August 8, 1995
FOR INTERNAL PUTNAM USE ONLY
PUTNAM INTERMEDIATE GOVERNMENT INCOME TRUST
SUNROOF VOTE
Introduction
On August 8, 1995, a proxy statement was sent to
shareholders of Putnam Intermediate Government Income Trust (the
"Fund"), concerning a proposal to convert the Fund from a closed-
end to an open-end fund. Set forth below are answers to
questions likely to be asked.
What is being considered under this item?
Shareholders are being asked whether they want to convert
the Fund from a closed-end fund to an open-end fund. The
Trustees, as discussed in more detail below, unanimously
recommend that shareholders vote against converting the closed-
end Fund to an open-end fund. If approved, the conversion would
result in the "delisting" of your Fund's shares from the New York
Stock Exchange where they are currently traded. The shares would
then become redeemable directly from the Fund at net asset value.
A conversion from a closed-end fund to an open-end fund
would also require a number of changes in the Agreement and
Declaration of Trust (the "Declaration of Trust") under which the
Fund was established. Accordingly, approval of this proposal
would also authorize the Fund's Trustees to make amendments that
they decide are necessary or appropriate to operate the Fund in
open-end form if this proposal is approved. These changes are
described in greater detail in the proxy statement.
Why is this question being submitted to shareholders?
The Fund's legal documents require that shareholders of the
Fund be given the opportunity to vote on a proposal to convert
the Fund from a closed-end to an open-end fund if the Fund's
shares have traded at an average discount of more than 10% from
their net asset value during the last twelve weeks of the
preceding fiscal year, measured as of the last trading day in
each week. For the twelve-weeks ended November 25, 1994, the
Fund's shares traded at an average discount of 10.97%, requiring
that the conversion proposal be submitted to shareholders for
their consideration.
What is the Recommendation of the Trustees?
For the reasons described below, the Trustees of the Fund,
including all of the independent Trustees, have unanimously
concluded that the conversion of the Fund to open-end status
would not be in the best long term interests of shareholders of
the Fund. As a result they have recommended that shareholders
vote against the proposal to convert to open-end status.
Why are the Fund's Trustees recommending a Vote Against a
Conversion?
The Trustees of the Fund are recommending a vote against
converting the Fund to open-end status for the following reasons:
1. THE TRUSTEES BELIEVE THAT THE FUND'S CLOSED-END STATUS
PROVIDES SIGNIFICANT INVESTMENT ADVANTAGES NOT AVAILABLE TO
AN OPEN-END FUND. Because the Fund's shares are not
redeemable, the Fund is not required to maintain short term
investments in anticipation of possible redemptions and the
Fund's assets can be fully invested in higher-yielding
securities in pursuit of the Fund's investment objectives.
Furthermore, as a closed-end Fund, the Fund does not
experience the cash flows associated with sales and
redemptions of open-end fund shares. As a result, the
Fund's portfolio manager is not required to invest
additional cash from new sales at times when market
conditions are unfavorable or to sell securities to meet
redemptions at inopportune times.
2. THE TRUSTEES BELIEVE THAT THE FUND'S OPERATING EXPENSES
WOULD LIKELY INCREASE IF THE FUND WERE CONVERTED TO AN OPEN-
END FUND. As an open-end fund, the Fund would be required,
as a practical matter, to make a continuous public offering
of its shares in order to offset redemptions and to maintain
the economies of scale available at its current size. A
12b-1 distribution plan would likely need to be implemented.
Further, in the Trustees' view, the advantages of potential
growth that could result from being converted to an open-end
fund are limited since the Fund is already of significant
size, with net assets of approximately $558 million at June
30, 1995. On the other hand, it is Putnam's belief that the
Fund might experience significant redemptions following any
conversion. Depending on the size of the redemptions and
any sales of new shares, expense ratios could increase if
the Fund converts to open-end status and the Fund decreases
in size.
3. THE TRUSTEES BELIEVE THAT RECENT DISCOUNTS FROM NET
ASSET VALUE IN THE TRADING MARKET PRICE OF THE FUND'S SHARES
ARE NOT REPRESENTATIVE OF THE TRADING HISTORY OF THE FUND'S
SHARES OVER THE LONGER TERM. Indeed, at times the Fund's
shares have traded at premiums to their net asset value.
The average daily discount for the Fund's shares for the
life of the Fund through June 30, 1995 is -3.56%.
4. Putnam Management has advised the Trustees that in its
judgement the recent discounts reflect in large part the
adverse conditions prevailing in the markets for fixed
income securities in the last few years generally and that
there is no reason to believe that such discounts will
continue indefinitely.
. The Trustees believe that most shareholders of the Fund
purchased their shares
with a long-term investment perspective that recognized the
special advantages of the closed-end structure. In
addition, many shareholders have purchased their Fund shares
at a discount and have not been adversely affected by the
discount. Consequently, the Trustees do not believe that
the existence of a more significant discount in recent years
should be viewed as grounds for depriving shareholders of
the advantages of the closed-end structure.
How has the Fund performed?
The following table summarizes the annualized total return
of your Fund for the periods shown based both on the net asset
value and the market value of its share:
TOTAL RETURN (ANNUALIZED) THROUGH JUNE 30, 1995
1 year
3 years
5 years
Since
inception
6/88
On Net Asset
Value
12.06%
7.36%
9.24%
9.09%
On Market Value
11.89%
5.06%
8.37%
6.41%
The Fund is ranked as follows by Lipper Analytical Services, Inc.
("Lipper") for the periods indicated below ending June 30, 1995:
1 year
3 years
5 years
Since
inception
(6/88)
4 of 7
3 of 7
3 of 7
3 of 5
Lipper includes the Fund in a combined closed-end general U.S.
government and closed-end U.S. intermediate government universe
for funds that do not issue preferred shares or other securities
as a method of financial leverage. As indicated above, the
number of funds in the Fund's Lipper category is limited. The
rankings set forth above are based on total return, reflecting
changes in net asset value adjusted for reinvestment of capital
gains and income dividends. They do not reflect changes in
market price of shares in the case of closed-end funds or, for
any fund, the deduction of sales charges. Past performance is no
guarantee of future performance.
What are the principal differences between a closed-end fund and
an open-end fund?
SALES AND REDEMPTIONS OF SHARES. Closed-end funds issue
shares through an initial public offering and generally do
not raise additional capital after that time. Shares are
traded on an exchange such as the New York Stock Exchange
but are not generally redeemable. Open-end funds, in
contrast, generally engage in a continuous public offering
of their shares. In addition, shares of open-end funds are
generally redeemable at any time at their net asset value.
INVESTMENT FLEXIBILITY. The cash flows associated with
sales and redemptions of open-end fund shares, as well as
the need to maintain cash reserves in anticipation of
possible redemptions, also tend to reduce the investment
flexibility of open-end funds.
SHAREHOLDER PRIVILEGES. Shareholders of the Fund currently
have the option of participating in the Fund's Dividend
Reinvestment Plan, under which cash distributions paid by
the Fund are generally reinvested through the purchase of
additional Fund shares at market prices that currently
reflect a discount from net asset value. (At times when the
Fund's shares are trading at a premium over their net asset
value, such reinvestments are made at the higher of net
asset value or 95% of market value.) If the Fund were to
convert to open-end status, shareholders would no longer be
able to reinvest dividends at a price below net asset value
per share. Shareholders of open-end Putnam funds have the
option to reinvest their distributions in additional shares
at net asset value at all times.
Shareholders of open-end funds in the Putnam family of funds
currently have the privilege of exchanging their investment
at net asset value and without sales charges for shares of
more than 63 open-end funds in the Putnam group.
Shareholders of a closed-end fund such as the Fund currently
do not have that privilege.
FOR INTERNAL PUTNAM USE ONLY
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