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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Looking back on an eventful year, we consider it important to take note
of the increasingly positive trends that have become apparent in the
U.S. economy and financial markets. The stimulus provided by fiscal and
monetary policies has drawn the economy out of the slump of early 2003
and rising profits prompted a broad rally for stocks. The bond market
steadied while offering pockets of opportunity. We see indications that
these trends can continue into 2004 and know that Putnam management
teams will seek to position the funds to benefit from them.
During the fiscal year ended November 30, 2003, Putnam Intermediate U.S.
Government Income Fund delivered positive results at net asset value.
However, it underperformed both its benchmark index and its Lipper
category average. You will find the details on the facing page.
In the following report, your fund's management team reviews in detail
the performance and the strategies it pursued. The team reports that
during the challenging and rapidly changing fixed-income market of
fiscal 2003, the portfolio was not sufficiently defensive to respond to
a sharp spike in interest rates during the summer, yet too defensively
positioned to benefit fully from the resulting rally. Now, as fiscal
2004 begins, the management team offers its view of prospects for the
coming months.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 21, 2004
Report from Fund Management
Fund highlights
* During the fiscal year ended November 30, 2003, Putnam Intermediate
U.S. Government Income Fund's class A shares had total returns of 2.00%
at net asset value (NAV) and -1.25% at public offering price (POP).
* As a result of owning securities that were less sensitive to
interest-rate changes than those in its benchmark index, the fund
underperformed the 3.37% return of the Lehman Intermediate Government
Bond Index. Much of this underperformance occurred in the first half of
the fiscal year.
* However, because the fund's interest-rate sensitivity was higher than
that of its Lipper peer group, this positioning hurt relative
performance in the second half of the period when rates increased. As a
result, the fund underperformed the average return of 2.33% for the
Lipper Short-Intermediate U.S. Government Funds category.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
The 12 months ended November 30, 2003, was a period of significant
change in the U.S. economy -- from an environment of great concern over
sluggish growth and the potential for deflation, to one of greater
optimism among investors over a surprisingly robust economy and a
resurgent stock market. As a result, the shorter-maturity,
higher-quality part of the bond market, which is strongly linked to
economic expectations, was rather volatile. We positioned the portfolio
defensively to make it less sensitive to what we believed was a
plausible threat of rising interest rates. However, the fund was still a
bit more aggressively positioned than many of the funds in its Lipper
category. So, when rates eventually increased dramatically during the
summer months, it hurt the fund's performance relative to its Lipper
peer group. Throughout the period, however, the market generally favored
higher-yielding securities, causing the fund to underperform its
benchmark index.
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
The fund's fiscal year began a few months after the bond market had
emerged from a significant upheaval, in which high-quality bonds began
underperforming lower-quality, higher-yielding bonds as investors became
more optimistic about the economy. In early 2003, the impending war with
Iraq brought a brief reversal of this trend, which was followed by a
spike in bond yields (and a decline in prices, which move in the
opposite direction of yields) after the fall of Saddam Hussein. Concerns
about the sluggish economy and the potential for deflation dominated the
markets in the spring, however, bringing Treasury yields down to levels
not seen since the 1950s.
In mid June, the market again underwent significant change. Signs of
credible strengthening in the U.S. economy and an appetite for stocks
not seen for three years sent Treasury prices plummeting and yields
rising. The rise in Treasury yields from mid June through the end of
August was one of the sharpest increases for a 10-week period on record.
The market subsequently leveled off and yields moved within a fairly
narrow range through the end of the fund's fiscal year.
The most significant characteristic of the bond market during the past
12-month period has been the willingness of investors to take on more
risk in exchange for higher yields. As a result, bonds with longer
maturities, lower ratings, and higher yields have generally outperformed
the higher-quality, shorter-maturity issues that make up most of your
fund's holdings.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 11/30/03
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Bonds
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Lehman Intermediate Government Bond Index
(intermediate-maturity U.S. government bonds) 3.37%
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Lehman Aggregate Bond Index (broad bond market) 5.18%
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Lehman Municipal Bond Index (tax-exempt bonds) 6.66%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 25.80%
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Equities
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S&P 500 Index (broad stock market) 15.09%
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Russell 1000 Index (large-company stocks) 16.94%
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MSCI EAFE Index (international stocks) 24.22%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 11/30/03.
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Strategy overview
The fund's investment approach is to assess the relative attractiveness
of mortgage-backed securities (MBSs) versus Treasuries, given the
macroeconomic conditions and our interest-rate outlook. We then choose
securities within these sectors by analyzing their coupons (the
face-value interest rate, or amount of income they produce) and their
maturities, within the specified short- to intermediate-maturity mandate
outlined in the fund's prospectus.
During the first half of the fund's fiscal year, we believed that
interest rates, which were at historically low levels, would begin to
rise at some point. As a result, we positioned the portfolio
defensively, investing in bonds that would be less sensitive to
interest-rate changes. We were proven correct when rates rose in the
summer months, but prior to that, we did not anticipate that rates,
already low, would decline even further, as they did during the spring.
The fund's lower sensitivity to interest-rate changes limited its
ability to benefit from the resulting rally and thus hurt its
performance versus the benchmark index in the first half of the period.
When rates increased considerably in the summer months, this positioning
helped performance relative to the index, but detracted from it relative
to the fund's Lipper peer group (the fund's interest-rate sensitivity
was slightly higher than that of the Lipper peer group).
Recognizing that the market generally favored higher-yielding bonds
throughout the period, we also tried to improve relative returns by
emphasizing MBSs, which typically offer higher income than Treasuries
with similar maturities. To implement this, we substituted 15-year MBSs
for short-term Treasuries in the portfolio.
[GRAPHIC OMITTED: horizontal bar chart COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION
as of as of
5/31/03 11/30/03
Fixed-rate
mortgage-backed
securities 70.6% 50.5%
U.S. Treasury
securities 3.6% 17.5%
U.S. government
agency obligations 4.6% 14.8%
Cash and
short-term
investments 57.5% 10.3%
Adjustable-rate
mortgage-backed
securities 0.3% 0.3%
Footnote reads:
Weightings are shown as a percentage of net asset value. Holdings will
vary over time. A portion of short-term investments reflect amounts used
to settle TBA purchase commitments (discussed on page 28).
How holdings and sector allocations affected performance
With the market shift toward higher-yielding securities, we maintained
an emphasis on mortgage-backed securities (MBSs). With the decline in
interest rates in the first half of the fiscal year, however, homeowners
refinanced at a record pace. This trend can be detrimental to MBS
returns because the prepayment of home loans reduces income from these
securities. We consequently invested in securities that we believed were
more insulated from such prepayments. We initially favored 15-year MBSs
with 5.5% coupon rates issued by the Federal National Mortgage
Association (Fannie Maes). As the midpoint of the fiscal year
approached, we moved our 15-year allocation down the coupon scale to 5%
and finally into 4.5% securities issued by the Federal Home Loan
Mortgage Corporation (Freddie Macs). (The 4.5% Freddie Macs were sold
prior to the end of the period.) We also invested in higher-coupon
30-year Fannie Maes with 7% coupons because we believed they offered
particular value and had already experienced significant prepayment
activity. To reduce prepayment risk in the portfolio, we invested in
30-year Fannie Maes and Ginnie Maes with 5% coupons, because we felt
that homeowners with this low interest rate would have little to no
incentive to refinance.
In June and July of 2003, the Federal Home Loan Mortgage Corporation was
investigated for allegations of accounting and management improprieties,
as well as improper use of the company's reserve account. We monitored
the situation closely, but the allegations did not meaningfully affect
the performance of these holdings thereafter.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
11/30/02 5/31/03 11/30/03
Average effective
maturity in years 2.9 2.2 3.2
Duration in years 2.2 1.5 2.8
Footnote reads:
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).
Average effective maturity also takes into account put and call
features, where applicable, and reflects prepayments for mortgage-backed
securities.
Another way in which we sought to reduce prepayment risk was by
investing 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 believed they
were attractively priced, offering compelling yields with reduced
prepayment risk. In addition, these loans were secured by the backing of
Fannie Mae.
In the second half of the period, we focused on higher-coupon MBSs,
which are less sensitive to interest-rate increases, although we reduced
the overall MBS weighting near the end of the period because of strong
performance in this sector. We believed these securities would help
cushion the impact of rate increases while providing higher income to
boost the fund's total returns. We kept the Treasury portion of the fund
invested in shorter-maturity securities -- primarily three- and
six-month, and one-year Treasury bills -- to reduce the fund's
sensitivity to rising rates, which helped during the second half of the
period. These differ from Treasury notes, which have maturities between
two and ten years, and Treasury bonds, which have maturities longer than
ten years.
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.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income Team. The members of
this team are Kevin Cronin (Portfolio Leader), Rob Bloemker (Portfolio
Member), Carl Bell, Andrea Burke, Steve Horner, D. William Kohli,
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.
As we look to 2004, it is becoming clear that the U.S. economy is not
only continuing to gain strength, but that this strength may be
sustained well into the New Year. Although inflation is not yet an
issue, we believe that continued growth in the economy will eventually
exert some pressure on consumer and producer prices, which will likely
result in a change in the Federal Reserve Board's stance on interest
rates. While no one can predict what the Fed will do with regard to
short-term rates, we believe that a rate increase -- or at least the
hint of one to come -- cannot be ruled out sometime in the next calendar
year. No matter what the Fed does, however, continued growth in the
economy, rising stock prices, and the ballooning trade deficit (which is
financed by foreign investors who may demand higher returns) are likely
to put upward pressure on bond yields. As a result, we plan to position
the portfolio to weather any potential volatility accompanying a rise in
yields by overweighting higher-coupon MBSs and reducing the fund's
duration, or interest-rate sensitivity.
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 fiscal year, which ended November 30, 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
9 for definitions of some terms used in this section.
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TOTAL RETURN FOR PERIODS ENDED 11/30/03
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Class A Class B Class C Class M
(inception dates) (2/16/93) (2/16/93) (7/26/99) (4/3/95)
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NAV POP NAV CDSC NAV CDSC NAV POP
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1 year 2.00% -1.25% 1.38% -1.62% 1.23% 0.22% 2.04% -0.09%
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5 years 27.91 23.70 24.30 24.30 22.77 22.77 27.10 24.62
Annual average 5.05 4.35 4.45 4.45 4.19 4.19 4.91 4.50
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10 years 74.54 69.03 64.61 64.61 61.11 61.11 72.34 68.92
Annual average 5.73 5.39 5.11 5.11 4.88 4.88 5.59 5.38
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Annual average
(life of fund) 5.53 5.21 4.92 4.92 4.70 4.70 5.40 5.20
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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.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/03
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Lipper Short-
Lehman Intermediate
Intermediate U.S. Government
Government Funds category
Bond Index average*
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1 year 3.37% 2.33%
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5 years 34.45 28.84
Annual average 6.10 5.19
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10 years 83.85 69.35
Annual average 6.28 5.40
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Annual average
(life of fund) 6.24 5.50
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 11/30/03, there were 76,
66, and 32 funds, respectively, in this Lipper category.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 11/30/93 to 11/30/03
Lehman Intermediate
Fund's class A Government
Date shares at POP Bond Index
11/30/93 9,675 10,000
11/30/94 9,576 9,834
11/30/95 10,904 11,178
11/30/96 11,409 11,810
11/30/97 12,265 12,551
11/30/98 13,189 13,674
11/30/99 13,220 13,838
11/30/00 14,441 14,975
11/30/01 15,470 16,602
11/30/02 16,699 17,785
11/30/03 $16,903 $18,385
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $16,461 and $16,111, respectively, and
no contingent deferred sales charges would apply. A $10,000 investment
in the fund's class M shares would have been valued at $17,234 ($16,892
at public offering price). See first page of performance section for
performance calculation method.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 11/30/03
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Class A Class B Class C Class M
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Distributions (number) 12 12 12 12
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Income $0.065623 $0.034279 $0.026561 $0.057735
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Capital gains
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Long-term 0.005000 0.005000 0.005000 0.005000
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Short-term 0.022600 0.022600 0.022600 0.022600
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Total $0.093223 $0.061879 $0.054161 $0.085335
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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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11/30/03 5.18 5.35 5.19 5.18 5.20 5.31
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Current return (end of period)
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Current dividend rate 1 1.05% 1.02% 0.45% 0.31% 0.90% 0.88%
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Current 30-day SEC yield 2 2.13 2.06 1.54 1.39 1.98 1.94
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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.
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TOTAL RETURN FOR PERIODS ENDED 12/31/03 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M
(inception dates) (2/16/93) (2/16/93) (7/26/99) (4/3/95)
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NAV POP NAV CDSC NAV CDSC NAV POP
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1 year 1.35% -2.03% 0.94% -2.03% 0.78% -0.21% 1.21% -0.89%
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5 years 28.27 24.05 24.89 24.89 23.28 23.28 27.46 24.96
Annual average 5.11 4.40 4.55 4.55 4.28 4.28 4.97 4.56
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10 years 74.38 68.57 65.12 65.12 61.51 61.51 72.17 68.75
Annual average 5.72 5.36 5.14 5.14 4.91 4.91 5.58 5.37
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Annual average
(life of fund) 5.54 5.22 4.94 4.94 4.72 4.72 5.40 5.21
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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
JP Morgan (formerly Chase) Global High Yield Index is an unmanaged index
used to mirror the investable universe of the U.S. dollar global
high-yield corporate debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed income securities.
Lehman Intermediate Government Bond Index is an unmanaged index of
government bonds with maturities between 1 and 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 1000 Index is an unmanaged index of the largest 1,000 companies
in the Russell 3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
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.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Independent Auditors' Report, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price 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 year.
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.
Independent auditors' report
The Board of Trustees and Shareholders
Putnam Intermediate U.S. Government Income Fund:
We have audited the accompanying statement of assets and liabilities of
Putnam Intermediate U.S. Government Income Fund, including the fund's
portfolio, as of November 30, 2003, and the related statement of
operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of November 30, 2003 by correspondence with the custodian and brokers or
by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Intermediate U.S. Government Income Fund,
the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then
ended in conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
Boston, Massachusetts
January 8, 2004
The fund's portfolio
November 30, 2003
U.S. government and agency obligations (100.9%) (a)
Principal amount Value
U.S. Government and Agency Mortgage Obligations (68.6%)
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Federal Home Loan Mortgage
Corporation
$184,682 7 1/2s, with due dates from April 1,
2016 to December 1, 2017 $198,022
Federal National Mortgage
Association Adjustable Rate
Mortgages
33,662 5 1/2s, November 1, 2024 34,291
2,049,216 5.338s, September 1, 2031 2,094,647
48,362 3.535s, July 1, 2026 48,761
Federal National Mortgage
Association Pass-Through
Certificates
2,477 11 1/4s, October 1, 2010 2,631
3,138 8s, May 1, 2013 3,267
8,935,729 7 1/2s, with due dates from November
1, 2015 to November 1, 2030 9,549,899
16,946,623 7 1/2s, with due dates from December
1, 2011 to October 1, 2015 18,114,455
123,248,612 7s, with due dates from January 1,
2025 to May 1, 2033 130,099,872
1,494,758 7s, with due dates from September 1,
2007 to January 1, 2015 1,592,342
260,055,673 6 1/2s, with due dates from January
1, 2023 to November 1, 2033 271,205,533
3,245,811 6 1/2s, with due dates from February
1, 2014 to February 1, 2017 3,425,522
54,598,000 6 1/2s, TBA, December 1, 2033 56,918,415
1,504,096 6s, with due dates from March 1,
2014 to October 1, 2016 1,573,651
24,251,020 5 1/2s, with due dates from June 1,
2013 to June 1, 2018 25,000,449
56,000,000 5 1/2s, TBA, December 1, 2033 56,350,000
46,700,000 5 1/2s, TBA, December 1, 2017 48,086,430
16,879,148 5s, with due dates from November 1,
2017 to November 1, 2018 17,106,960
186,955 Government National Mortgage
Association Adjustable Rate
Mortgages 7s, July 20, 2026 190,543
Government National Mortgage
Association Pass-Through
Certificates
4,553,546 7 1/2s, with due dates from December
15, 2023 to March 15, 2032 4,876,860
937,814 7s, with due dates from July 15,
2029 to May 15, 2032 997,905
30,569 6 1/2s, March 15, 2031 32,155
--------------
647,502,610
U.S. Government and Agency Obligations (14.8%)
- -------------------------------------------------------------------------------
119,026,000 Federal National Mortgage
Association notes, 7 1/4s, January
15, 2010 139,480,261
U.S. Treasury Obligations (17.5%)
- -------------------------------------------------------------------------------
57,302,000 U.S. Treasury Bonds 4 1/4s, August
15, 2013 57,073,709
U.S. Treasury Notes
78,188,000 2 5/8s, May 15, 2008 76,376,853
16,755,000 1 5/8s, January 31, 2005 16,777,904
15,000,000 1 1/8s, June 30, 2005 14,854,095
--------------
165,082,561
--------------
Total U.S. government and agency
obligations (cost $949,707,312) $952,065,432
Collateralized mortgage obligations (9.1%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
Fannie Mae
$7,335,975 Ser. 02-T18, Class A4, 7 1/2s, 2042 $7,972,414
7,483,938 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 8,133,214
24,981,620 Ser. 02-T16, Class A3, 7 1/2s, 2042 27,148,924
1,365,503 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 1,483,969
4,463,645 Ser. 02-W4, Class A5, 7 1/2s, 2042 4,850,893
578,309 Ser. 02-14, Class A2, 7 1/2s, 2042 628,481
4,070,554 Ser. 01-T10, Class A2, 7 1/2s, 2041 4,423,699
2,593,673 Ser. 02-T4, Class A3, 7 1/2s, 2041 2,818,690
1,050,005 Ser. 02-T6, Class A2, 7 1/2s, 2041 1,141,099
1,733,044 Ser. 01-T12, Class A2, 7 1/2s, 2041 1,883,396
1,598,159 Ser. 01-T8, Class A1, 7 1/2s, 2041 1,736,809
6,749,292 Ser. 01-T7, Class A1, 7 1/2s, 2041 7,334,833
340,348 Ser. 99-T2, Class A1, 7 1/2s, 2039 369,875
4,998,519 Ser. 02-T1, Class A3, 7 1/2s, 2031 5,432,170
2,103,180 Ser. 00-T6, Class A1, 7 1/2s, 2030 2,285,643
532,910 Ser. 02-W3, Class A5, 7 1/2s, 2028 579,143
2,586,625 Ser. 343, Class 14, IO, 5 1/2s, 2033 606,644
2,695,646 Ser. 343, Class 15, IO, 5 1/2s, 2033 634,740
1,230,956 Ser. 343, Class 17, IO, 5 1/2s, 2033 295,622
5,101,754 Ser. 343, Class 5, IO, 5s, 2033 1,263,481
5,693,009 Ser. 343, Class 9, IO, 5s, 2033 1,468,618
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
1,734,806 Ser. T-58, Class 4A, 7 1/2s, 2043 1,883,077
1,017,662 Ser. T-42, Class A5, 7 1/2s, 2042 1,105,950
--------------
Total Collateralized mortgage
obligations (cost $85,161,382) $85,481,384
Short-term investments (9.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$350,000 U.S. Treasury Bills zero %, February
5, 2004 (SEG) $349,400
44,000,000 Interest in $350,000,000 joint
repurchase agreement dated November
28, 2003 with Bank of America due
December 1, 2003 with respect to
various U.S. Government obligations
-- maturity value of $44,003,923 for
an effective yield of 1.07% 44,000,000
40,599,000 Interest in $300,000,000 joint
repurchase agreement dated November
28, 2003 with UBS Securities, LLC
due December 1, 2003 with respect to
various U.S. Government obligations
-- maturity value of $40,602,552 for
an effective yield of 1.05% 40,599,000
--------------
Total Short-term investments (cost $84,948,400) $84,948,400
- -------------------------------------------------------------------------------
Total Investments (cost $1,119,817,094) $1,122,495,216
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $943,405,525.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at November 30, 2003.
TBA after the name of a security represents to be announced securities
(Note 1).
Futures contracts outstanding at November 30, 2003
Unrealized
Market Aggregate Expiration appreciation/
value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Note
5 yr (Short) $33,774,750 $33,981,435 Mar-04 $206,685
U.S. Treasury Note
10 yr (Long) 27,057,313 27,327,944 Mar-04 (270,631)
- ------------------------------------------------------------------------------------------------------
$(63,946)
- ------------------------------------------------------------------------------------------------------
TBA sales commitments at November 30, 2003
(proceeds receivable $254,056,755)
Expiration
Principal date/
Agency amount strike price Value
- ------------------------------------------------------------------------------------------------------
FNMA, 6.5s, December 2033 $244,192,000 12/11/03 $254,570,160
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at November 30, 2003
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Credit Suisse First Boston
International dated October 16, 2003 to receive
semi-annually the notional amount multiplied by
2.096% and pay quarterly the notional amount
multiplied by the three month USD LIBOR. $808,000 10/20/05 $(1,888)
Agreement with Credit Suisse First Boston
International dated October 16, 2003 to receive
semi-annually the notional amount multiplied by
4.783% and pay quarterly the notional amount
multiplied by the three month USD LIBOR. 2,493,000 10/20/13 26,185
Agreement with Credit Suisse First Boston
International dated October 17, 2003 to receive
semi-annually the notional amount multiplied by
2.2825% and pay quarterly the notional amount
multiplied by the three month USD LIBOR. 318,000 10/21/05 389
Agreement with Credit Suisse First Boston
International dated October 17, 2003 to receive
quarterly the notional amount multiplied by
4.881% and pay semi-annually the notional
amount multiplied by the three month
USD LIBOR. 2,411,000 10/21/13 44,362
Agreement with Lehman Brothers Special
Financing, Inc. dated October 9, 2003 to receive
semi-annually the notional amount multiplied by
4.745% and pay quarterly the notional amount
multiplied by the three month USD-LIBOR-BBA. 1,110,000 10/13/13 2,442
Agreement with Lehman Brothers Special
Financing, Inc. dated October 9, 2003 to pay
semi-annually the notional amount multiplied by
2.013% and receive quarterly the notional amount
multiplied by the three month USD-LIBOR-BBA. 1,410,000 10/13/05 6,627
Agreement with Credit Suisse First Boston
International dated October 30, 2003 to receive
semi-annually the notional amount multiplied by
2.225% and pay quarterly the notional amount
multiplied by the three month USD LIBOR. 461,000 11/3/05 (343)
Agreement with Credit Suisse First Boston
International dated October 30, 2003 to receive
semi-annually the notional amount multiplied by
4.764% and pay quarterly the notional amount
multiplied by the three month USD LIBOR. 5,360,000 11/3/13 38,569
Agreement with Credit Suisse First Boston
International dated November 3, 2003 to receive
semi-annually the notional amount multiplied by
4.7725% and pay quarterly the notional amount
multiplied by the three month USD LIBOR. 8,935,000 11/5/13 68,321
Agreement with Credit Suisse First
Boston International dated November 3, 2003
to pay semi-annually the notional amount
multiplied by 2.2525% and receive quarterly the
notional amount multiplied by the three month
USD LIBOR. 11,689,000 11/7/05 5,089
- ------------------------------------------------------------------------------------------------------
$189,753
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
November 30, 2003
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$1,119,817,094) (Note 1) $1,122,495,216
- -------------------------------------------------------------------------------
Cash 12,247,698
- -------------------------------------------------------------------------------
Interest and other receivables 7,274,055
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 308,792
- -------------------------------------------------------------------------------
Receivable for securities sold 258,919,011
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 191,984
- -------------------------------------------------------------------------------
Total assets 1,401,436,756
Liabilities
- -------------------------------------------------------------------------------
Payable for variation margin (Note 1) 33,813
- -------------------------------------------------------------------------------
Distributions payable to shareholders 141,565
- -------------------------------------------------------------------------------
Payable for securities purchased 184,331,035
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 16,722,940
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,322,492
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 323,134
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 50,613
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,499
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 443,619
- -------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 2,231
- -------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$254,056,755) (Note 1) 254,570,160
- -------------------------------------------------------------------------------
Other accrued expenses 88,130
- -------------------------------------------------------------------------------
Total liabilities 458,031,231
- -------------------------------------------------------------------------------
Net assets $943,405,525
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $934,356,050
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (141,565)
- -------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 6,900,516
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,290,524
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $943,405,525
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($439,462,842 divided by 84,803,669 shares) $5.18
- -------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $5.18)* $5.35
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($290,981,244 divided by 56,027,828 shares)** $5.19
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($28,345,575 divided by 5,468,357 shares)** $5.18
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($12,375,812 divided by 2,378,897 shares) $5.20
- -------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $5.20)* $5.31
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($172,240,052 divided by 33,288,810 shares) $5.17
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended November 30, 2003
Investment income: $26,928,323
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,081,910
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,122,296
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 42,215
- -------------------------------------------------------------------------------
Administrative services (Note 2) 22,188
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,408,880
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,408,580
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 394,120
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 74,213
- -------------------------------------------------------------------------------
Other 569,050
- -------------------------------------------------------------------------------
Total expenses 14,123,452
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (120,578)
- -------------------------------------------------------------------------------
Net expenses 14,002,874
- -------------------------------------------------------------------------------
Net investment income 12,925,449
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 12,196,273
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (30,851)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts, swap contracts and TBA sale commitments during
the year (1,734,560)
- -------------------------------------------------------------------------------
Net gain on investments 10,430,862
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $23,356,311
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended November 30
Increase (decrease) in net assets 2003 2002
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $12,925,449 $28,296,011
- -------------------------------------------------------------------------------
Net realized gain on investments 12,165,422 24,977,395
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,734,560) (2,876,204)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 23,356,311 50,397,202
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (7,617,460) (16,396,254)
- -------------------------------------------------------------------------------
Class B (3,076,877) (7,393,018)
- -------------------------------------------------------------------------------
Class C (241,025) (719,934)
- -------------------------------------------------------------------------------
Class M (234,336) (601,040)
- -------------------------------------------------------------------------------
Class Y (2,897,316) (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 (20,985) --
- -------------------------------------------------------------------------------
Class Y (179,914) --
- -------------------------------------------------------------------------------
From net realized short-term gain on investments
Class A (2,053,244) (2,372,223)
- -------------------------------------------------------------------------------
Class B (1,379,848) (1,650,556)
- -------------------------------------------------------------------------------
Class C (133,739) (155,668)
- -------------------------------------------------------------------------------
Class M (62,829) (87,924)
- -------------------------------------------------------------------------------
Class Y (765,454) (748,393)
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (304,484,181) 504,629,681
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (300,784,352) 517,580,094
Net assets
- -------------------------------------------------------------------------------
Beginning of year 1,244,189,877 726,609,783
- -------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income and
undistributed net investment income of
$141,565 and $1,000,000, respectively) $943,405,525 $1,244,189,877
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.17 $5.10 $4.90 $4.81 $5.01
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .06 .17 .26 (d) .28 .25
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .12 .19 .06 (.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 .29 .45 .34 .05
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.20) (.25) (.25) (.25)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.22) (.25) (.25) (.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.18 $5.17 $5.10 $4.90 $4.81
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.00 5.85 9.29 7.23 1.09
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $439,463 $588,232 $327,332 $217,197 $243,927
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .98 .97 .96 1.00 .99
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.26 3.18 5.15 5.84 5.20
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
- ---------------------------------------------------------------------------------------------------------------------------------
(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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.11 $4.91 $4.81 $5.01
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .03 .14 .23 (d) .25 .22
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .12 .19 .07 (.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .07 .26 .42 .32 .02
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.03) (.17) (.22) (.22) (.22)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.06) (.19) (.22) (.22) (.22)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.19 $5.18 $5.11 $4.91 $4.81
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.38 5.21 8.61 6.79 .48
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $290,981 $410,169 $194,202 $103,543 $137,130
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.58 1.57 1.56 1.60 1.59
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .65 2.47 4.49 5.24 4.60
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
- ---------------------------------------------------------------------------------------------------------------------------------
(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
- -----------------------------------------------------------------------------------------------------------------
For the period
July 26, 1999+
Per-share Year ended November to Nov. 30
operating performance 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 .02 .13 .21 (d) .24 .07
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .04 .12 .20 .06 -- (e)
- -----------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 .25 .41 .30 .07
- -----------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------
From net
investment income (.02) (.16) (.21) (.21) (.07)
- -----------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.05) (.18) (.21) (.21) (.07)
- -----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.18 $5.17 $5.10 $4.90 $4.81
- -----------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.23 5.06 8.46 6.38 1.53*
- -----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $28,346 $38,613 $18,335 $5,221 $2,746
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.73 1.72 1.71 1.75 .61*
- -----------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .49 2.38 4.23 5.12 1.58*
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.11 $4.92 $4.82 $5.02
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .05 .16 .25 (d) .26 .24
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .06 .12 .18 .08 (.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .11 .28 .43 .34 .04
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.19) (.24) (.24) (.24)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.21) (.24) (.24) (.24)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.20 $5.18 $5.11 $4.92 $4.82
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.04 5.68 8.88 7.26 .93
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $12,376 $21,874 $15,244 $9,121 $10,918
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.13 1.12 1.11 1.15 1.14
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.12 3.07 4.95 5.69 5.09
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
- ---------------------------------------------------------------------------------------------------------------------------------
(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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.16 $5.09 $4.90 $4.80 $5.01
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .07 .18 .27 (d) .29 .26
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 .12 .18 .07 (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .12 .30 .45 .36 .05
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.21) (.26) (.26) (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.23) (.26) (.26) (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.17 $5.16 $5.09 $4.90 $4.80
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.27 6.13 9.35 7.73 1.14
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $172,240 $185,303 $171,498 $132,245 $114,881
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .73 .72 .71 .75 .74
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.51 3.55 5.41 6.11 5.45
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
- ---------------------------------------------------------------------------------------------------------------------------------
(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
November 30, 2003
Note 1
Significant accounting policies
Putnam Intermediate U.S. Government Income Fund (the "fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund seeks high
current income consistent with preservation of capital, through
investments primarily in U.S. government securities.
The fund offers class A, class B, class C, class M and class Y shares.
The fund will begin offering Class R shares on December 1, 2003. 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns. The potential risk to the fund is that the change in value of
futures and options contracts may not correspond to the change in value
of the hedged instruments. In addition, losses may arise from changes in
the value of the underlying instruments, if there is an illiquid
secondary market for the contracts, or if the counterparty to the
contract is unable to perform. When the contract is closed, the fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed. Realized gains and losses on purchased options are
included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
F) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments made or received
are recognized as part of interest income. A portion of the payments
received or made upon early termination are recognized as realized gain
or loss. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or if the
counterparty defaults on its obligation to perform. Interest rate swap
contracts outstanding at period end are listed after The fund's
portfolio.
G) 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.
H) 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.
I) 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.
J) 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. These differences include temporary and permanent
differences of losses on wash sale transactions, dividends payable, and
unrealized and realized gains and losses on certain futures contracts.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended November
30, 2003 the fund reclassified $2,117,101 to increase paid-in-capital,
with an decrease to accumulated net realized gains of $2,117,101.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $4,172,840
Unrealized depreciation (1,671,212)
------------
Net unrealized appreciation 2,501,628
Undistributed short-term gain 2,588,417
Undistributed long-term gain 4,424,646
Cost for federal income
tax purposes $1,119,993,588
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 wholly-owned 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 year ended November 30, 2003,
the fund's expenses were reduced by $120,578 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,951 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 year ended November 30, 2003, Putnam Retail Management, acting
as underwriter, received net commissions of $87,369 and $1,993 from the
sale of class A and class M shares, respectively, and received $920,523
and $22,308 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 year
ended November 30, 2003, Putnam Retail Management, acting as
underwriter, received $88,350 and no monies on class A and class M
redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended November 30, 2003, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $3,024,798,002 and
$2,764,050,950, respectively. Purchases and sales of U.S. government
obligations aggregated $1,275,254,395 and $1,299,493,810, respectively.
Note 4
Capital shares
At November 30, 2003, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended November 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 40,870,621 $212,806,861
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,766,174 9,186,018
- ----------------------------------------------------------------
42,636,795 221,992,879
Shares repurchased (71,702,985) (372,466,388)
- ----------------------------------------------------------------
Net decrease (29,066,190) $(150,473,509)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 27,051,608 $141,158,852
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 759,903 3,959,532
- ----------------------------------------------------------------
27,811,511 145,118,384
Shares repurchased (51,012,561) (265,593,909)
- ----------------------------------------------------------------
Net decrease (23,201,050) $(120,475,525)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 4,444,566 $23,154,160
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 64,617 335,942
- ----------------------------------------------------------------
4,509,183 23,490,102
Shares repurchased (6,513,079) (33,841,863)
- ----------------------------------------------------------------
Net decrease (2,003,896) $(10,351,761)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,060,755 $5,544,300
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 53,673 280,251
- ----------------------------------------------------------------
1,114,428 5,824,551
Shares repurchased (2,955,981) (15,431,383)
- ----------------------------------------------------------------
Net decrease (1,841,553) $(9,606,832)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 5,975,481 $31,054,809
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 738,901 3,836,429
- ----------------------------------------------------------------
6,714,382 34,891,238
Shares repurchased (9,349,490) (48,467,792)
- ----------------------------------------------------------------
Net decrease (2,635,108) $(13,576,554)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Note 5
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by
the Securities and Exchange Commission (SEC) in partial resolution of
administrative and cease-and-desist proceedings initiated by the SEC on
October 28, 2003 in connection with alleged excessive short-term trading
by at least six Putnam Management investment professionals. The SEC's
findings reflect that four of those employees engaged in such trading in
funds over which they had investment decision-making responsibility and
had access to non-public information regarding, among other things,
current portfolio holdings, and valuations. The six individuals are no
longer employed by Putnam Management. Under the order, Putnam Management
will make restitution for losses attributable to excessive short-term
trading by Putnam employees, institute new employee trading restrictions
and enhanced employee trading compliance, retain an independent
compliance consultant, and take other remedial actions. Putnam
Management neither admitted nor denied the order's findings, which
included findings that Putnam Management willfully violated provisions
of the federal securities laws. A civil monetary penalty and other
monetary relief, if any, will be determined at a later date. If a
hearing is necessary to determine the amounts of such penalty or other
relief, Putnam Management will be precluded from arguing that it did not
violate the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as true
by the hearing officer and additional evidence may be presented. Putnam
Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees.
Administrative proceedings instituted by the Commonwealth of
Massachusetts on October 28, 2003 against Putnam Management in
connection with alleged market timing activities by Putnam employees and
by participants in some Putnam-administered 401(k) plans are pending.
Putnam Management has committed to make complete restitution for any
losses suffered by Putnam shareholders as a result of any improper
market-timing activities by Putnam employees or within
Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also serve
as the general basis for numerous lawsuits, including purported class
action lawsuits filed against Putnam Management and certain related
parties, including certain Putnam funds. Putnam Management has agreed to
bear any costs incurred by Putnam funds in connection with these
lawsuits. Based on currently available information, Putnam Management
believes that the likelihood that the pending private lawsuits and
purported class action lawsuits will have a material adverse financial
impact on the fund is remote, and the pending actions are not likely to
materially affect its ability to provide investment management services
to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's policies and controls related to
short-term trading. The fund may experience increased redemptions as a
result of these matters, which could result in increased transaction
costs and operating expenses.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $4,520,804 as long term capital gain, for its
taxable year ended November 30, 2003.
The Form 1099 you receive in January 2004 will show the tax status of
all distributions paid to your account in calendar 2003.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served
as Chairman of the Federal Energy Regulatory Commission from 1977 to
1981 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee Putnam Investment Trust (a closed-end investment company). He
is also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure). He also serves on
the board of the Whitehead Institute for Biomedical Research (a
non-profit research institution) and has been President of the Yale
University Council since 1993. Prior to February 2002, he was a Director
of State Farm Indemnity Company (an automobile insurance company) and
prior to March 2000 he was a Director of New England Electric System (a
public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a partner in and Chairman of Cambus-Kenneth Bloodstock,
LLC (cattle and thoroughbred horses). She is President Emeritus of Mount
Holyoke College.
Dr. Kennan serves as a Trustee of Northeast Utilities and is a Director
of Talbots, Inc. She has served as Director on a number of other boards,
including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire
Life Insurance, and Kentucky Home Life Insurance. She is a Trustee of
Centre College and of Midway College in Midway, Kentucky. She is also a
member of The Trustees of Reservations. Dr. Kennan has served on the
oversight committee of the Folger Shakespeare Library, as President of
Five Colleges Incorporated, as a Trustee of Notre Dame University, and
is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of Alex. Brown Realty, Inc., The Liberty
Corporation (a broadcasting company), Progress Energy, Inc. (a utility
company, formerly known as Carolina Power & Light), and Sonoco Products,
Inc. (a packaging company). Mr. Mullin is Trustee Emeritus of Washington
& Lee University, where he served as Chairman of the Investment
Committee. Prior to May 2001, he was a Director of Graphic Packaging
International Corp.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin
is a graduate of Washington & Lee University and The Wharton Graduate
School, University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, Mr. Patterson was
Executive Vice President and Director of Acquisitions of Cabot Partners
Limited Partnership (a registered investment advisor involved in
institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners) and as a Senior Vice
President of the Beal Companies (a real estate management, investment,
and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and
charitable organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer). He is also a Trustee of Northeastern University and an
honorary Trustee of Massachusetts General Hospital, where he previously
served as Chairman and President. Prior to December 2003, he was a
Director of The Providence Journal Co. (a newspaper publisher). Prior to
September 2000, he was a Director of Bradley Real Estate, Inc.; prior to
April 2000, he was a Trustee of Eastern Utilities Associates; and prior
to December 2001, he was a Trustee of Cabot Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing
Partner of Wellington Management Company/Thorndike, Doran, Paine & Lewis
(a registered investment advisor that manages mutual funds and
institutional assets), as a Trustee of the Wellington Group of Funds
(currently The Vanguard Group), and as Chairman and a Director of Ivest
Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of Marsh &
McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of November 30, 2003, there were 101 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and
Principal Financial
Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to July 2001,
Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments, Putnam Management and
Putnam Retail Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square, Boston, MA 02109.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual
funds. Investors should consider the investment objective,
risks, charges, and expenses of a fund before investing.
For a prospectus containing this and other information for
any Putnam fund or product, call your financial advisor at
1-800-225-1581 and ask for a prospectus. Please read the
prospectus carefully before investing.
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 [DOUBLE DAGGER]
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund [DOUBLE DAGGER]
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
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
* A 1% redemption fee on total assets redeemed or exchanged
within 90 days of purchase may be imposed for all share
classes of these funds.
+ Closed to new investors.
[DOUBLE DAGGER] 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.
Fund information
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
Independent Auditors
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
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
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
William H. Woolverton
Vice President and Chief Legal Officer
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
AN036-203444 398/428/674 1/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Intermediate U.S. Government Income Fund
Supplement to Annual Report dated 11/30/03
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, and M shares, which are
discussed more extensively in the annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 11/30/03
NAV
1 year 2.27%
5 years 29.30
Annual average 5.27
10 years 76.96
Annual average 5.87
Life of fund (since class A inception, 2/16/93)
Annual average 5.67
Share value: NAV
11/30/02 $5.16
11/30/03 $5.17
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
short-term long-term
12 $0.078666 $0.0226 $0.0050 $0.106266
- ----------------------------------------------------------------------------
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:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
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:
- --------------------------------
(a) 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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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: January 23, 2004
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: January 23, 2004
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: January 23, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: January 23, 2004