Putnam
Intermediate
U.S. Government
Income Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-03
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FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
We are pleased to report that Putnam Intermediate U.S. Government Income
Fund delivered positive results for the six months ended May 31, 2003.
However, largely because of the fund's defensive positioning, it
underperformed both its benchmark and its Lipper peer group average.
Performance details can be found on page 7.
As interest rates continued to decline during the period, the management
team believed it prudent to protect the fund's assets against an
inevitable rise in rates (and an accompanying decline in share prices),
an opinion it still holds. Although rates continued to decline,
ultimately reaching 45-year lows, the management team believes such
rates are unsustainable and will eventually begin to rise. The team
believes the fund is well positioned to accommodate such a turn. In the
following report, the management team discusses this and other
strategies. They also offer their views on the fund's prospects for the
fiscal year's second half.
In bringing you this news of your fund's performance, we would also like
to take the opportunity to tell you how much we appreciate your
confidence in Putnam. You can rest assured that we will continue to do
our utmost to deliver the best possible results for your fund.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 16, 2003
REPORT FROM FUND MANAGEMENT
* Putnam Intermediate U.S. Government Income Fund class A shares
returned 2.88% at net asset value and -0.39% at public offering price
for the six months ended May 31, 2003.
* Due to its more defensive positioning, the fund underperformed its
benchmark, the Lehman Intermediate Government Bond Index, which returned
4.70% during the same period.
* For the same reason, the fund's performance also lagged the average
of 3.58% for its Lipper category, Lipper Short-Intermediate U.S.
Government Funds.
* See the performance summary on page 7 for complete fund performance,
comparative performance, and Lipper data.
* PERFORMANCE COMMENTARY
We believe that the fund's comparative results during this period
appropriately reflect its objective of seeking income with preservation
of capital. We structured the portfolio defensively because we were
concerned about the possible negative impact of rising interest rates on
the portfolio's value. Duration is a measure of sensitivity to interest
rates, and we took on a defensive positioning -- a relatively short
duration -- to help protect the fund from potentially higher rates (Bond
prices move in the opposite direction of interest rates). To illustrate,
we kept the fund's duration within a range of 1.5 to 1.7 years. At the
end of the period, the duration of the Lehman index was 3.25 years.
Unfortunately, interest rates continued to fall during the period,
reaching 45-year lows. Thus far, our assertion that rates will rise has
been incorrect, but we still believe that interest rates remain at
unsustainably low levels. On the positive side, fund performance was
helped by our decision to allocate significant assets to mortgage-backed
securities. We emphasized this sector in order to gather additional
coupon income, a strategy that added to the fund's return.
Fund Profile
Putnam Intermediate U.S. Government Income Fund seeks as high a level of
current income as Putnam Management believes is consistent with
preservation of capital, by allocating its assets among
intermediate-maturity U.S. Treasuries, mortgage-backed securities, and
other U.S. government agency securities. The fund may be appropriate for
investors seeking current income.
* MARKET OVERVIEW
Continued uncertainty and investor trepidation characterized the markets
during much of the period, which was marked by concern about the
direction of the U.S. economy, consumer spending, and if capital
spending by corporations would improve. Overlaying these factors was the
geopolitical uncertainty brought to bear by tenuous situations in Iraq
and North Korea. Once the invasion of Iraq reached a positive
conclusion, investors became more confident, moving some assets back
into stocks. Corporate bonds also posted a strong rebound.
The fiscal and monetary backdrop also appeared to be a positive one for
future growth. The Congress and President Bush signed the Jobs and
Growth Tax Relief Reconciliation Act of 2003, and the Federal Reserve
Board reinforced its commitment to keeping interest rates low enough to
spark a stronger recovery. We expected these events to push interest
rates higher. With investors anticipating a rebound and moving assets
out of Treasuries, we anticipated that yields would rise and bond prices
would fall. However, several factors kept yields declining, most
significantly, continued sustained demand for Treasury securities from
Asian central banks and individual investors in the United States. These
parties remained concerned about future growth as a result of ongoing
concerns related to Iraq, terrorism, North Korea, as well as the
uncertainty about what kind of effect the SARS epidemic might have on
global economic activity. With interest rates at historic lows, mortgage
refinancing continued at a torrid pace.
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 5/31/03
Bonds
Lehman Intermediate Govt. Bond Index
(intermediate-maturity government bonds) 4.70%
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Lehman Aggregate Bond Index (broad bond market) 6.29%
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Lehman Municipal Bond Index (municipal bonds) 6.46%
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JP Morgan Global High Yield Index (high-yield bonds) 14.75%
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Stocks
S&P 500 Index (broad stock market) 3.87%
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Russell 1000 Growth Index (large-company growth stocks) 3.85%
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Russell 1000 Value Index (large-company value stocks) 5.40%
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MSCI EAFE Index (international stocks) 3.30%
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These indexes provide an overview of performance in different market
sectors for the six months ended May 31, 2003.
* STRATEGY OVERVIEW
Our investment process remains unchanged. We start by deciding whether
mortgages or comparable Treasuries are more attractive, given their
relative valuations and our broad outlook about the economy and interest
rates. Then, we choose investments within these sectors by issuer or
coupon rate by analyzing relative valuation and yields. Part of this
approach is to see if there are opportunities offered by securities that
are not included in the benchmark. During the period, we decided to
maintain an emphasis on mortgage-backed securities because of the
additional yield they offered. At the same time, we took a defensive
approach, positioning the Treasury portion of the portfolio in Treasury
bills and short-term cash equivalents, which are less sensitive to
changes in interest rates. This was done with an eye toward reducing the
fund's duration, which indicates its interest-rate sensitivity. (A
shorter duration means that the portfolio value is less likely to
decline if interest rates rise; however, if rates fall, such a portfolio
will not be able to benefit as much from the ensuing bond price
increases.) We also took advantage of yield opportunities in other
mortgage-related securities and agency debentures, because we believed
that they offered attractive yields without adding significant risk.
[GRAPHIC OMITTED: vertical bar chart THE FUND'S MATURITY AND DURATION COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED*
This chart compares changes in the fund's duration
(a measure of its sensitivity to interest-rate changes)
and its average effective maturity (a weighted average
of the holdings' maturities) over the six months
ended 5/31/03.
as of 11/30/02 as of 5/31/03
Average effective maturity in years 2.9 2.2
Duration in years 2.2 1.5
Footnote reads:
*Average effective maturity also takes into account put and call features,
where applicable, and reflects prepayments for mortgage-backed securities.
* HOW FUND HOLDINGS/SECTOR ALLOCATIONS AFFECTED PERFORMANCE
Within the mortgage-backed security (MBS) sector allocation, we were
able to find significant opportunities to add additional income and help
performance. We increased the fund's MBS weighting to 70.6% (based on
the fund's net assets) by the end of the period. Declining interest
rates led to sustained prepayment activity. In this scenario, low or
falling interest rates encourage homeowners to refinance, leaving MBS
holders, such as the fund, with principal prepayments that must be
reinvested at lower prevailing rates.
Given this backdrop, we looked for segments of the market that were
generally insulated from prepayments. We initially favored 15-year MBSs
with 5.5% coupon rates issued by the Government National Mortgage
Association (Ginnie Maes) and the Federal National Mortgage Association
(Fannie Maes). As the period progressed, we moved our 15-year allocation
down the coupon scale to 5% and finally to 4.5% securities issued by the
Federal Home Loan Mortgage Corporation (Freddie Macs). Toward the end of
the period, we turned our focus to higher-coupon 30-year Fannie Maes
with 7% coupons because they offered particular value and had already
experienced significant prepayment activity. We also favored 30-year
Fannie Maes and Ginnie Maes with 5% coupons, because homeowners with
this low interest rate had little to no incentive to refinance. The fund
also benefited from investments in what are known as re-performing
mortgage loans with 30-year maturities. These are securities that have
been purchased by Fannie Mae from Ginnie Mae after homeowners have
demonstrated some difficulty in meeting their mortgage payments. Fannie
Mae then reissues the pools of mortgage securities and guarantees them.
These MBSs offered coupons in the 7.5% range, but with much slower
prepayment activity due to the slightly impaired credit of the
homeowners. As such, we believe they were attractively priced, offered
compelling yields with reduced prepayment risk, and were secured by the
backing of Fannie Mae.
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED]
SECTOR WEIGHTINGS COMPARED*
as of 11/30/02 as of 5/31/03
Fixed-rate
mortgage-backed
securities 59.4% 70.6%
Adjustable-rate
mortgage-backed
securities 0.5% 0.3%
U.S. Treasury
securities 15.9% 3.6%
Cash and
Short-term
investments 47.5% 57.5%
U.S. government
agency
obligations 10.5% 4.6%
Footnote reads:
*This chart shows how the fund's sector weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Sectors and holdings will vary over time.
While our moves within the MBS sector helped performance, they were not
enough to offset the effects of our defensive positioning within a
falling interest-rate environment. During the period, Treasuries
outperformed MBSs as interest rates were on the decline. Our choice for
Treasury investments, Treasury bills, are offered with maturities of
three months, six months, and one year. They differ from Treasury notes,
which carry maturities of between 2 and 10 years, and Treasury bonds,
which are Treasury securities with maturities of longer than 10 years.
We focused on shorter-term Treasuries and cash equivalents in order to
shorten the duration, or interest-rate sensitivity, of the fund. We also
felt that other parts of the Treasury yield curve were more prone to
suffer price losses if interest rates rose.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
* At the time this report was being written, the Federal Home Loan
Mortgage Corporation (Freddie Mac) was being investigated for
allegations of accounting and management improprieties, as well as
alleged improper use of the company's reserve account. We are monitoring
the situation closely and will make changes to the fund's holdings if we
believe such changes are warranted. The allegations did not affect
performance in a material way during the semiannual period.
* THE FUND'S MANAGEMENT TEAM
The fund is managed by the Putnam Core Fixed-Income Team. The members of
the team are Kevin Cronin (Portfolio Leader), Rob Bloemker (Portfolio
Member), Carl Bell, Andrea Burke, Steve Horner, D. William Kohli, James
Prusko, Michael Salm, John Van Tassel, and David Waldman.
THE OUTLOOK FOR YOUR FUND
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
We believe that economic growth will be modest going forward. More
importantly, several factors that forced interest rates lower appear to
be reversing direction. First, the federal budget is no longer in
surplus. The U.S. Treasury had been using the extra funds to buy back
debt, putting downward pressure on interest rates. Instead, there will
be a pronounced deficit going forward, made even larger by spending on
the Iraq war. The significant amount of new issuance should force rates
higher. In addition, bonds outperformed stocks from 2000 through 2002,
the first time they did so three years running since 1939-1941. The
equity market appears to be rebounding, increasing the possibility that
the bond market will experience significant outflows from investors who
had been using the safe haven of government bonds to protect their
assets while the stock market floundered. Third, uncertainty about
credit quality and risk, which resulted from the corporate accounting
scandals, appears to be dissipating. In response, the corporate bond
market has performed well recently. Further, interest rates were kept
low by the strong buying of U.S. assets by international investors who
were seeking the relative safety of the U.S. government bond market and
because of the strength of the U.S. dollar. However, the dollar has
fallen in value relative to the yen and the euro for the first time in
nine years, making U.S. assets less attractive to overseas investors.
Finally, if some sort of resolution in Iraq is achieved, we could see a
quick and significant rise in interest rates, which are currently at low
levels. Our defensive stance was constructed with all of this in mind.
While we may have been a bit early, we felt it was necessary to be
prepared instead of struggling to catch up with market forces. As it is
a rule in the fixed-income marketplace that bond prices decline when
yields rise, we will be looking to protect the fund's principal at the
same time that we look for yield opportunities to bolster returns.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Mutual funds that
invest in government securities are not guaranteed. Mortgage-backed
securities are subject to prepayment risk.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
its semiannual period, which ended May 31, 2003. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. Past performance does not
indicate future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. A profile of
your fund's strategy appears on the first page of this report. See page
8 for definitions of some terms used in this section.
TOTAL RETURN FOR PERIODS ENDED 5/31/03
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
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6 months 2.88% -0.39% 2.57% -0.43% 2.50% 1.50% 2.99% 0.85%
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1 year 6.40 2.96 5.75 2.75 5.60 4.60 6.42 4.37
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5 years 35.14 30.63 31.08 31.08 29.63 29.63 34.28 31.61
Annual average 6.21 5.49 5.56 5.56 5.33 5.33 6.07 5.65
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10 years 78.39 72.50 68.24 68.24 64.91 64.91 76.36 72.89
Annual average 5.96 5.60 5.34 5.34 5.13 5.13 5.84 5.63
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Annual average
(life of fund) 5.90 5.55 5.28 5.28 5.05 5.05 5.76 5.56
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 3.25% and 2.00%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 3% in the first year, declining to 1% in the fourth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for classes C and
M shares before their inception is derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/03
Lipper
Lehman Short-Intermediate
Intermediate U.S. Government
Government Funds category
Bond Index average*
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6 months 4.70% 3.58%
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1 year 10.16 7.57
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5 years 43.29 35.55
Annual average 7.46 6.27
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10 years 92.39 78.22
Annual average 6.76 5.94
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Annual average
(life of fund) 6.68 5.90
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* Lipper and index results should be compared with fund performance at net
asset value. Over the 6-month and 1-, 5-, and 10-year periods ended 5/31/03,
there were 77, 77, 66, and 27 funds, respectively, in this Lipper category.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/03
Class A Class B Class C Class M
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Distributions
(number) 6 6 6 6
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Income $0.048195 $0.032527 $0.028635 $0.044274
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Capital gains
Long-term 0.005000 0.005000 0.005000 0.005000
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Short-term 0.005000 0.005000 0.005000 0.005000
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Total $0.058195 $0.042527 $0.038635 $0.054274
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Share value: NAV POP NAV NAV NAV POP
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11/30/02 $5.17 $5.34 $5.18 $5.17 $5.18 $5.29
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5/31/03 5.26 5.44 5.27 5.26 5.28 5.39
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Current return (end of period)
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Current
dividend
rate 1 0.95% 0.91% 0.34% 0.20% 0.79% 0.78%
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Current
30-day SEC
yield 2 0.39 0.38 -0.20 -0.35 0.25 0.24
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/03 (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
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6 months 1.79% -1.61% 1.48% -1.52% 1.41% 0.41% 1.71% -0.39%
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1 year 5.71 2.30 5.07 2.06 4.92 3.92 5.73 3.71
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5 years 34.34 29.87 30.31 30.31 28.80 28.80 33.49 30.84
Annual average 6.08 5.37 5.44 5.44 5.19 5.19 5.95 5.52
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10 years 77.46 71.61 67.37 67.37 64.06 64.06 75.40 71.96
Annual average 5.90 5.55 5.29 5.29 5.08 5.08 5.78 5.57
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Annual average
(life of fund) 5.86 5.52 5.24 5.24 5.02 5.02 5.72 5.52
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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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
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 fourth
year, the CDSC no longer applies. The CDSC for class C shares is 1% for
one year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without 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 (except on certain
redemptions of shares bought without an initial sales charge).
COMPARATIVE INDEXES
Lehman Intermediate Government Bond Index is an unmanaged index of
government bonds with maturities between 1 and 10 years.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed income securities.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
JP Morgan Global High Yield Index is an unmanaged index of global
high-yield debt securities.
S&P 500 Index is an unmanaged index of common stock performance.
Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 chosen for their growth orientation.
Russell 1000 Value Index is an unmanaged index of those companies in the
Russell 1000 chosen for their value orientation.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
THE FUND'S PORTFOLIO
May 31, 2003 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (91.1%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government and Agency Mortgage Obligations (82.9%)
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Federal Home Loan Mortgage Corporation
$365,554 7 1/2s, with due dates from April 1, 2016 to December 1, 2017 $390,382
116,129,583 4 1/2s, with due dates from May 1, 2018 to June 1, 2018 119,269,336
77,789,000 4 1/2s, TBA, June 1, 2018 79,757,995
Federal National Mortgage Association Adjustable Rate Mortgages
96,040 6.092s, with due dates from November 1, 2024 to July 1, 2026 98,924
3,571,463 5.982s, September 1, 2031 3,703,428
Federal National Mortgage Association Pass-Through Certificates
4,033 11 1/4s, October 1, 2010 4,337
10,470 8s, May 1, 2013 11,186
13,998,845 7 1/2s, with due dates from November 1, 2015 to November 1, 2030 14,998,512
27,040,308 7 1/2s, with due dates from December 1, 2011 to October 1, 2015 28,999,134
56,397,613 7s, with due dates from November 1, 2022 to January 1, 2033 59,430,949
2,156,236 7s, with due dates from September 1, 2007 to January 1, 2015 2,295,065
150,143,000 7s, TBA, June 1, 2033 158,166,342
5,164,972 6 1/2s, with due dates from February 1, 2014 to February 1, 2017 5,425,741
81,000,000 6 1/2s, TBA, June 1, 2033 84,417,228
2,387,916 6s, with due dates from March 1, 2014 to October 1, 2016 2,492,348
32,628,233 5 1/2s, with due dates from June 1, 2013 to March 1, 2018 33,894,088
150,849,000 5s, TBA, July 1, 2033 154,148,822
174,800,000 5s, TBA, June 1, 2033 179,333,967
256,080 Government National Mortgage Association Adjustable Rate
Mortgages 7s, July 20, 2026 265,363
Government National Mortgage Association Pass-Through Certificates
8,137,054 7 1/2s, with due dates from December 15, 2023 to March 15, 2032 8,653,332
2,207,829 7s, with due dates from July 15, 2029 to May 15, 2032 2,327,429
3,120,708 6 1/2s, with due dates from October 15, 2029 to June 15, 2032 3,274,978
125,800,000 5s, TBA, July 1, 2033 129,298,750
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1,070,657,636
U.S. Government and Agency Obligations (4.6%)
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47,870,000 Fannie Mae 7 1/4s, January 15, 2010 59,950,330
U.S. Treasury Obligations (3.6%)
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8,322,073 U.S. Treasury Inflation Index Notes 3 5/8s, January 15, 2008 9,327,221
36,755,000 U.S. Treasury Notes 1 5/8s, January 31, 2005 37,001,957
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46,329,178
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Total U.S. Government and Agency Obligations (cost $1,165,809,183) $1,176,937,144
COLLATERALIZED MORTGAGE OBLIGATIONS (12.1%) (a)
PRINCIPAL AMOUNT VALUE
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Fannie Mae
$12,340,168 Ser. 02-T18, Class A4, 7 1/2s, 2042 $13,675,643
51,071,969 Ser. 02-T16, Class A3, 7 1/2s, 2042 56,599,067
6,329,464 Ser. 02-W4, Class A5, 7 1/2s, 2042 7,014,449
5,063,368 Ser. 01-T10, Class A2, 7 1/2s, 2041 5,611,334
3,256,872 Ser. 02-T4, Class A3, 7 1/2s, 2041 3,609,337
1,281,070 Ser. 02-T6, Class A2, 7 1/2s, 2041 1,419,710
2,120,635 Ser. 01-T12, Class A2, 7 1/2s, 2041 2,350,133
8,287,850 Ser. 01-T7, Class A1, 7 1/2s, 2041 9,184,776
412,518 Ser. 99-T2, Class A1, 7 1/2s, 2039 457,162
6,189,992 Ser. 02-T1, Class A3, 7 1/2s, 2031 6,859,884
2,569,291 Ser. 00-T6, Class A1, 7 1/2s, 2030 2,847,344
208,844 Ser. 02-W3, Class A5, 7 1/2s, 2028 231,445
25,690,845 Ser. 2002-T1, Class A2, 7s, 2031 28,074,996
15,344,000 Ser. 03-W8, Class 2A, 7s, 2042 16,767,954
1,268,261 Federal Home Loan Mortgage Corp. Structured Pass-Through
Securities Ser. T-42, Class A5, 7 1/2s, 2042 1,405,514
-------------
Total Collateralized Mortgage Obligations (cost $152,950,590) $156,108,748
SHORT-TERM INVESTMENTS (57.1%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$85,000,000 Interest in $500,000,000 joint repurchase agreement dated
May 30, 2003 with Bank of America due June 2, 2003 with
respect to various U.S. Government obligations -- maturity
value of $85,009,421 for an effective yield of 1.33% $85,000,000
85,000,000 Interest in $500,000,000 joint repurchase agreement dated
May 30, 2003 with Bank of America due June 2, 2003 with
respect to various U.S. Government obligations -- maturity
value of $85,009,421 for an effective yield of 1.33% 85,000,000
74,341,000 Interest in $521,000,000 joint repurchase agreement dated
May 30, 2003 with SBC Warburg, Inc. due June 2, 2003 with
respect to various U.S. Government obligations -- maturity
value of $74,349,239 for an effective yield of 1.33% 74,341,000
209,000,000 Federal Home Loan Banks effective yield of 1.18%, June 11, 2003 208,931,494
125,000,000 Federal Home Loan Banks effective yield of 1.16%, June 4, 2003 124,987,917
50,000,000 Federal National Mortgage Association effective yield of 1.22%,
June 4, 2003 49,994,917
109,259,000 Federal National Mortgage Association effective yield of 1.17%,
July 2, 2003 109,148,922
-------------
Total Short-Term Investments (cost $737,404,250) $737,404,250
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,056,164,023) $2,070,450,142
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,291,568,891.
TBA after the name of a security represents to be announced securities (Note 1).
- --------------------------------------------------------------------------
TBA Sales Commitments at May 31, 2003 (Unaudited)
(proceeds receivable $309,716,627)
Principal Settlement
Agency Amount Date Value
- --------------------------------------------------------------------------
FNMA, 5s, June 2033 $150,849,000 6/12/03 $154,761,721
FNMA, 5s, July 2033 76,012,000 7/14/03 77,674,763
FHLMC, 4 1/2s, June 2018 76,010,000 6/17/03 77,933,965
- --------------------------------------------------------------------------
$310,370,449
- --------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$2,056,164,023) (Note 1) $2,070,450,142
- -------------------------------------------------------------------------------------------
Cash 4,740,144
- -------------------------------------------------------------------------------------------
Interest and other receivables 4,873,825
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,564,135
- -------------------------------------------------------------------------------------------
Receivable for securities sold 342,798,416
- -------------------------------------------------------------------------------------------
Total assets 2,424,426,662
Liabilities
- -------------------------------------------------------------------------------------------
Distributions payable to shareholders 39,718
- -------------------------------------------------------------------------------------------
Payable for securities purchased 813,353,922
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 6,637,606
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,650,034
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 85,881
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 40,226
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,128
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 617,842
- -------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$309,716,627) (Note 1) 310,370,449
- -------------------------------------------------------------------------------------------
Other accrued expenses 59,965
- -------------------------------------------------------------------------------------------
Total liabilities 1,132,857,771
- -------------------------------------------------------------------------------------------
Net assets $1,291,568,891
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,260,623,726
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,401,418)
- -------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 19,714,286
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 13,632,297
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $1,291,568,891
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($597,019,200 divided by 113,455,447 shares) $5.26
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $5.26)* $5.44
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($439,947,092 divided by 83,422,196 shares)** $5.27
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($43,164,115 divided by 8,200,194 shares)** $5.26
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($20,087,809 divided by 3,803,055 shares) $5.28
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $5.28)*** $5.39
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($191,350,675 divided by 36,421,149 shares) $5.25
- -------------------------------------------------------------------------------------------
* 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.
*** On single retail sales of less than $100,000. On sales of $100,000
or more and on group sales, the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended May 31, 2003 (Unaudited)
Investment income: $14,680,215
- -------------------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,225,977
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,102,423
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 22,040
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 13,494
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 745,272
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,843,752
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 206,921
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 41,899
- -------------------------------------------------------------------------------------------
Other 351,277
- -------------------------------------------------------------------------------------------
Total expenses 7,553,055
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (39,228)
- -------------------------------------------------------------------------------------------
Net expenses 7,513,827
- -------------------------------------------------------------------------------------------
Net investment income 7,166,388
- -------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 19,661,329
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and TBA sale
commitments during the period 9,607,213
- -------------------------------------------------------------------------------------------
Net gain on investments 29,268,542
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $36,434,930
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
May 31 November 30
2003* 2002
- -------------------------------------------------------------------------------------------------------
Increase in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $7,166,388 $28,296,011
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments 19,661,329 24,977,395
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 9,607,213 (2,876,204)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 36,434,930 50,397,202
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (5,516,514) (16,396,254)
- -------------------------------------------------------------------------------------------------------
Class B (2,674,321) (7,393,018)
- -------------------------------------------------------------------------------------------------------
Class C (223,040) (719,934)
- -------------------------------------------------------------------------------------------------------
Class M (179,374) (601,040)
- -------------------------------------------------------------------------------------------------------
Class Y (1,974,557) (7,321,779)
- -------------------------------------------------------------------------------------------------------
From net realized long-term gain on investments
Class A (561,571) --
- -------------------------------------------------------------------------------------------------------
Class B (394,333) --
- -------------------------------------------------------------------------------------------------------
Class C (37,551) --
- -------------------------------------------------------------------------------------------------------
Class M (20,984) --
- -------------------------------------------------------------------------------------------------------
Class Y (179,914) --
- -------------------------------------------------------------------------------------------------------
From net realized short-term capital gains on investments
Class A (561,571) (2,372,223)
- -------------------------------------------------------------------------------------------------------
Class B (394,333) (1,650,556)
- -------------------------------------------------------------------------------------------------------
Class C (37,551) (155,668)
- -------------------------------------------------------------------------------------------------------
Class M (20,985) (87,924)
- -------------------------------------------------------------------------------------------------------
Class Y (179,913) (748,393)
- -------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 23,900,596 504,629,681
- -------------------------------------------------------------------------------------------------------
Total increase in net assets 47,379,014 517,580,094
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 1,244,189,877 726,609,783
- -------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and undistributed net investment
income of $2,401,418 and $1,000,000, respectively) $1,291,568,891 $1,244,189,877
- -------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.17 $5.10 $4.90 $4.81 $5.01 $4.90
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income .03 .17 .26(d) .28 .25 .25(d)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .12 .12 .19 .06 (.20) .14
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 .29 .45 .34 .05 .39
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.20) (.25) (.25) (.25) (.28)
- ------------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.01) (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.06) (.22) (.25) (.25) (.25) (.28)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.26 $5.17 $5.10 $4.90 $4.81 $5.01
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.88* 5.85 9.29 7.23 1.09 8.19
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $597,019 $588,232 $327,332 $217,197 $243,927 $242,140
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .49* .97 .96 1.00 .99 1.06
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .66* 3.18 5.15 5.84 5.20 5.00
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 242.97* 538.64 (c) 224.31 (c) 401.30 318.67 223.06
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(d) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.11 $4.91 $4.81 $5.01 $4.91
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income .02 .14 .23(d) .25 .22 .22(d)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .11 .12 .19 .07 (.20) .13
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .13 .26 .42 .32 .02 .35
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.03) (.17) (.22) (.22) (.22) (.25)
- ------------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.01) (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.04) (.19) (.22) (.22) (.22) (.25)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.27 $5.18 $5.11 $4.91 $4.81 $5.01
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.57* 5.21 8.61 6.79 .48 7.32
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $439,947 $410,169 $194,202 $103,543 $137,130 $137,569
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .79* 1.57 1.56 1.60 1.59 1.66
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .35* 2.47 4.49 5.24 4.60 4.39
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 242.97* 538.64 (c) 224.31 (c) 401.30 318.67 223.06
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(d) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
- -----------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 July 26, 1999+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- -----------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.17 $5.10 $4.90 $4.81 $4.81
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income .01 .13 .21 (d) .24 .07
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .12 .12 .20 .06 -- (e)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations .13 .25 .41 .30 .07
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income (.03) (.16) (.21) (.21) (.07)
- -----------------------------------------------------------------------------------------------------
From net realized
gain on investment (.01) (.02) -- -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (.04) (.18) (.21) (.21) (.07)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.26 $5.17 $5.10 $4.90 $4.81
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.50* 5.06 8.46 6.38 1.53*
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $43,164 $38,613 $18,335 $5,221 $2,746
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .87* 1.72 1.71 1.75 .61*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .27* 2.38 4.23 5.12 1.58*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 242.97* 538.64 (c) 224.31 (c) 401.30 318.67
- -----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(d) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the periods.
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.11 $4.92 $4.82 $5.02 $4.91
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income .03 .16 .25 (d) .26 .24 .24 (d)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .12 .12 .18 .08 (.20) .14
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 .28 .43 .34 .04 .38
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.19) (.24) (.24) (.24) (.27)
- ------------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.01) (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.05) (.21) (.24) (.24) (.24) (.27)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.28 $5.18 $5.11 $4.92 $4.82 $5.02
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.99* 5.68 8.88 7.26 .93 8.01
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $20,088 $21,874 $15,244 $9,121 $10,918 $10,181
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .57* 1.12 1.11 1.15 1.14 1.21
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .59* 3.07 4.95 5.69 5.09 4.88
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 242.97* 538.64 (c) 224.31 (c) 401.30 318.67 223.06
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(d) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.16 $5.09 $4.90 $4.80 $5.01 $4.90
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income .04 .18 .27 (d) .29 .26 .26 (d)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .11 .12 .18 .07 (.21) .14
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 .30 .45 .36 .05 .40
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.21) (.26) (.26) (.26) (.29)
- ------------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.01) (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.06) (.23) (.26) (.26) (.26) (.29)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.25 $5.16 $5.09 $4.90 $4.80 $5.01
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.02* 6.13 9.35 7.73 1.14 8.46
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $191,351 $185,303 $171,498 $132,245 $114,881 $120,019
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .37* .72 .71 .75 .74 .81
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .78* 3.55 5.41 6.11 5.45 5.30
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 242.97* 538.64 (c) 224.31 (c) 401.30 318.67 223.06
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(d) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
May 31, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Intermediate U.S. Government Income Fund (the "fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund seeks high
current income consistent with preservation of capital, through
investments primarily in U.S. government securities.
The fund offers class A, class B, class C, class M and class Y shares.
Class A shares are sold with a maximum front-end sales charge of 3.25%.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge but pay a higher
ongoing distribution fee than class A and class M 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 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 certain eligible purchasers
including certain defined contribution plans (including corporate IRAs),
bank trust departments and trust companies.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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, including mortgage-backed securities,
are valued on the basis of valuations provided by an independent pricing
service, approved by the Trustees. Such service providers use
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. Restricted
securities are valued at fair value following procedures approved by the
Trustees. Such valuations and procedures are reviewed periodically by
the Trustees. Short-term investments having remaining maturities of 60
days or less are valued at amortized cost, which approximates fair
value.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
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 recorded 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. All premiums/discounts are amortized/accreted on a
yield-to-maturity basis.
E) TBA purchase commitments The fund may enter into "TBA" (to be
announced) commitments to purchase securities for a fixed unit price at
a future date beyond customary settlement time. Although the unit price
has been established, the principal value has not been finalized.
However, the amount of the commitments will not significantly differ
from the principal amount. The fund holds, and maintains until
settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
F) 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. TBA sale commitments outstanding at period
end are listed after The fund's portfolio.
G) 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.
The aggregate identified cost on a tax basis is $2,056,220,494,
resulting in gross unrealized appreciation and depreciation of
$14,885,377 and $655,729, respectively, or net unrealized depreciation
of $14,229,648.
H) 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.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services
and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the lesser of (i) the annual rate of
0.50% of the average net assets of the fund or (ii) 0.60% of the first
$500 million of average net assets, 0.50% of the next $500 million,
0.45% of the next $500 million, 0.40% of the next $5 billion, 0.375% of
the next $5 billion, 0.355% of the next $5 billion, 0.34% of the next $5
billion, and 0.33% 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, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended May 31, 2003,
the fund's expenses were reduced by $39,228 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,945 has been allocated to the fund, and an additional fee for
each Trustees 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 Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, 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 Retail Management at an
annual rate of 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 the
annual rates 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 six months ended May 31, 2003, Putnam Retail Management, acting
as underwriter, received net commissions of $46,173 and $1,342 from the
sale of class A and class M shares, respectively, and received $379,617
and $7,769 in contingent deferred sales charges from redemptions of
class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.40% is assessed on certain
redemptions of class A and class M shares, respectively. For the six
months ended May 31, 2003, Putnam Retail Management, acting as
underwriter, received $18,755 and no monies on class A and class M
redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended May 31, 2003, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $1,480,447,591 and
$1,443,085,088, respectively. Purchases and sales of U.S. government
obligations aggregated $406,274,369 and $560,011,852, respectively.
Note 4
Capital shares
At May 31, 2003, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 28,233,013 $147,123,452
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,148,782 5,988,323
- ---------------------------------------------------------------------------
29,381,795 153,111,775
Shares repurchased (29,796,207) (155,262,784)
- ---------------------------------------------------------------------------
Net decrease (414,412) $(2,151,009)
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 191,218,699 $975,173,139
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 3,193,127 16,321,022
- ---------------------------------------------------------------------------
194,411,826 991,494,161
Shares repurchased (144,771,443) (737,389,461)
- ---------------------------------------------------------------------------
Net increase 49,640,383 $254,104,700
- ---------------------------------------------------------------------------
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 21,578,892 $112,678,621
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 546,173 2,850,977
- ---------------------------------------------------------------------------
22,125,065 115,529,598
Shares repurchased (17,931,747) (93,693,817)
- ---------------------------------------------------------------------------
Net increase 4,193,318 $21,835,781
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 64,303,787 $331,222,724
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,389,458 7,123,431
- ---------------------------------------------------------------------------
65,693,245 338,346,155
Shares repurchased (24,494,983) (125,594,500)
- ---------------------------------------------------------------------------
Net increase 41,198,262 $212,751,655
- ---------------------------------------------------------------------------
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 2,956,292 $15,410,910
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 46,712 243,288
- ---------------------------------------------------------------------------
3,003,004 15,654,198
Shares repurchased (2,275,063) (11,858,862)
- ---------------------------------------------------------------------------
Net increase 727,941 $3,795,336
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 10,065,684 $51,584,364
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 130,434 666,864
- ---------------------------------------------------------------------------
10,196,118 52,251,228
Shares repurchased (6,319,558) (32,315,406)
- ---------------------------------------------------------------------------
Net increase 3,876,560 $19,935,822
- ---------------------------------------------------------------------------
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 794,103 $4,152,209
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 37,054 193,845
- ---------------------------------------------------------------------------
831,157 4,346,054
Shares repurchased (1,248,552) (6,526,383)
- ---------------------------------------------------------------------------
Net decrease (417,395) $(2,180,329)
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 4,244,369 $21,779,225
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 117,439 601,554
- ---------------------------------------------------------------------------
4,361,808 22,380,779
Shares repurchased (3,123,600) (15,969,176)
- ---------------------------------------------------------------------------
Net increase 1,238,208 $6,411,603
- ---------------------------------------------------------------------------
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 3,043,868 $15,849,597
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 451,406 2,334,384
- ---------------------------------------------------------------------------
3,495,274 18,183,981
Shares repurchased (2,998,043) (15,583,164)
- ---------------------------------------------------------------------------
Net increase 497,231 $2,600,817
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 6,838,674 $34,988,350
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,584,425 8,070,172
- ---------------------------------------------------------------------------
8,423,099 43,058,522
Shares repurchased (6,190,552) (31,632,621)
- ---------------------------------------------------------------------------
Net increase 2,232,547 $11,425,901
- ---------------------------------------------------------------------------
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
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
BLEND FUNDS
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund
Global Equity Fund
Global Natural Resources Fund
International Capital Opportunities Fund
International Equity Fund
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
VALUE FUNDS
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund *
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Income Trust
High Yield Advantage Fund *
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Money Market 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
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds +
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
* Closed to new investors.
+ 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.putnaminvestments.com.
SERVICES FOR SHAREHOLDERS
HELP YOUR INVESTMENT GROW
Set up a program for systematic investing with as little as $25 a month
from a Putnam fund or from your own savings or checking account.
(Regular investing does not guarantee a profit or protect against loss
in a declining market.)
SWITCH FUNDS EASILY
You can move money from one Putnam fund to another within the same class
of shares without a service charge. (This privilege is subject to change
or termination.)
ACCESS YOUR MONEY EASILY
You can have checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares. Class B and class C shares carry a sales
charge that is applied to certain withdrawals.
HOW TO BUY ADDITIONAL SHARES
You may buy shares through your financial advisor or directly from
Putnam. To open an account by mail, send a check made payable to the
name of the fund along with a completed fund application. To add to an
existing account, complete the investment slip found at the top of your
Confirmation of Activity statement and return it with a check payable to
your fund.
VISIT US AT WWW.PUTNAMINVESTMENTS.COM
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may
also conduct transactions, such as exchanges, additional investments,
and address changes. Log on today to get your password.
USE OUR TOLL-FREE NUMBER
1-800-225-1581 Ask a helpful Putnam representative or your financial
advisor for details about any of these or other services, or see your
prospectus.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
INVESTMENT MANAGER
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
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, III
President
Charles E. Porter
Executive Vice President, Treasurer and
Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Kevin M. Cronin
Vice President
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Intermediate U.S. Government Income Fund. It may also be used as sales
literature when preceded or accompanied by the current prospectus, which
gives details of sales charges, investment objectives, and operating
policies of the fund, and the most recent copy of Putnam's Quarterly
Performance Summary and Putnam's Quarterly Ranking Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
The fund's Statement of Additional Information contains additional
information about the fund's Trustees and is available without charge
upon request by calling 1-800-225-1581.
Visit www.putnaminvestments.com or call 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA036-88678 398/428/674 7/03
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Intermediate U.S. Government Income Fund
Supplement to Semiannual Report dated 5/31/03
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 clients that meet the
eligibility requirements specified in the fund's prospectus for such
shares. Performance of class Y shares, which do not incur a front-end
load, a distribution fee, or a contingent deferred sales charge, will
differ from the performance of class A, B, C, M, and R shares, which are
discussed more extensively in the semiannual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 5/31/03
NAV
6 month 3.01%
1 year 6.67
5 years 36.62
Annual average 6.64
10 years 80.65
Annual average 6.09
Life of fund (since class A inception, 2/16/93) 82.61
Annual average 6.03
Share value: NAV
11/30/02 $5.16
5/31/03 $5.25
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
Short Long
6 $0.054732 $0.005 $0.005 $0.064732
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results.
More recent returns may be more or less than those shown. Returns shown
for class Y shares for periods prior to their inception are derived from
the historical performance of class A shares, and are not 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, typically are lower than the
operating expenses applicable to class A shares. All returns assume
reinvestment of distributions at net asset value. 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.
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: July 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: July 24, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: July 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 24, 2003