Putnam
Intermediate
U.S. Government
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
As prospects for the world's securities markets grew more positive during
the past few months, global investors put away some of their concerns over
risk and returned to a more venturesome frame of mind. As a consequence,
the U.S. Treasury securities to which those investors had fled lost some
of their luster. Putnam Intermediate U.S. Government Income Fund's
flexibility to hold both Treasury and mortgage-backed securities helped
your fund during the past few months.
Mortgage-backed securities were among the beneficiaries of investors' mood
shift. The performance of mortgage-backed securities was further helped by
continued economic strength, stable interest rates, and low inflation, and
they contributed to the fund's performance during the first half of fiscal
1999.
In the following report, fund managers Michael Martino and Kevin Cronin
provide a detailed discussion of their strategy in the changing investment
environment as well as their current thinking about prospects and
strategies for the second half of the fiscal year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Managers
Michael Martino
Kevin M. Cronin
Close on the heels of worldwide market turbulence in the second half of
1998, U.S. bond markets stabilized. U.S. Treasury securities -- the main
beneficiaries of a flight to quality by worried investors in the third
quarter and early fourth quarter of 1998 -- gave back some of their gains,
while non-Treasury sectors such as mortgage-backed securities recovered.
Putnam Intermediate U.S. Government Income Fund's performance for the six
months ended May 31, 1999, reflects a neutral positioning within this
environment. Over the long term, the fund continues to provide strong
performance.
Total return for 6 months ended 5/31/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------
-0.40% -3.67% -0.49% -3.41% -0.27% -2.22%
- -------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* U.S. TREASURIES STALL AFTER MAJOR ADVANCE
After enjoying a major rally in 1998, U.S. Treasuries lost momentum in
early 1999. In the fall of 1998, they had outperformed all other
fixed-income sectors, benefiting from their sterling reputation as a
comparatively safe investment amid the global turmoil. Year to date in
1999, however, interest rates have risen by more than one percentage point
across almost all maturities in the Treasury market. When interest rates
rise, bond prices fall, and U.S. Treasuries typically underperformed other
sectors.
The performance of U.S. Treasuries suffered for two important reasons.
First, as the global economic and market situation stabilized, investors
became more comfortable investing in the non-Treasury sectors again.
Market participants sold Treasuries so that assets could be reallocated to
now-cheaper corporate bonds, mortgage-backed securities, high-yield
issues, and emerging- markets bonds. Second, the economy continued to grow
at a faster pace than had been expected. That sustained growth caused
market sentiment to shift in anticipation that the Federal Reserve Board
would raise key short-term interest rates in order to slow growth and head
off inflation. The Fed corroborated that concern by announcing a bias
toward raising rates in the future in May.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
11/30/98 5/31/99
Fixed rate
mortgage-backed
securities 48.6% 47.2%
Adjustable-rate
mortgage-backed
securities 0.6% 0.4%
U.S. Treasury
securities 36.8% 48.1%
Cash and
short-term
investments 12.7% 4.0%
Footnote reads:
*Based on net assets as of 5/31/99. Composition will vary over time.
* STABILITY HELPS MORTGAGE-BACKED SECURITIES THRIVE
While Treasuries struggled, mortgage-backed securities rebounded from last
year's slump, which reflected an increase in mortgage refinancing activity
as interest rates declined. After their travails last year,
mortgage-backed securities became attractive buy candidates for investors
taking profits on Treasury securities that had appreciated significantly.
Another important consideration is that the mortgage-backed market
generally performs better than the Treasury market when the overall
investment environment is calm. Over the semiannual period, there was
little drama, another factor that helped mortgages outperform Treasuries.
The economy was stable, as was the political backdrop. The president's
impeachment faded into the background, and the Kosovo crisis proved to
have little impact on interest rates.
[GRAPHIC OMITTED: vertical bar chart DURATION OVERVIEW]
DURATION OVERVIEW*
0-1 year 9.5%
1-5 years 75.3%
5+ years 15.2%
Footnote reads:
*Based on net assets as of 5/31/99. Duration will vary over time.
The mortgage market consequently has been a recent focus of the fund.
Investments in this sector have been clustered in Government National
Mortgage Association (GNMA) certificates with coupon rates in the 7% to
9.5% range. We have found these securities to be stable, profitable
investments for the fund because they have tended to be less affected by
the recent comparatively sharp swings in interest rates than lower or
higher coupon alternatives currently available.
Early in the period, we employed a barbell strategy with the fund's
Treasury allocation. That is, we concentrated the fund's investments in
these securities on longer-term securities on the one hand and short term
securities on the other, with few investments in between. This positioning
helped fund performance when the yield difference between short- and
long-term securities decreased. For the most part, though, we have
followed a steady investment strategy more typical of the fund by
investing mainly in Treasuries with two-, three-, and five-year
maturities.
In terms of duration -- a measure of the fund's sensitivity to interest
rates -- we maintained a neutral stance, which helped performance. Our
belief was that there would be no benefit in taking a more aggressive
approach regarding the future direction of interest rates as we waited for
the dust to settle from last year's turmoil. In other words, we stuck to
basics and tried to avoid risk, two positions that have helped your fund
post a strong long-term record.
"Mortgage-backed securities have become attractive buy candidates for
investors taking profits on Treasury securities that had appreciated
significantly. Because of their appealing prices and what we feel will
be a generally stable environment, we intend to continue to increase the
fund's stake in mortgage-backed securities."
- -- Michael Martino, fund manager
* OUTLOOK: FED EXPECTED TO HOLD RELATIVELY STABLE
At the end of the period, market prices factored in the expectation that
the Fed would raise short-term interest rates in June. Our outlook calls
for the economy to moderate, for inflation not to be a problem in 1999,
and for the Fed not to be forced to raise interest rates substantially.
That being said, the economy has remained strong, and so if the Fed does
choose to raise rates further, we believe that it will do so in a limited
manner.
At present, we believe there is no compelling reason to implement a
strategy based on future moves in interest rates. Instead, we intend to
maintain a neutral duration with your fund so that its response to changes
in interest rates will be in line with the market.
Where we will seek to make a significant shift will be in the
mortgage-backed sector. We intend to continue to increase that stake in
the fund, as it looks like the best opportunity to help performance over
the coming months.
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 5/31/99, 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 invests 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 5/31/99
Class A Class B Class M
(inception dates) (2/16/93) (2/16/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
6 months -0.40% -3.67% -0.49% -3.41% -0.27% -2.22%
- ----------------------------------------------------------------------------
1 year 4.34 0.85 3.72 0.75 4.39 2.31
- ----------------------------------------------------------------------------
5 years 38.31 33.75 34.77 34.77 37.58 34.72
Annual average 6.70 5.99 6.15 6.15 6.59 6.14
- ----------------------------------------------------------------------------
Life of fund 39.22 34.64 34.34 34.34 38.33 35.63
Annual average 5.41 4.85 4.81 4.81 5.30 4.97
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/99
Lehman Bros.
Intermediate Consumer
Govt. Bond Index price index
- ----------------------------------------------------------------------------
6 months -0.23% 1.34%
- ----------------------------------------------------------------------------
1 year 4.98 2.09
- ----------------------------------------------------------------------------
5 years 39.23 12.68
Annual average 6.84 2.42
- ----------------------------------------------------------------------------
Life of fund 42.18 16.14
Annual average 5.79 2.42
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 3% 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. Performance data
reflects an expense limitation previously in effect. Without the expense
limitation, total return would have been lower. 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
prior to 4/10/95 do not reflect the fund's performance under the current
investment policies.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/99
Class A Class B Class M
- -----------------------------------------------------------------------------
Distributions (number) 6 6 6
- -----------------------------------------------------------------------------
Income $0.130750 $0.115836 $0.126997
- -----------------------------------------------------------------------------
Capital gains -- -- --
- -----------------------------------------------------------------------------
Total $0.130750 $0.115836 $0.126997
- -----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------------
11/30/98 $5.01 $5.18 $5.01 $5.02 $5.12
- -----------------------------------------------------------------------------
5/31/99 4.86 5.02 4.87 4.88 4.98
- -----------------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------------
Current dividend rate1 5.50% 5.32% 4.82% 5.31% 5.20%
- -----------------------------------------------------------------------------
Current 30-day SEC yield2 4.68 4.53 4.08 4.53 4.44
- -----------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (2/16/93) (2/16/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------
6 months -0.69% -3.96% -0.99% -2.71% -0.76% -3.89%
- --------------------------------------------------------------------
1 year 3.58% 0.12% 2.75% -0.19% 3.42% 1.36%
- --------------------------------------------------------------------
5 years 38.52% 33.93% 34.42% 34.42% 37.49% 34.61%
Annual average 6.73% 6.02% 6.09% 6.09% 6.58% 6.12%
- --------------------------------------------------------------------
Life of fund 39.16% 34.59% 33.95% 33.95% 37.98% 35.28%
Annual average 5.33% 4.86% 4.69% 4.69% 5.18% 4.77%
- --------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (95.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
U.S. Government Agency Obligations (47.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 21,538,263 Federal Home Loan Mortgage Corp. 7 1/2s, with
due dates from August 1, 2007 to March 1, 2028 $ 22,006,220
212,893 Federal National Mortgage Association Adjustable
Rate Mortgage 6.092s, with due dates from
November 1, 2024 to July 1, 2026 212,229
Federal National Mortgage Association
Pass-Through Certificates
80,651 11 1/4s, October 1, 2010 88,992
305,193 8s, May 1, 2013 308,688
9,310,780 7s, Dwarf, October 1, 2011 9,444,576
96,605 6 1/2s, February 1, 2014 96,182
68,466,803 6 1/2s, Dwarf, with due dates from
April 1, 2012 to February 1, 2014 68,166,918
10,000,000 6.43s, April 1, 2009 9,657,800
49,300,000 5 3/4s, with due dates from April 15, 2003 to
February 15, 2008 48,418,899
5,785,000 5 5/8s, March 15, 2001 5,783,207
1,900,621 Government National Mortgage Association
Adjustable Rate Mortgage 7s, July 20, 2026 1,933,882
Government National Mortgage Association
Pass-Through Certificates
23,476,454 9 1/2s, with due dates from
May 15, 2018 to March 1, 2029 25,582,694
3,812,005 9s, December 15, 2021 4,094,703
2,600,168 8 1/2s, October 15, 2008 2,711,081
14,158,471 8s, with due dates from May 15, 2024 to
March 15, 2028 14,714,915
350,878 7 1/2s, with due dates from April 15, 2026 to
December 15, 2027 358,773
42,101,644 7s, with due dates from June 15, 2023 to
December 15, 2028 42,111,677
770,000 6 1/2s, January 15, 2029 750,989
--------------
256,442,425
U.S. Treasury Obligations (48.1%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
10,000,000 8s, May 15, 2001 10,467,200
50,000,000 6s, July 31, 2002 50,562,500
50,000,000 5 1/2s, May 15, 2009 49,531,000
25,000,000 5 3/8s, June 30, 2003 24,738,250
15,000,000 4 5/8s, November 30, 2000 14,842,950
115,000,000 4 1/4s, November 15, 2003 108,693,400
--------------
258,835,300
--------------
Total U.S. Government and Agency Obligations
(cost $524,089,326) $ 515,277,725
SHORT-TERM INVESTMENTS (4.0%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 19,074,000 Federal Home Loan Mortgage Corp., effective
yield of 4.77%, July 7, 1999 $ 18,965,326
2,462,000 Interest in $277,448,000 joint repurchase agreement
dated May 28, 1999 with Credit Suisse First Boston
due June 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $2,463,310 for an
effective yield of 4.79% 2,462,000
--------------
Total Short-Term Investments (cost $21,427,326) $ 21,427,326
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $545,516,652) (b) $ 536,705,051
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $538,559,660.
(b) The aggregate identified cost on a tax basis is $545,519,280, resulting in gross unrealized appreciation and
depreciation of $1,006,468 and $9,820,697, respectively, or net unrealized depreciation of $8,814,229.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $545,516,652) (Note 1) $536,705,051
- -----------------------------------------------------------------------------------------------
Cash 760
- -----------------------------------------------------------------------------------------------
Interest receivable 4,208,181
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,671,973
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 51,988,419
- -----------------------------------------------------------------------------------------------
Total assets 594,574,384
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 273,081
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,975,774
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 51,623,139
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 801,038
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 59,942
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 15,741
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,698
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 221,353
- -----------------------------------------------------------------------------------------------
Other accrued expenses 42,958
- -----------------------------------------------------------------------------------------------
Total liabilities 56,014,724
- -----------------------------------------------------------------------------------------------
Net assets $538,559,660
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $551,983,684
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,165,530)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,446,893)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (8,811,601)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $538,559,660
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($261,276,283 divided by 53,706,715 shares) $4.86
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $4.86)* $5.02
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($150,815,902 divided by 30,956,678 shares)** $4.87
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($11,073,984 divided by 2,271,283 shares) $4.88
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $4.88)* $4.98
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($115,393,491 divided by 23,741,931 shares) $4.86
- -----------------------------------------------------------------------------------------------
* 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, 1999 (Unaudited)
<S> <C>
Interest income $14,941,121
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,553,393
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 349,478
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,309
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,498
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 304,837
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 620,711
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 21,313
- -----------------------------------------------------------------------------------------------
Reports to shareholders 10,342
- -----------------------------------------------------------------------------------------------
Registration fees 10,222
- -----------------------------------------------------------------------------------------------
Auditing 16,934
- -----------------------------------------------------------------------------------------------
Legal 3,344
- -----------------------------------------------------------------------------------------------
Postage 13,539
- -----------------------------------------------------------------------------------------------
Total expenses 2,916,920
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (42,391)
- -----------------------------------------------------------------------------------------------
Net expenses 2,874,529
- -----------------------------------------------------------------------------------------------
Net investment income 12,066,592
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (509,431)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (13,306,405)
- -----------------------------------------------------------------------------------------------
Net loss on investments (13,815,836)
- -----------------------------------------------------------------------------------------------
Net loss in net assets resulting from operations $ (1,749,244)
- -----------------------------------------------------------------------------------------------
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
-------------------------------
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 12,066,592 $ 18,667,166
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (509,431) 6,359,304
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (13,306,405) 3,665,334
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,749,244) 28,691,804
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (6,346,561) (8,144,037)
- ---------------------------------------------------------------------------------------------------------------
Class B (3,334,451) (3,948,021)
- ---------------------------------------------------------------------------------------------------------------
Class M (269,818) (369,665)
- ---------------------------------------------------------------------------------------------------------------
Class Y (3,281,292) (6,096,815)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (1,024,707)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (496,752)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (46,512)
- ---------------------------------------------------------------------------------------------------------------
Class Y -- (767,119)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 43,632,105 171,644,482
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 28,650,739 179,442,658
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 509,908,921 330,466,263
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $1,165,530 and $--, respectively) $538,559,660 $509,908,921
- ---------------------------------------------------------------------------------------------------------------
* 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
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.01 $4.90 $4.90 $4.92 $4.60 $4.91
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .12 .25(c) .28 .29 .27 .27(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.14) .14 -- (.02) .35 (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.02) .39 .28 .27 .62 (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.13) (.25) (.28) (.26) (.29) (.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- (.01) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- (.03) --(d) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.28) (.28) (.29) (.30) (.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.86 $5.01 $4.90 $4.90 $4.92 $4.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.40)* 8.19 5.98 5.71 13.85 (1.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $261,276 $242,140 $135,283 $143,575 $57,049 $53,831
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .50* 1.06 1.15 1.22 1.20 1.09(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.38* 5.00 5.77 5.54 5.78 5.59(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86.19* 223.06 188.39 367.19 383.88 351.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charge.
(b) 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).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the periods.
(d) Distributions in excess of net investment income were less than $0.01 per share.
(e) 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, 1994.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.01 $4.91 $4.90 $4.92 $4.60 $4.91
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .11 .22 (c) .26 .26 .24 .24(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.13) .13 -- (.02) .35 (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.02) .35 .26 .24 .59 (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.22) (.25) (.24) (.26) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- (.01) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- (.02) --(d) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.25) (.25) (.26) (.27) (.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.87 $5.01 $4.91 $4.90 $4.92 $4.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.49)* 7.32 5.56 5.08 13.17 (1.71)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $150,816 $137,569 $68,137 $56,889 $23,201 $21,243
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80* 1.66 1.75 1.80 1.81 1.69(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.08* 4.39 5.16 4.94 5.17 4.98(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86.19* 223.06 188.39 367.19 383.88 351.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charge.
(b) 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).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the periods.
(d) Distributions in excess of net investment income were less than $0.01 per share.
(e) 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, 1994.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Apr. 3, 1995+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.02 $4.91 $4.90 $4.93 $4.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .11 .24(c) .28 .27 .12(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.12) .14 .01 (.02) .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.01) .38 .29 .25 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.13) (.24) (.28) (.26) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- (.02) --(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.27) (.28) (.28) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.88 $5.02 $4.91 $4.90 $4.93
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.27)* 8.01 6.03 5.33 9.63*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,074 $10,181 $7,158 $4,404 $1,058
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .58* 1.21 1.30 1.35 .87*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.31* 4.88 5.55 5.28 3.37*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86.19* 223.06 188.39 367.19 383.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charge.
(b) 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).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the periods.
(d) Distributions in excess of net investment income were less than $0.01 per share.
(e) 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, 1994.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Year ended Oct. 1, 1997+
operating performance (Unaudited) Nov. 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $5.01 $4.90 $4.90
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .12 .26(c) .05
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.13) .14 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.01) .40 .05
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.26) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.29) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.86 $5.01 $4.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.27)* 8.46 1.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $115,393 $120,019 $119,889
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .38* .81 .15*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.51* 5.30 .96*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 86.19* 223.06 188.39
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charge.
(b) 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).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the periods.
(d) Distributions in excess of net investment income were less than $0.01 per share.
(e) 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, 1994.
</TABLE>
Notes to financial statements
May 31, 1999 (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 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, 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 $150 million in a
combination of Putnam funds and other accounts managed by affiliates of
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.
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 Management. 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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, 1998, the fund had a capital loss carryover of
approximately $16,767,000. This amount includes approximately $15,145,000
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
- -------------- -----------------
$ 1,133,000 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 pro rata 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.
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, 1999, fund expenses were reduced by
$42,391 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 $620 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 have approved 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, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $67,225 and $3,030 from the
sale of class A and class M shares, respectively and $181,980 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, 1999, Putnam Mutual Funds
Corp., acting as underwriter received $53,366 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended May 31, 1999, purchases and sales of U.S.
government and agency obligations other than short-term investments
aggregated $489,432,135 and $399,051,613, 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, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 51,373,876 $254,375,312
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 998,626 4,933,190
- -----------------------------------------------------------------------------
52,372,502 259,308,502
Shares
repurchased (47,009,559) (233,173,375)
- -----------------------------------------------------------------------------
Net increase 5,362,943 $ 26,135,127
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 91,332,540 $455,502,043
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,375,739 6,836,861
- -----------------------------------------------------------------------------
92,708,279 462,338,904
Shares
repurchased (71,953,108) (358,927,417)
- -----------------------------------------------------------------------------
Net increase 20,755,171 $103,411,487
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 21,611,874 $107,154,521
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 564,049 2,790,008
- -----------------------------------------------------------------------------
22,175,923 109,944,529
Shares
repurchased (18,661,721) (92,529,648)
- -----------------------------------------------------------------------------
Net increase 3,514,202 $ 17,414,881
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 49,315,114 $245,433,622
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 764,472 3,802,345
- -----------------------------------------------------------------------------
50,079,586 249,235,967
Shares
repurchased (36,525,654) (181,548,772)
- -----------------------------------------------------------------------------
Net increase 13,553,932 $ 67,687,195
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,526,673 $7,604,510
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 45,656 226,046
- -----------------------------------------------------------------------------
1,572,329 7,830,556
Shares
repurchased (1,329,764) (6,894,895)
- -----------------------------------------------------------------------------
Net increase 242,565 $ 935,661
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,091,870 $10,449,316
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 73,620 366,156
- -----------------------------------------------------------------------------
2,165,490 10,815,472
Shares
repurchased (1,593,988) (7,940,049)
- -----------------------------------------------------------------------------
Net increase 571,502 $ 2,875,423
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,028,730 $14,944,746
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 652,447 3,281,292
- -----------------------------------------------------------------------------
3,681,177 18,226,038
Shares
repurchased (3,904,766) (19,079,602)
- -----------------------------------------------------------------------------
Net decrease (223,589) $ (853,564)
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,654,322 $38,026,698
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,383,744 6,859,113
- -----------------------------------------------------------------------------
9,038,066 44,885,811
Shares
repurchased (9,535,957) (47,215,434)
- -----------------------------------------------------------------------------
Net decrease (497,891) $(2,329,623)
- -----------------------------------------------------------------------------
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
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
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
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
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
ASSET ALLOCATION 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
[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 not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Michael Martino
Vice President and Fund Manager
Kevin M. Cronin
Vice President and Fund Manager
Richard A. Monaghan
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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA036-53208 398/428/674 7/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- -----------------------------------------------------------------------------
Putnam Intermediate U.S. Government Income Fund
Supplement to Semiannual Report dated 5/31/99
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 $150 million or
more in one or more of Putnam's 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
for periods ended 5/31/99 NAV
6 months -0.27%
1 year 4.60
5 years 38.88
Annual average 6.79
Life of fund (since class A inception, 2/16/93) 39.81
Annual average 5.48
Share value: NAV
11/30/98 $5.01
5/31/99 $4.86
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.14 -- $0.14
- -----------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y 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 A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to class
A shares. All returns assume reinvestment of distributions at net asset
value. Performance data reflects an expense limitation previously in effect.
Without the expense limitation, total returns would have been lower.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. 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.
