Putnam
Intermediate
U.S. Government
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal 1999. In the
following report, the fund's managers discuss performance for the period
and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Intermediate U.S. Government Income Fund that I will be signing. After
more than 30 years as Chairman of the Trustees and President of the Putnam
Funds, the time has come for me to step aside.
In June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands.
I will become Chairman Emeritus, remain a shareholder, and stay in close
touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 19, 2000
Report from the Fund Managers
Michael Martino
Kevin Cronin
Fixed-income investors had a difficult time making money in 1999. Economic
growth was strong throughout the year, and the Federal Reserve Board
raised short-term interest rates on three occasions to prevent inflation
from accelerating, which made the rates on existing bonds less attractive.
Although prices fell throughout the period, Putnam Intermediate U.S.
Government Income Fund's defensive investment strategy provided some
damage control along with the opportunity to earn a higher level of
income. The fund's 30-day SEC yield for class A shares at NAV was 5.61% on
November 30, 1999, compared with 5.20% a year earlier.
Total return for 12 months ended 11/30/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
1.09% -2.23% 0.48% -2.41% 0.05% -0.91% 0.93% -1.04%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 5.
* HIGHER RATES FAVOR MORTGAGES
Economic growth was stronger than anticipated throughout the period
covered by this report, including a 5.5% annualized increase in GDP during
the third quarter of 1999. After lowering rates in 1998, the Federal
Reserve Board met 1999's surge in growth and subsequent threat of
inflation with a series of short-term rate increases. In total, the
federal funds rate, the rate charged among banks for overnight loans, rose
three quarters of one percentage point to 5.50%. In the face of Fed rate
increases and consistently strong economic data, fixed-income investors
turned bearish and drove bond prices lower.
Bonds of all stripes suffered during the period, but some performed better
than others. U.S. Treasury bonds, which are particularly sensitive to
changes in interest rates, fared the worst, returning just 1.2% for the
12-month period, as measured by the Lehman Brothers Intermediate U.S.
Treasury Index. (Longer-term Treasuries were even harder hit, returning
- -7.5% according to the Lehman Brothers Long Treasury Index.) Among the
other investments held by the fund, mortgage-backed securities did
relatively better. These securities are somewhat insulated from a rising
interest-rate environment because they offer premium yields to compensate
for the risk of prepayment. When rates are declining, homeowners often
refinance their mortgages, returning principal to mortgage investors who
must reinvest at lower prevailing rates. However, when rates rise, as they
have all year, the incidence of prepayment drops dramatically, and
mortgage-related bonds tend to be relatively stable as long as investors
are earning a premium yield. For the year ended November 30, 1999, the
Lehman Brothers GNMA Index returned 2.6%.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION]
PORTFOLIO COMPOSITION*
11/30/99 11/30/98
Fixed rate
mortgage-backed
securities 63.9% 48.6%
Adjustable-rate
mortgage-backed
securities 0.3% 0.6%
U.S. Treasury
securities 41.1% 36.8%
Cash and
short-term
investments 5.4% 12.7%
Footnote reads:
*Based on net assets as of 11/30/99. Holdings will vary over time.
* DEFENSIVE STRATEGY EMPHASIZES INCOME
The fund's chief investment goal is income -- as high a level as is
consistent with the preservation of capital. Our mandate requires that we
pursue a relatively conservative investment strategy, particularly when
there is heightened volatility in the market. During the period, as rates
rose and price volatility increased, we shifted assets from cash and the
rate-sensitive Treasury sector to mortgages. The fund's weighting in
mortgage-backed securities, which approached 65% of the portfolio by
November 30, 1999, accomplished two distinct objectives. First, it enabled
the fund to avoid the more serious losses that could have resulted if the
portfolio had been invested entirely in Treasury bonds. Second, it
provided the fund with a higher level of income than a portfolio of
comparable U.S. Treasuries. In fact, many of the fund's mortgage holdings
offered yields a full percentage point higher than the Treasury bonds in
the portfolio.
[GRAPHIC OMITTED: vertical bar chart DURATION OVERVIEW]
DURATION OVERVIEW*
0-1 year 5.4%
1-5 years 74.1%
5+ years 20.4%
Footnote reads:
*As a percentage of market value as of 11/30/99. Duration will vary over
time.
"Prices are cheap in our estimation, and we have taken advantage of this
opportunity by purchasing longer-term bonds that are more sensitive to
changes in interest rates."
- -- Michael Martino, fund manager
Another factor that helped the fund's performance during the period was
our duration strategy. 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 affected by a change
in interest rates. So a long duration helps when the market is going up
but can hinder performance when the market is going down. We started the
period with a short duration, just 2.5 years, which reflected a large and
defensive cash position. This conservative stance provided a buffer
against potential volatility in the first few months of the period. As
rates rose, we extended the duration to position the portfolio for the
next positive turn in the market. To accomplish this objective, we
targeted mortgage-backed securities maturing in 30 years with
correspondingly high yields, including bonds issued by the Government
National Mortgage Association. By the end of November, the fund's cash
position was just 5% of the portfolio, and average duration was 4.2 years.
* RATES MAY RISE FURTHER
Our outlook for the coming months is cautiously optimistic. The current
economic expansion is on its way to becoming the longest in U.S. history,
bond yields have risen, and the fund is earning more income than a year
ago. Prices are cheap in our estimation, and we have taken advantage of
this opportunity by purchasing longer-term bonds that are more sensitive
to changes in interest rates. If rates change direction and start falling,
the fund should benefit. If rates rise further, which we believe may
happen in the first calendar quarter of 2000, we intend to add even more
to our long-term position, including an increase in our Treasury bond
position. Either way, we believe the fund is well positioned to meet its
objectives in the coming year.
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 11/30/99, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 11/30/99
Class A Class B Class C Class M
(inception dates) (2/16/93) (2/16/93) (7/26/99) (4/3/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1.09% -2.23% 0.48% -2.41% 0.05% -0.91% 0.93% -1.04%
- ------------------------------------------------------------------------------------------
5 years 39.51 35.10 35.37 35.37 33.89 33.89 38.70 36.04
Annual average 6.89 6.20 6.24 6.24 6.01 6.01 6.76 6.35
- ------------------------------------------------------------------------------------------
Life of fund 41.30 36.65 35.65 35.65 33.67 33.67 40.00 37.26
Annual average 5.23 4.71 4.60 4.60 4.37 4.37 5.09 4.78
- ------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/99
Lehman Bros. Intermediate Consumer
Govt. Bond Index price index
- -------------------------------------------------------------------------
1 year 1.20% 2.68%
- -------------------------------------------------------------------------
5 years 40.71 12.49
Annual average 7.07 2.38
- -------------------------------------------------------------------------
Life of fund 44.22 17.68
Annual average 5.57 2.44
- -------------------------------------------------------------------------
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
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 both the initial sales
charge currently applicable to class M shares and the higher operating
expenses applicable to such shares. For class C shares, returns for
periods prior to inception are derived from the historical performance of
class A shares and adjusted to reflect the CDSC applicable to class C
shares, which is 1% for the first year and eliminated thereafter, and the
higher operating expenses applicable to class C shares. 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 2/16/93
Lehman Bros.
Fund's class A Intermediate Govt. Consumer price
Date shares at POP Bond Index index
2/16/93 9,671 10,000 10,000
11/30/93 9,671 10,422 10,189
11/30/94 9,906 10,249 10,461
11/30/95 9,796 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
11/30/99 $13,665 $14,422 $11,768
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 and class C shares
would have been valued at $13,565 and $13,367, respectively, and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $14,000 ($13,726 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 11/30/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 4 12
- --------------------------------------------------------------------------------------
Income $0.251907 $0.222487 $0.073434 $0.244560
- --------------------------------------------------------------------------------------
Capital gains -- -- -- --
- --------------------------------------------------------------------------------------
Total $0.251907 $0.222487 $0.073434 $0.244560
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
11/30/98 $5.01 $5.18 $5.01 -- $5.02 $5.12
- --------------------------------------------------------------------------------------
7/26/99* -- -- -- $4.81 -- --
- --------------------------------------------------------------------------------------
11/30/99 4.81 4.97 4.81 4.81 4.82 4.92
- --------------------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------------------
Current dividend rate1 4.86% 4.70% 4.57% 4.36% 4.71% 4.61%
- --------------------------------------------------------------------------------------
Current 30-day SEC yield2 5.61 5.42 5.00 4.85 5.45 5.34
- --------------------------------------------------------------------------------------
*Inception of class C shares.
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.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (2/16/93) (2/16/93) (7/26/99) (4/3/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 0.20% -3.10% -0.41% -3.27% -0.90% -1.85% 0.05% -1.91%
- ------------------------------------------------------------------------------------------
5 years 38.24 33.87 34.14 34.14 32.58 32.58 37.42 34.79
Annual average 6.69 6.01 6.05 6.05 5.80 5.80 6.56 6.15
- ------------------------------------------------------------------------------------------
Life of fund 40.41 35.80 34.73 34.73 32.75 32.75 39.11 36.39
Annual average 5.06 4.55 4.43 4.43 4.21 4.21 4.92 4.62
- ------------------------------------------------------------------------------------------
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.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 or C shares and assumes redemption at the end of
the period. Your fund's class B CDSC declines from a 3% maximum during the
first year to 1% during the fourth year. After the sixth year, the CDSC no
longer applies. The CDSC for class C shares is 1% for one year after
purchase.
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.
Lehman Brothers GNMA Index is an unmanaged list of GNMA bonds. This index
assumes reinvestment of all distributions and interest payments, 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. The performance of the fund will differ. 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, preceded by the Report of independent
accountants, 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 are determined. All investment and noninvestment 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 sources 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-end funds, a separate
table is provided for each share class.
Report of independent accountants
The Board of Trustees and Shareholders
Putnam Intermediate U. S. Government Income Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Intermediate U. S. Government Income Fund, including the fund's
portfolio, as of November 30, 1999, and the related statement of
operations, statement of changes in net assets and financial highlights
for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net
assets for the year ended November 30, 1998 and the financial highlights
for each of the years or periods in the four-year period ended November
30, 1998 were audited by other auditors whose report dated January 14,
1999 expressed an unqualified opinion on that financial statement and
those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1999, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Intermediate U.S. Government Income Fund as of November 30,
1999, the results of its operations, changes in its net assets and
financial highlights for the year then ended, in conformity with generally
accepted accounting principles.
KPMG LLP
Boston, Massachusetts
January 5, 2000
<TABLE>
<CAPTION>
The fund's portfolio
November 30, 1999
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (105.3%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C>
U.S. Government Agency Mortgage Obligations (64.2%)
- --------------------------------------------------------------------------------------------------------------------------
$ 10,000,000 Fannie Mae 6.43s, April 1, 2009 $ 9,356,200
Federal Home Loan Mortgage Corp.
19,344,261 7 1/2s, with due dates from August 1, 2007 to
March 1, 2028 19,339,892
48,286,814 6s, with due dates from March 1, 2006 to July 1, 2006 46,702,038
Federal National Mortgage Association
22,100,000 7s, TBA, December 25, 2014 21,996,351
42,100,000 6s, TBA, December 1, 2014 40,297,699
191,791 Federal National Mortgage Association Adjustable Rate
Mortgage 6.092s, with due dates from November 1,
2024 to July 1, 2026 187,895
Federal National Mortgage Association Pass-Through
Certificates
12,807 11 1/4s, October 1, 2010 13,988
3,138,403 8s, with due dates from May 1, 2013 to November 1, 2029 3,181,229
8,325,236 7s, October 1, 2011 8,286,191
63,659,128 6 1/2s, with due dates from April 1, 2012 to
February 1, 2014 62,246,531
5,785,000 5 5/8s, March 15, 2001 5,744,331
1,519,200 Government National Mortgage Association Adjustable
Rate Mortgage 7s, July 20, 2026 1,529,409
Government National Mortgage Association Pass-Through
Certificates
17,868,872 9 1/2s, with due dates from May 15, 2018 to
November 15, 2028 19,280,548
3,202,328 9s, December 15, 2021 3,384,445
2,205,293 8 1/2s, October 15, 2008 2,267,317
31,744,486 8s, with due dates from May 15, 2024 to
December 15, 2027 32,260,335
47,106,981 7 1/2s, with due dates from December 15, 2023 to
October 15, 2028 47,003,816
4,194,610 7s, with due dates from December 15, 2026 to
December 15, 2028 4,099,168
--------------
327,177,383
U.S. Treasury Obligations (41.1%)
- --------------------------------------------------------------------------------------------------------------------------
40,000,000 U.S. Treasury Bonds 6 1/8s, August 15, 2029 39,156,400
U.S. Treasury Notes
10,000,000 8s, May 15, 2001 10,278,100
40,000,000 6s, August 15, 2009 39,493,600
47,125,000 6s, August 15, 2004 46,859,685
50,000,000 6s, July 31, 2002 49,968,500
10,000,000 5 1/2s, May 15, 2009 9,507,800
15,000,000 4 1/4s, November 15, 2003 14,046,150
--------------
209,310,235
--------------
Total U.S. Government and Agency Obligations
(cost $545,207,369) $ 536,487,618
SHORT-TERM INVESTMENTS (5.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 12,679,000 Interest in $532,679,000 joint repurchase agreement dated
November 30, 1999 with Morgan Stanley & Co. Inc. due
December 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $12,680,979 for an
effective yield of 5.62% $ 12,679,000
15,000,000 Interest in $539,313,000 joint repurchase agreement
dated November 30, 1999 with S.B.C. Warburg Inc.
due December 1, 1999 with respect to various U.S.
Treasury obligations -- maturity value of $15,002,363
for an effective yield of 5.67% 15,000,000
--------------
Total Short-Term Investments (cost $27,679,000) $ 27,679,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $572,886,369) (b) $ 564,166,618
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $509,601,808.
(b) The aggregate identified cost on a tax basis is $573,095,486, resulting in gross unrealized appreciation and
depreciation of $78,399 and $9,007,267, respectively, or net unrealized depreciation of $8,928,868.
TBA after the name of a security represents to be announced securities (Note 1).
- -------------------------------------------------------------------------------
TBA Sales Commitments at November 30, 1999
(Proceeds receivable $62,423,139)
Principal Delivery
Agency Amount Date Value
- -------------------------------------------------------------------------------
FNMA 6.5s, December 2014 $63,659,126 12/16/99 $62,246,530
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $572,886,369) (Note 1) $564,166,618
- -----------------------------------------------------------------------------------------------
Cash 529
- -----------------------------------------------------------------------------------------------
Interest receivable 5,019,376
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,042,007
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 63,527,011
- -----------------------------------------------------------------------------------------------
Total assets 635,755,541
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 66,296
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 145,194
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 62,603,818
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 768,771
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 66,561
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 17,468
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,711
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 208,013
- -----------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $62,423,139) 62,246,530
- -----------------------------------------------------------------------------------------------
Other accrued expenses 29,371
- -----------------------------------------------------------------------------------------------
Total liabilities 126,153,733
- -----------------------------------------------------------------------------------------------
Net assets $509,601,808
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $543,253,657
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 28,812
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (25,137,519)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (8,543,142)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $509,601,808
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($243,926,877 divided by 50,740,472 shares) $4.81
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $4.81)* $4.97
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($137,129,687 divided by 28,481,355 shares)** $4.81
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($2,746,375 divided by 570,994 shares)** $4.81
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($10,917,784 divided by 2,265,743 shares) $4.82
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $4.82)* $4.92
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($114,881,085 divided by 23,932,379 shares) $4.80
- -----------------------------------------------------------------------------------------------
* 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, 1999
<S> <C>
Interest income $ 31,886,921
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,077,198
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 706,867
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,584
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,556
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 606,772
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,238,328
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 5,143
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 44,902
- -----------------------------------------------------------------------------------------------
Other 24,330
- -----------------------------------------------------------------------------------------------
Total expenses 5,730,680
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (77,915)
- -----------------------------------------------------------------------------------------------
Net expenses 5,652,765
- -----------------------------------------------------------------------------------------------
Net investment income 26,234,156
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (8,379,755)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and TBA
sale commitments during the year (13,037,946)
- -----------------------------------------------------------------------------------------------
Net loss on investments (21,417,701)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 4,816,455
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $26,234,156 $18,667,166
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (8,379,755) 6,359,304
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (13,037,946) 3,665,334
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,816,455 28,691,804
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (12,515,612) (8,144,037)
- ---------------------------------------------------------------------------------------------------------------
Class B (6,633,533) (3,948,021)
- ---------------------------------------------------------------------------------------------------------------
Class C (21,315) --
- ---------------------------------------------------------------------------------------------------------------
Class M (562,015) (369,665)
- ---------------------------------------------------------------------------------------------------------------
Class Y (6,366,078) (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) 20,974,985 171,644,482
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (307,113) 179,442,658
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 509,908,921 330,466,263
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $28,812 and $--, respectively) $509,601,808 $509,908,921
- ---------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.01 $4.90 $4.90 $4.92 $4.60
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .25 .25(c) .28 .29 .27
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.20) .14 -- (.02) .35
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .05 .39 .28 .27 .62
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.25) (.28) (.26) (.29)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- (.03) --(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.28) (.28) (.29) (.30)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.81 $5.01 $4.90 $4.90 $4.92
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.09 8.19 5.98 5.71 13.85
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $243,927 $242,140 $135,283 $143,575 $57,049
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .99 1.06 1.15 1.22 1.20
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.20 5.00 5.77 5.54 5.78
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 318.67 223.06 188.39 367.19 383.88
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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 includes amounts paid through expense offset arrangements.
(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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.01 $4.91 $4.90 $4.92 $4.60
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .22(c) .26 .26 .24
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.20) .13 -- (.02) .35
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .02 .35 .26 .24 .59
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.22) (.25) (.24) (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- (.02) --(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.25) (.25) (.26) (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.81 $5.01 $4.91 $4.90 $4.92
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .48 7.32 5.56 5.08 13.17
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $137,130 $137,569 $68,137 $56,889 $23,201
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.59 1.66 1.75 1.80 1.81
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.60 4.39 5.16 4.94 5.17
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 318.67 223.06 188.39 367.19 383.88
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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 includes amounts paid through expense offset arrangements.
(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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to Nov. 30
- ---------------------------------------------------------------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $4.81
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .07
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments --
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .07
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.81
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.53*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,746
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .61*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.58*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 318.67
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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 includes amounts paid through expense offset arrangements.
(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.
</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
- ---------------------------------------------------------------------------------------------------------------------------------
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 .24 .24(c) .28 .27 .12(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.20) .14 .01 (.02) .32
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .04 .38 .29 .25 .44
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.24) (.28) (.26) (.18)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- (.02) --(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.27) (.28) (.28) (.19)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.82 $5.02 $4.91 $4.90 $4.93
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.93 8.01 6.03 5.33 9.63*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10,918 $10,181 $7,158 $4,404 $1,058
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.14 1.21 1.30 1.35 .87*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.09 4.88 5.55 5.28 3.37*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 318.67 223.06 188.39 367.19 383.88
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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 includes amounts paid through expense offset arrangements.
(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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Oct. 1, 1997+
operating performance Year ended November 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 .26 .26 (c) .05
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) .14 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .05 .40 .05
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.26) (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.29) (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $4.80 $5.01 $4.90
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.14 8.46 1.03*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $114,881 $120,019 $119,889
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .74 .81 .15*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.45 5.30 .96*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 318.67 223.06 188.39
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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 includes amounts paid through expense offset arrangements.
(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.
</TABLE>
Notes to financial statements
November 30, 1999
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 C, class M and class Y shares. The
fund began offering class C shares on July 26, 1999. 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 C shares
have a higher ongoing distribution fee than class B shares and class C
shares have a one-year 1.00% contingent deferred sales charge and do not
convert to class A shares. 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 and class C shares.
Class Y shares, which are sold at net asset value, are generally subject
to the same expenses as class A, class B, class C 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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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 sales price on its principal exchange, 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. Other investments, including restricted
securities, are stated at fair 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). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis.
E) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market" daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the acquisition
of an offsetting purchase commitment, the fund realizes a gain or loss. If
the fund delivers securities under the commitment, the fund realizes a
gain or a loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
F) 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, 1999, the fund had a capital loss carryover of
approximately $24,928,000 available to offset future capital gains, if
any. 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. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
- -------------- -----------------
$1,134,000 November 30, 2001
15,119,000 November 30, 2002
514,000 November 30, 2004
8,161,000 November 30, 2007
G) 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. These
differences include temporary and permanent differences of losses on wash
sale transactions, dividends payable, 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, 1999, the fund reclassified
$106,791 to decrease undistributed net investment income and $13,927,093
to increase paid-in-capital, with an increase to accumulated net realized
losses of $13,820,302. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
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, 1999, fund expenses were reduced by
$77,915 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $620 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. 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
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 a 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, class C 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%, 1.00%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 0.85%, 1.00% and 0.40% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the year ended November 30, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $104,506 and $4,120 from the sale
of class A and class M shares, respectively and received $399,627 and $884
in contingent deferred sales charges from redemptions of class B and class
C shares, respectively. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares. For the year ended November 30,
1999, Putnam Mutual Funds Corp., acting as underwriter received $88,800 on
class A redemptions.
Note 3
Purchases and sales of securities
During the year ended November 30, 1999, cost of purchases and proceeds
from sales of U.S. government and agency obligations other than short-term
investments aggregated $1,605,261,384 and $1,485,857,578, respectively.
Note 4
Capital shares
At November 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 82,440,208 $403,857,633
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,084,355 10,155,465
- -----------------------------------------------------------------------------
84,524,563 414,013,098
Shares
repurchased (82,127,863) (402,232,404)
- -----------------------------------------------------------------------------
Net increase 2,396,700 $ 11,780,694
- -----------------------------------------------------------------------------
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, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 34,412,013 $ 168,833,974
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,125,118 5,493,492
- -----------------------------------------------------------------------------
35,537,131 174,327,466
Shares
repurchased (34,498,252) (168,856,064)
- -----------------------------------------------------------------------------
Net increase 1,038,879 $ 5,471,402
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
From July 26, 1999
(commencement of operations)
to November 30, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 716,604 $3,448,177
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,237 20,403
- -----------------------------------------------------------------------------
720,841 3,468,580
Shares
repurchased (149,847) (721,308)
- -----------------------------------------------------------------------------
Net increase 570,994 $2,747,272
- -----------------------------------------------------------------------------
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,537,235 $ 12,479,085
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 97,163 474,422
- -----------------------------------------------------------------------------
2,634,398 12,953,507
Shares
repurchased (2,397,373) (11,765,635)
- -----------------------------------------------------------------------------
Net increase 237,025 $ 1,187,872
- -----------------------------------------------------------------------------
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, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,345,030 $26,051,044
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,292,538 6,366,078
- -----------------------------------------------------------------------------
6,637,568 32,417,122
Shares
repurchased (6,670,709) (32,629,377)
- -----------------------------------------------------------------------------
Net decrease (33,141) $ (212,255)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Note 5
Change in Independent
Accountants (unaudited)
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent accountants and voted to appoint KPMG LLP for the
fund's fiscal year ended November 30, 1999. During the two previous fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two previous fiscal years and
through July 14, 1999, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
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
Europe Growth Fund
Global Equity 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
Tax Smart Equity 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
Small Cap 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
INDEPENDENT ACCOUNTANTS
KPMG 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
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
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
AN36-57653 398/428.674 1/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
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Putnam Intermediate U.S. Government Income Fund
Supplement to Annual Report dated 11/30/99
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, C, and M shares, which are
discussed more extensively in the annual report.
ANNUAL RESULTS AT A GLANCE
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Total return for periods ended 11/30/99 NAV
1 year 1.14%
5 years 39.99
Annual average 6.96
10 years --
Annual average --
Life of fund (since class A inception, 2/16/93) 41.78
Annual average 5.28
Share value: NAV
11/30/98 $5.01
11/30/99 $4.80
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Distributions: No. Income Capital gains Total
12 $0.264208 -- $0.264208
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Please note that past performance does not indicate future results.
Returns shown for class Y shares for periods prior to their inception on
10/1/97 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.
