Putnam
Intermediate
U.S. Government
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund Highlights
* Putnam Intermediate U.S. Government Income Fund remains one of the
top-performing funds in its peer group. For the 12 months ended December
31, 1998, the fund's 7.55% class A share return ranked 20 out of 99
short/intermediate-term U.S. government funds tracked by Lipper Analytical
Services, placing it in the top 20% of its category.*
* "A slowing global economy and steady demand for U.S. dollar assets
should continue to provide a positive backdrop for the fund."
-- Michael Martino, manager
Putnam Intermediate U.S. Government Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
15 Financial statements
*Past performance is not indicative of future results. Lipper Analytical
Services, an independent research organization, ranks funds according to
total-return performance. Its rankings vary over time and do not reflect
the effects of sales charges. The fund's class A shares were ranked 6 out
of 51 short/intermediate-term U.S. government funds for 5-year performance
through 12/31/98. Performance for other share classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Intermediate U.S. Government Income Fund was among the
beneficiaries of the global flight to quality during the fiscal year that
ended November 30, 1998. A modest lengthening of the portfolio's average
duration allowed the fund to take greater advantage of an already strong
U.S. Treasury bond market.
I am pleased to report the addition of Kevin M. Cronin to your fund's
management team. Kevin joined Putnam in 1997 and now serves as managing
director and chief investment officer of the Mortgage and Asset-Backed
Team within the Core Fixed-Income Group. He was previously with MFS
Investment Management and Liberty Mutual and has 10 years of investment
experience.
In the following report, the fund's managers provide a discussion of
fiscal 1998 performance and offer their views on the outlook for fiscal
1999.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 20, 1999
Report from the Fund Managers
Michael Martino
Kevin M. Cronin
Continued strength in U.S. bond markets, combined with some well-timed
changes in the portfolio, enabled Putnam Intermediate U.S. Government
Income Fund to provide another year of above-average performance, its
fourth consecutive year of positive performance. For the 12 months ended
November 30, 1998, the fund's class A shares returned 8.19% at net asset
value and 4.76% at public offering price. By comparison, the 99
short/intermediate-term U.S. government funds tracked by Lipper Analytical
Services provided an average return of 6.92%. For more information on the
fund's performance, including returns for other share classes, please see
pages 8, 9, and 10.
* TREASURY BONDS CONTINUE YEAR-LONG RALLY
The global investment markets were fairly tumultuous during the period,
particularly over the past six months. A string of negative economic
results and currency fluctuations raised concerns that the world's
economic health would erode. Doubts persisted about the pace of Asia's
economic recovery, Japan was slow to enact reforms in its banking
industry, and fiscal and economic problems grew to alarming proportions in
Russia and Latin America.
The global turbulence made many investors wary of risk, prompting an
outflow of capital from emerging markets to the developed world and from
stocks to bonds. Treasury bonds backed by the full faith and credit of the
U.S. government attracted investors in droves, driving prices higher and
pushing yields down to record lows. Corporate debt suffered because of its
perceived risk, and banks around the country reported tighter lending
practices. Anticipating that a credit squeeze might aggravate the current
slowdown in U.S. economic growth, the Federal Reserve Board cut interest
rates on three separate occasions for a total reduction of three quarters
of a percentage point.
* STRATEGY FAVORS TREASURY BONDS IN SECOND HALF
In the first half of the fiscal year, the fund benefited from a
substantial position in mortgage-backed securities. Mortgages typically
offer higher yields than Treasury bonds to compensate investors for
prepayment risk. As interest rates fall, many homeowners refinance their
mortgages, returning the principal to mortgage investors. In addition to
disrupting an investor's income stream, this prepayment of principal
forces the investor to reinvest at lower prevailing rates.
Despite a steady stream of prepayments, mortgages performed well in the
first few months of the year, eventually losing some of their traditional
yield advantage over Treasuries as mortgage prices rose. In July, we
reduced the fund's mortgage position from its mid-year high and deployed
available assets to Treasury notes maturing in 5 years. As the global
flight to quality picked up pace over the summer, we continued to focus on
this sector, and the fund's performance benefited as a result. The yield
on the 5-year Treasury note fell 133 basis points during the year -- 107
basis points during the second half alone -- along with a corresponding
rise in price.
[GRAPHIC OMMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
11/30/97 11/30/98
Fixed-rate
mortgage-backed
securities 13.7% 48.6%
Adjustable-rate
mortgage-backed
securities 1.5% 0.6%
U.S. Treasury
securities 66.8% 36.8%
Cash and
short-term
investments 17.3% 12.7%
Footnote reads:
*Based on net assets as of 11/30/98. Composition will vary over time.
* PORTFOLIO DURATION LENGTHENED TO MAXIMIZE BENEFITS FROM RALLY
Your fund's mix of securities is managed so that the portfolio's average
duration -- a measure of interest-rate sensitivity -- remains between 2.5
and 4 years. Essentially the longer a portfolio's duration, the more
likely its net asset value will be positively affected by a reduction in
rates. The tradeoff for this opportunity is that a long duration makes a
portfolio more vulnerable to a decline in net asset value if rates should
increase.
To make the most of the bond market rally, we increased the fund's
duration to roughly 3 years by late summer. After the third interest rate
cut this fall, the Fed signaled its intention to wait and see how events
would unfold. In the absence of additional near-term rate cuts, we felt
the Treasury rally had run its course, so we began to take profits on the
fund's 5-year Treasury bond position. Assets were directed to more
conservative 2-year Treasury notes and mortgages, bringing the fund's
duration back to 2.5 years at the end of November.
* MORTGAGE EXPOSURE INCREASED FOR 1999
Even without further central bank intervention, we believe interest rates
could still move lower. The U.S. economy continues to exhibit signs of
weakness. Corporate profits are down as a result of sluggish overseas
activity, and companies have demonstrated a willingness to cut back on
employees, a trend that could rein in domestic demand. While interest
rates were the driving market force this year, economic fundamentals may
take precedence in 1999, precipitating stock market weakness and sparking
additional interest in bonds.
At the end of November, the fund's mortgage exposure stood at 49%. After
such a powerful rally in the Treasury market, we believe mortgages have a
better chance of outperforming Treasuries in the coming months. There are
technical reasons to emphasize mortgages as well. Typically at the start
of a new calendar year, institutional investors tend to overweight bonds
that carry more credit risk than Treasuries, strengthening demand for
these sectors. With a more conservative duration and exposure to both
Treasury bonds and mortgage-backed securities, we think the fund is well
positioned to begin both calendar and fiscal 1999.
[GRAPHIC OMMITTED: vertical bar chart DURATION OVERVIEW]
DURATION OVERVIEW*
0-1 year 26.1%
1-5 years 69.3%
5+ years 4.6%
Footnote reads:
*Based on net assets as of 11/30/98. Duration will vary over time.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 11/30/98, there is no guarantee the fund will
continue to hold these securities in the future. While U.S. government
backing of individual securities does not insure principal, which will
fluctuate, it does guarantee that the fund's government-backed holdings
will make timely payments of interest and principal. This fund includes
investments in mortgage-backed securities, which are subject to prepayment
risk.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Intermediate U.S. Government Income Fund is designed for investors seeking
as high a level of current income as is consistent with preservation of
capital.
TOTAL RETURN FOR PERIODS ENDED 11/30/98
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 8.19% 4.76% 7.32% 4.32% 8.01% 5.85%
- ------------------------------------------------------------------------------
5 years 36.46 32.16 32.42 32.42 35.59 32.89
Annual average 6.41 5.74 5.78 5.78 6.28 5.85
- ------------------------------------------------------------------------------
Life of fund 39.77 35.18 35.00 35.00 38.70 35.99
Annual average 5.95 5.34 5.32 5.32 5.81 5.45
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/98
Lehman Bros.
Intermediate Consumer
Govt. Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 8.95% 1.55%
- ------------------------------------------------------------------------------
5 years 36.74 12.48
Annual average 6.46 2.38
- ------------------------------------------------------------------------------
Life of fund 42.51 14.61
Annual average 6.35 2.40
- ------------------------------------------------------------------------------
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 returns 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 its current
investment policies.
[GRAPHIC OMMITTED: 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
Fund's Lehamn Bros.
class A Intermediate Consumer
shares Government Price
Date at POP Bond Index Index
- --------- --------- ------------ --------
2/16/93 9,425 10,000 10,000
11/30/93 9,906 10,422 10,189
11/30/94 9,796 10,249 10,461
11/30/95 11,153 11,650 10,734
11/30/96 11,791 12,309 11,083
11/30/97 12,496 13,081 11,286
11/30/98 $13,518 $14,251 $11,461
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 $13,500 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $13,870 ($13,599 at public offering price). See first page of
performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.280598 $0.251069 $0.273175
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.280598 $0.251069 $0.273175
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/97 $4.90 $5.06 $4.91 $4.91 $5.01
- ------------------------------------------------------------------------------
11/30/98 5.01 5.18 5.01 5.02 5.12
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 5.52% 5.34% 4.94% 5.37% 5.26%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 5.20 5.03 4.63 5.05 4.95
- ------------------------------------------------------------------------------
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 12/31/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (2/16/93) (2/16/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 7.55% 3.96% 6.91% 3.91% 7.38% 5.24%
- ------------------------------------------------------------------------------
5 years 35.95 31.42 32.20 32.20 35.08 32.39
Annual average 6.33 5.62 5.74 5.74 6.20 5.77
- ------------------------------------------------------------------------------
Life of fund 40.13 35.52 35.28 35.28 39.04 36.32
Annual average 5.92 5.31 5.28 5.28 5.78 5.42
- ------------------------------------------------------------------------------
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.
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.
Report of independent accountants
For the fiscal year ended November 30, 1998
To the Trustees and Shareholders of
Putnam Intermediate U. S. Government Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Putnam
Intermediate U. S. Government Income Fund (the "fund") at November 30,
1998, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at November
30, 1998 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 14, 1999
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1998
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (86.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Agency Obligations (49.2%)
- --------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
$20,825,025 7 1/2s, with due dates from April 1, 2016 to
March 1, 2028 $ 21,384,591
24,358,673 6 1/2s, with due dates from February 1, 2009 to
October 1, 2013 24,716,257
Federal Home Loan Mortgage Corp.
Pass- Through Certificates
5,582,386 7 1/2s, with due dates from August 1, 2007 to
May 1, 2027 5,735,547
500,601 6 1/2s, December 1, 2010 507,949
Federal National Mortgage Association
49,430,487 6 1/2s, Dwarf, with due dates from
March 1, 2013 to September 1, 2013 50,140,802
49,300,000 5 3/4s, with due dates from April 15, 2003 to
February 15, 2008 50,779,848
5,785,000 5.625s March 15, 2001 5,877,213
249,672 Federal National Mortgage Association
Adjustable Rate Mortgage (ARM) 6.092s,
with due dates from November 1, 2024 to
July 1, 2026 251,855
Federal National Mortgage Association
Pass- Through Certificates
105,807 11 1/4s, October 1, 2010 118,404
393,853 8s, May 1, 2013 399,402
11,447,306 7s, Dwarf, with due dates
from October 1, 2011 to January 1, 2013 11,708,419
110,797 6 1/2s, Dwarf, June 1, 2013 112,389
Government National Mortgage Association
3,489,550 9 1/2s, November 15, 2028 3,789,433
1,559,084 8s, with due dates from August 15, 2025 to
June 15, 2027 1,621,447
680,563 7s, May 15, 2028 696,726
2,608,154 Government National Mortgage Association
Adjustable Rate Mortgage (ARM) 7s,
July 20, 2026 2,634,653
Government National Mortgage Association
Pass- Through Certificates
3,026,375 8 1/2s, October 15, 2008 3,240,586
17,935,917 8s, with due dates from May 15, 2024 to
March 15, 2028 18,654,584
455,693 7 1/2s, with due dates from April 15, 2026 to
December 15, 2027 470,504
46,892,526 7s, with due dates from September 15, 2025 to
May 15, 2028 48,006,603
--------------
250,847,212
U.S. Treasury Obligations (36.8%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
10,000,000 8s, May 15, 2001 10,773,400
50,000,000 6s, July 31, 2002 52,234,500
25,000,000 5 3/8s, June 30, 2003 25,808,500
100,000,000 4 1/4s, November 15, 2003 98,906,000
--------------
187,722,400
--------------
Total U.S. Government and Agency Obligations
(cost $434,074,808) $ 438,569,612
SHORT-TERM INVESTMENTS (12.6%)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$50,000,000 Federal Home Loan Mortgage Corporation
5.34s, December 3, 1998 $ 49,985,181
14,417,000 Interest in $525,650,000 repurchase agreement
dated November 30, 1998 with Warburg Securities
due December 1, 1998 with respect to various
U.S. Treasury obligations -- maturity value of
$14,419,123 for an effective yield of 5.3% 14,419,123
--------------
Total Short Term Investments (cost $64,404,304 ) $ 64,404,304
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $498,479,112) (b) $ 502,973,916
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $509,908,921
(b) The aggregate identified cost on a tax basis is $498,481,741 resulting in gross unrealized appreciation and
depreciation of $5,451,176 and $959,001, respectively, or net unrealized appreciation of $4,492,175.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $498,479,112) (Note 1) $502,973,916
- -----------------------------------------------------------------------------------------------
Cash 323,304
- -----------------------------------------------------------------------------------------------
Interest receivable 3,539,959
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 6,144,708
- -----------------------------------------------------------------------------------------------
Total assets 512,981,887
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 73,112
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,448,039
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 322,935
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 721,441
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 61,746
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 20,869
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,130
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 199,490
- -----------------------------------------------------------------------------------------------
Other accrued expenses 224,204
- -----------------------------------------------------------------------------------------------
Total liabilities 3,072,966
- -----------------------------------------------------------------------------------------------
Net assets $509,908,921
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $508,351,579
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,937,462)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,494,804
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $509,908,921
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($242,139,646 divided by 48,343,772 shares) $5.01
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $5.01)* $5.18
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($137,568,840 divided by 27,442,476 shares)** $5.01
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($10,180,948 divided by 2,028,718 shares) $5.02
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $5.02)* $5.12
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($120,019,487 divided by 23,965,520 shares) $5.01
- -----------------------------------------------------------------------------------------------
* 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, 1998
<S> <C>
Interest income $22,726,727
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,263,328
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 624,236
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,385
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,655
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 410,093
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 763,814
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 29,582
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,575
- -----------------------------------------------------------------------------------------------
Reports to shareholders 37,202
- -----------------------------------------------------------------------------------------------
Registration fees 9,281
- -----------------------------------------------------------------------------------------------
Auditing 40,127
- -----------------------------------------------------------------------------------------------
Legal 6,180
- -----------------------------------------------------------------------------------------------
Postage 30,755
- -----------------------------------------------------------------------------------------------
Other 19,776
- -----------------------------------------------------------------------------------------------
Total expenses 4,256,989
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (197,428)
- -----------------------------------------------------------------------------------------------
Net expenses 4,059,561
- -----------------------------------------------------------------------------------------------
Net investment income 18,667,166
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 6,359,304
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 3,665,334
- -----------------------------------------------------------------------------------------------
Net gain on investments 10,024,638
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $28,691,804
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
-------------------------------
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 18,667,166 $ 12,568,098
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 6,359,304 827,510
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 3,665,334 (425,668)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 28,691,804 12,969,940
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (8,144,037) (7,851,870)
- ---------------------------------------------------------------------------------------------------------------
Class B (3,948,021) (3,172,610)
- ---------------------------------------------------------------------------------------------------------------
Class M (369,665) (264,827)
- ---------------------------------------------------------------------------------------------------------------
Class Y (6,096,815) (1,186,579)
- ---------------------------------------------------------------------------------------------------------------
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) 171,644,482 125,105,135
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 179,442,658 125,599,189
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 330,466,263 204,867,074
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $- and $-, respectively) $509,908,921 $330,466,263
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $4.90 $4.90 $4.92 $4.60 $4.91
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .25(a) .28 .29 .27 .27(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .14 -- (.02) .35 (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .39 .28 .27 .62 (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.28) (.26) (.29) (.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.01) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) -- (.03) -- (e) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.28) (.29) (.30) (.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.01 $4.90 $4.90 $4.92 $4.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 8.19 5.98 5.71 13.85 (1.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $242,140 $135,283 $143,575 $57,049 $53,831
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.06 1.15 1.22 1.20 1.09(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.00 5.77 5.54 5.78 5.59(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 223.06 188.39 367.19 383.88 351.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $4.91 $4.90 $4.92 $4.60 $4.91
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22(a) .26 .26 .24 .24(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .13 -- (.02) .35 (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .35 .26 .24 .59 (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.25) (.24) (.26) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.01) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) -- (.02) -- (e) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.25) (.26) (.27) (.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.01 $4.91 $4.90 $4.92 $4.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 7.32 5.56 5.08 13.17 (1.71)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $137,569 $68,137 $56,889 $23,201 $21,243
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.66 1.75 1.80 1.81 1.69(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.39 5.16 4.94 5.17 4.98(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 223.06 188.39 367.19 383.88 351.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 Apr. 3, 1995+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $4.91 $4.90 $4.93 $4.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .24(a) .28 .27 .12(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .14 .01 (.02) .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .38 .29 .25 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.28) (.26) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) -- (.02) --(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.28) (.28) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.02 $4.91 $4.90 $4.93
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 8.01 6.03 5.33 9.63*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10,181 $7,158 $4,404 $1,058
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.21 1.30 1.35 .87*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.88 5.55 5.28 3.37*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 223.06 188.39 367.19 383.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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 Year ended Oct. 1, 1997+
operating performance November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $4.90 $4.90
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .26(a) .05
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .14 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .40 .05
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.29) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.01 $4.90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(c) 8.46 1.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $120,019 $119,889
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .81 .15*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.30 .96*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 223.06 188.39
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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, 1998
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 $250 million in a
combination of Putnam Funds and other accounts managed by affiliates of
Putnam Investment Management, Inc. ("Putnam Management"), the funds
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 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. These
differences include temporary and permanent differences of losses on wash
sale transactions, paydown gains and losses on mortgage-backed securities
and market discount. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended November 30, 1998, the fund reclassified $2,226,462 to decrease
distributions in excess of net investment income and $2,103,906 to
increase paid-in-capital, with a decrease to accumulated net realized
gains of $4,330,368. 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 have been fully
amortized over a five year period as of November 30, 1998.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.60% of the first $1
billion of average net assets, 0.50% of the next $500 million, 0.45% of
the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5
billion, 0.39% of the next $5 billion, and 0.38% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended November 30, 1998 fund expenses were reduced by
$197,428 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized in
connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $550 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam 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 year ended November 30, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $77,827 and $2,493 from the sale
of class A and class M shares, respectively and $159,668 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, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received $17,172 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended November 30, 1998, purchases and sales of U.S.
government and agency obligations other than short-term investments
aggregated $907,260,193 and $749,041,977, 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, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
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
- -----------------------------------------------------------------------------
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, 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
- -----------------------------------------------------------------------------
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, 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
- -----------------------------------------------------------------------------
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, 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)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
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
PricewaterhouseCoopers LLP
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
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
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
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Intermediate
U.S. Government Income Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details of
sales charges, investment objectives, and operating policies of the fund,
and the most recent copy of Putnam's Quarterly Performance Summary. For
more information or to request a prospectus, call toll free:
1-800-225-1581. You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- --------------------
BULK RATE
U.S. POSTAGE
PAID
PUTNAM
INVESTMENTS
- --------------------
AN036-48664 398/428/674 1/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Intermediate U.S. Government Income Fund
Supplement to Annual Report dated 11/30/98
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 annual report.
ANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return
for periods ended 11/30/98 NAV
1 year 8.46%
5 years 36.85
Annual average 6.48
10 years --
Annual average --
Life of fund (since class A inception, 2/16/93) 40.18
Annual average 6.01
Share value: NAV
11/30/97 $4.90
11/30/98 $5.01
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
12 $0.29296 -- $0.29296
- ----------------------------------------------------------------------------
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.
