0%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (15.2%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2,997,122 Federal Home Loan Mortgage Corp. 7 1/2s, August 1, 2007 $ 3,066,416
Federal National Mortgage Association
114,734 11 1/4s, October 1, 2010 130,654
601,301 8s, May 1, 2013 613,441
Federal National Mortgage Association Adjustable Rate
Mortgage (ARM)
30,894 7.275s, May 1, 2016 31,532
293,621 6.069s, with due dates from November 1, 2024 to July 1, 2026 292,800
Government National Mortgage Association
37,671,213 8 1/2s, with due dates from March 15, 2026 to
October 15, 2027 39,443,226
1,882,994 7 1/2s, with due dates from March 15, 2026 to
December 15, 2026 1,920,655
4,617,344 Government National Mortgage Association Adjustable Rate
Mortgage (ARM) 6s, July 20, 2026 4,716,202
--------------
50,214,926
U.S. Treasury Obligations (66.8%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 U.S. Treasury Bonds 6s, February 15, 2026 1,968,440
U.S. Treasury Notes
30,000,000 8 1/4s, July 15, 1998 30,468,600
10,000,000 8 1/8s, February 15, 1998 10,050,000
10,000,000 8s, May 15, 2001 10,660,900
15,000,000 6 1/2s, October 15, 2006 15,597,600
21,435,000 6 1/8s, August 15, 2007 21,846,981
50,000,000 6s, July 31, 2002 50,289,000
50,000,000 5 7/8s, September 30, 2002 50,031,000
5,000,000 5 7/8s, July 31, 1999 5,005,450
25,000,000 5 3/4s, October 31, 2002 24,894,500
--------------
220,812,471
--------------
Total U.S. Government and Agency Obligations
(cost $270,197,927) $ 271,027,397
SHORT-TERM INVESTMENTS (17.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$25,000,000 Federal Home Loan Mortgage Corp. 5.46s,
December 3, 1997 $ 24,836,958
32,000,000 Interest in $607,352,000 joint repurchase agreement
dated November 28, 1997 with UBS Securities
due December 1, 1997 with respect to various
U.S. Treasury obligations -- maturity value of
$32,015,200 for an effective yield of 5.70% 32,015,200
--------------
Total Short-Term Investments (cost $56,852,158) $ 56,852,158
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $327,050,085) *** $ 327,879,555
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $330,466,263.
*** The aggregate identified cost on a tax basis is $327,455,554,
resulting in gross unrealized appreciation and depreciation of
$2,433,974 and $2,009,973, respectively, or net unrealized appreciation
of $424,001.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $327,050,085) (Note 1) $327,879,555
- ---------------------------------------------------------------------------------------------------
Cash 468,052
- ---------------------------------------------------------------------------------------------------
Interest receivable 4,017,830
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 752,057
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 2,575
- ---------------------------------------------------------------------------------------------------
Total assets 333,120,069
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,865,479
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 428,870
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 33,206
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 11,698
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,141
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 117,083
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 8,416
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 187,913
- ---------------------------------------------------------------------------------------------------
Total liabilities 2,653,806
- ---------------------------------------------------------------------------------------------------
Net assets $330,466,263
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $334,603,191
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (4,966,398)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 829,470
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $330,466,263
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($135,282,562 divided by 27,588,601 shares) $4.90
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $4.90)* $5.06
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($68,136,722 divided by 13,888,544 shares)** $4.91
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($7,157,889 divided by 1,457,216 shares) $4.91
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $4.91)* $5.01
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($119,889,090 divided by 24,463,411 shares) $4.90
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1997
<S> <C>
Interest income: $15,385,011
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 1,346,140
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 452,138
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,041
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,051
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 359,600
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 541,923
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 20,670
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 9,562
- --------------------------------------------------------------------------------------------------
Reports to shareholders 42,866
- --------------------------------------------------------------------------------------------------
Registration fees 80,710
- --------------------------------------------------------------------------------------------------
Auditing 36,900
- --------------------------------------------------------------------------------------------------
Legal 21,190
- --------------------------------------------------------------------------------------------------
Postage 7,843
- --------------------------------------------------------------------------------------------------
Other 10,532
- --------------------------------------------------------------------------------------------------
Total expenses 2,950,166
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (133,253)
- --------------------------------------------------------------------------------------------------
Net expenses 2,816,913
- --------------------------------------------------------------------------------------------------
Net investment income 12,568,098
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 827,510
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (425,668)
- --------------------------------------------------------------------------------------------------
Net gain on investments 401,842
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $12,969,940
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
--------------------------------
1997 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 12,568,098 $ 5,563,624
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 827,510 1,507,914
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (425,668) (530,704)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 12,969,940 6,540,834
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (7,851,870) (3,860,962)
- ----------------------------------------------------------------------------------------------------------------------
Class B (3,172,610) (1,444,592)
- ----------------------------------------------------------------------------------------------------------------------
Class M (264,827) (141,936)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (1,186,579) --
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (370,887)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (138,769)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (13,634)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 125,105,135 122,988,914
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 125,599,189 123,558,968
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 204,867,074 81,308,106
- ----------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $ -- and $172,488,
respectively) $330,466,263 $204,867,074
- ----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 16, 1993+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $4.90 $4.92 $4.60 $4.91 $5.00
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .28 .29 .27 .27 (b) .21(a)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments -- (.02) .35 (.32) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .28 .27 .62 (.05) .12
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.28) (.26) (.29) (.24) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (.01) (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) --(e) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.29) (.30) (.26) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.90 $4.90 $4.92 $4.60 $4.91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 5.98 5.71 13.85 (1.12) 2.44*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $135,283 $143,575 $57,049 $53,831 $19,088
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.15 1.22 1.20 1.09(b) 1.05(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.77 5.54 5.78 5.59(b) 3.13(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
- ----------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 16, 1993+
operating performance Year ended November 30 to Nov. 30
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $4.90 $4.92 $4.60 $4.91 $5.00
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .26 .26 .24 .24(b) .18(a)(b)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments -- (.02) .35 (.32) (.08)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .26 .24 .59 (.08) .10
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.24) (.26) (.21) (.19)
- ----------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (.01) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) --(e) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.26) (.27) (.23) (.19)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.91 $4.90 $4.92 $4.60 $4.91
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 5.56 5.08 13.17 (1.71) 1.95*
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $68,137 $56,889 $23,201 $21,243 $4,317
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.75 1.80 1.81 1.69(b) .67(b)*
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.16 4.94 5.17 4.98(b) 3.53(b)*
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
- ----------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Apr. 3, 1995+
operating performance November 30 to Nov. 30
- ----------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $4.90 $4.93 $4.68
- ----------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------
Net investment income .28 .27 .12(a)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 (.02) .32
- ----------------------------------------------------------------------------------------------------------------
Total from
investment operations .29 .25 .44
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------
From net
investment income (.28) (.26) (.18)
- ----------------------------------------------------------------------------------------------------------------
Return of capital -- -- (.01)
- ----------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) --(e)
- ----------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.28) (.19)
- ----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.91 $4.90 $4.93
- ----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 6.03 5.33 9.63*
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,158 $4,404 $1,058
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.30 1.35 .87*
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.55 5.28 3.37*
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
- ---------------------------------------------------------------------------------------------------------------
For the period
Per-share Oct. 1, 1997+
operating performance to Nov. 30
- ---------------------------------------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $4.90
- ---------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------
Net investment income .05
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments --
- ---------------------------------------------------------------------------------------------------------------
Total from
investment operations .05
- ---------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------
From net
investment income (.05)
- ---------------------------------------------------------------------------------------------------------------
Return of capital --
- ---------------------------------------------------------------------------------------------------------------
In excess of net
investment income --
- ---------------------------------------------------------------------------------------------------------------
Total distributions (.05)
- ---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.90
- ---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 1.03*
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $119,889
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .15*
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .96*
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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
November 30, 1997
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. The fund began
offering class Y shares on October 1, 1997. Class A shares are sold with a
maximum front-end sales charge of 3.25%. Class B shares, which convert to
class A shares after approximately eight years, do not pay a front-end sales
charge but, pay a higher ongoing distribution fee than class A shares, and are
subject to a contingent deferred sales charge, if those shares are redeemed
within four years of purchase. Class M shares are sold with a maximum front
end sales charge of 2.00% and pay an ongoing distribution fee that is 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 the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value, and other investments are
stated at fair market value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
E) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, 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. These
differences include temporary and permanent differences of losses on wash sale
transactions, market discount, capital loss carryforwards, and paydown gains
and losses on mortgage backed securities. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. For the
year ended November 30, 1997, the fund reclassified $80,276 to decrease
distributions in excess of net investment income and $4,182,850 to increase
paid-in-capital, with an increase to accumulated net realized losses of
$4,263,126. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $49,893. These expenses are being amortized on a straight-line
basis over a five-year period.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services, is paid quarterly based on the average net assets of the fund. 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. Prior to March 20, 1997, any
amount over $1.5 billion was based on a rate 0.45%.
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 year ended November 30, 1997, fund expenses were reduced by $133,253
under expense offset arrangements with PFTC and brokerage service
arrangements. 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 $520 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 funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 0.85% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees 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 year ended November 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $47,291 and $1,982 from the sale of
class A and class M shares, respectively and $78,036 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the year
ended November 30, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $55,374 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1997, purchases and sales of U.S.
government and agency obligations other than short-term investments aggregated
$435,942,336 and $363,781,868, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At November 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
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)
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 21,352,359 $103,080,104
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 605,304 2,935,082
- ------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam
Adjustable Rate
U.S. Government
Fund 11,771,185 57,325,670
- ------------------------------------------------------------
33,728,848 $163,340,856
Shares
repurchased (15,993,455) (77,207,708)
- ------------------------------------------------------------
Net increase 17,735,393 $ 86,133,148
- ------------------------------------------------------------
Year ended
November 30, 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
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 7,669,855 $36,980,646
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 272,195 1,319,922
- ------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam
Adjustable Rate
U.S. Government
Fund 4,390,784 21,383,118
- ------------------------------------------------------------
12,332,834 59,683,686
Shares
repurchased (5,427,659) (26,155,445)
- ------------------------------------------------------------
Net increase 6,905,175 $ 33,528,241
- ------------------------------------------------------------
Year ended
November 30, 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
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,450,087 $7,026,481
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 27,541 133,380
- ------------------------------------------------------------
1,477,628 7,159,861
Shares
repurchased (793,749) (3,832,336)
- ------------------------------------------------------------
Net increase 683,879 $3,327,525
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Note 5
Acquisition of Putnam Adjustable
Rate U.S. Government Fund
On November 11, 1996, the fund issued 11,771,185 and 4,390,784 of class A and
class B shares, respectively to the shareholders of Putnam Adjustable Rate
U.S. Government Fund to acquire that fund's net assets in a tax-free exchange
approved by the shareholders. The net assets of the fund and Putnam Adjustable
Rate U.S. Government Fund on November 8, 1996, valuation date, were
$124,349,453 and $78,708,788 respectively. On November 11, 1996, Putnam
Adjustable Rate U.S. Government Fund had unrealized appreciation of $345,189.
The aggregate net assets of the fund immediately following the acquisition
were $203,058,241.
Federal tax information
(Unaudited)
The form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Alan Bankart
Vice President
Michael Martino
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Intermediate U.S.
Government Income Fund. It may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and the
most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581. You
can also learn more at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution; are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency;
and involve risk, including the possible loss of 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
- --------------------
AN036-36877-398/428/674 1/98
