Putnam
Intermediate
U.S. Government
Income Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-04
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From the Trustees
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John A. Hill and George Putnam, III
Dear Fellow Shareholder:
Over the past several months, Putnam has introduced a number of
voluntary reforms. We would like to call your attention to two of them
that are now being included in these reports to provide shareholders
with more useful information about their investments. Following the
performance tables in the Performance Summary, you will find new expense
and risk comparison information for your fund. The expense comparison
information enables you to estimate the amount you have actually paid
for ongoing expenses such as management fees and distribution (or 12b-1)
fees and to compare these expenses with the average expenses of funds in
your fund's Lipper peer group. The risk comparison shows your fund's
risk relative to similar funds as tracked by Morningstar, an independent
fund-rating company. We believe the expense and risk information can
function as a valuable tool for you and your financial advisor to use
when making decisions about your financial program. These enhancements
to our reports are part of the additional disclosure we are committed to
providing to shareholders.
In a challenging environment for fixed-income investments, Putnam
Intermediate U.S. Government Income Fund generated flat returns at net
asset value for the six months ended May 31, 2004. This return lagged
that of the fund's benchmark index, primarily due to defensive
positioning designed to protect the portfolio's principal. However, it
closely matched the performance of the Lipper peer group average for the
period. Details are shown on the facing page.
As always, we appreciate your support of Putnam Investments.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 21, 2004
Report from Fund Management
Fund highlights
* Putnam Intermediate U.S. Government Income Fund class A shares
returned 0.00% at net asset value (NAV) and -3.18% at public offering
price (POP) for the six months ended May 31, 2004.
* The fund underperformed its benchmark, the Lehman Intermediate
Government Bond Index, which advanced 0.38% during the same period.
Portfolio management strategies designed to protect the fund's principal
detracted from total return.
* The fund's performance at NAV was closely in line with the 0.06%
average return for its Lipper category, Short-Intermediate U.S.
Government Funds.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
After a three-year bull run, the upward momentum of U.S. bond markets
flagged in the six-month period under review. Investors' concerns about
inflation and potential erosion of bond prices were renewed amid growing
signs of U.S economic strength and expectations that the Federal Reserve
Board would soon begin to lift short-term interest rates. Bond-market
returns for the period barely edged into positive territory.
While Putnam Intermediate U.S. Government Income Fund's absolute returns
for the first half of its 2004 fiscal year may appear somewhat
disappointing, they should be considered in the context of an investment
environment unfavorable to bonds. In fact, one of the main reasons that
the fund's return fell modestly short of the benchmark for the period
was our conservative positioning of the portfolio to protect against
loss of principal in this negative climate. More details on this and
other fund strategies follow in the subsequent sections of this report.
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
An overview of fixed-income markets for the first six months of the
fund's fiscal year can be given in two parts. From December through
March, disappointing job growth, lingering excess manufacturing
capacity, and a resurgence in global terrorism shook investors'
confidence in U.S. economic recovery. Bonds rallied in this environment,
as many market participants believed that the Fed would delay raising
interest rates in the face of continued economic softness. Further
support for U.S. bond markets, particularly Treasuries, came from
massive purchases on behalf of Asian central banks, primarily the Bank
of Japan.
In early April, however, yields reversed direction and began a rapid
rise. Investors increasingly became convinced that the Fed, spurred by
signs of sustained economic growth and nascent inflationary pressures,
would raise interest rates sooner than had been previously anticipated.
Bond prices, which move in the opposite direction of yields, fell
broadly and steeply. The upward momentum in yields (and downward trend
in bond prices) moderated in the final weeks of the period, however, on
a series of disappointing U.S. economic data releases as well as
concerns over intensified terrorism threats and violence in Iraq.
For the period as a whole, bond markets posted minuscule gains.
Treasuries underperformed other market sectors, while mortgage-backed
securities (MBSs) benefited as mortgage refinancing activity abated.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 5/31/04
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Bonds
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Lehman Intermediate Government Bond Index
(intermediate-maturity U.S. government bonds) 0.38%
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Lehman Aggregate Bond Index (broad bond market) 0.60%
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Lehman Municipal Bond Index (tax-exempt bonds) -0.22%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 3.29%
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Equities
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S&P 500 Index (broad stock market) 6.79%
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Russell 1000 Index (large-company stocks) 6.36%
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MSCI EAFE Index (international stocks) 10.32%
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These indexes provide an overview of performance in different market
sectors for the six months ended 5/31/04.
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Strategy overview
The fund's investment approach is to assess the relative attractiveness
of the different types of U.S. government securities -- U.S. Treasuries,
mortgage-backed securities (MBSs), and other government agency
obligations -- given macroeconomic conditions and our interest-rate
outlook. We then choose securities within these sectors by analyzing
their yields and maturities, within the specified short- to
intermediate-maturity mandate outlined in the fund's prospectus. The
increased allocation to Treasuries that took place over the course of
the period is a natural result of this investment process -- as the fund
benefited from strong performance in the MBS sector, we also began to
see better relative values in the Treasury sector and shifted the
portfolio's emphasis accordingly.
During the period, we expected interest rates to begin rising from very
low levels as the economy continued to expand and inflationary pressures
started to build. Therefore we kept the portfolio's duration
consistently short to protect against loss of principal. (Duration is a
measure of sensitivity to interest-rate movements; the shorter a
portfolio's duration, the less its value will fall if rates rise.) What
we predicted did eventually occur, but later and to a lesser degree than
we had forecast. For much of the period, rates remained at historic lows
as poor reported job growth made investors skeptical about a sustained
economic recovery. That view finally changed and rates turned up as the
data on jobs dramatically improved in April and May.
As intended, the portfolio's short duration helped protect against
capital loss in the period, but this benefit was more than offset by the
lower income generated by the shorter-maturity, lower-yielding
securities emphasized in the portfolio.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION COMPARED]
PORTFOLIO COMPOSITION COMPARED
as of 11/30/03 as of 5/31/04
U.S. Treasury
securities 17.5% 44.4%
Fixed-rate
mortgage-backed
securities 50.5% 39.2%
Cash and
short-term
investments 10.3% 10.4%
U.S. government
agency obligations 14.8% 7.8%
Adjustable-rate
rmortgage-backed
securities 0.3% 0.0%
Footnote reads:
Weightings are shown as a percentage of net assets. Holdings will vary
over time. A portion of short-term investments reflect amounts used to
settle TBA purchase commitments (discussed on page 33).
How fund holdings affected performance
Throughout the period, the portfolio had a shorter, more defensive
duration than that of the benchmark and of the average for funds in its
peer group. This positioning impaired performance during the period's
first four months, when interest rates confounded market expectations by
continuing to fall even as economic growth heated up. However, this
defensive position helped protect the value of the portfolio in April
and May as rates began to rise.
We began moving portfolio duration closer to neutral (relative to the
benchmark index) as rates began to climb toward period-end. Higher bond
yields meant that the portfolio's holdings were generating more income,
providing a cushion against further bond-price declines; furthermore, as
rates rose, in our view the probable size of future rate increases
correspondingly began to shrink.
In terms of sector allocation, we consistently emphasized MBSs over
government agency securities during the period. The market for MBSs is
much larger and deeper than that for agencies; there is also relatively
greater opportunity for adding value through security selection by
choosing among instruments that reflect differing prepayment
assumptions. Furthermore, MBSs, which by definition are backed by
mortgage obligations and do not rely entirely on the issuing agency's
credit for repayment, are less vulnerable than unsecured agency bonds to
negative news about individual issuers. Within MBS holdings, an exposure
to reperforming mortgage loans (previously impaired credits which have
been strengthened through restructuring and issuer guarantees) aided
returns.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND
DURATION COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
11/30/2003 5/31/2004
Average effective
maturity in years 3.2 4.3
Duration in years 2.8 3.4
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.
During the period, we emphasized 15-year over 30-year MBSs. Furthermore,
in the shorter-term portion of the portfolio, we focused primarily on
MBSs instead of agencies. Fifteen-year securities carry less prepayment
risk, so they tend to be less volatile than 30-year issues. However,
this positioning constrained relative performance as 30-year mortgages
outperformed 15-year mortgages for the period.
In contrast to our bias toward shorter-maturity MBSs, we favored
agencies and Treasuries, especially 10-year Treasury notes, in the
longer maturities. We felt agencies in that range were attractively
priced. Within the fund's Treasury allocation, the maturity profile was
barbelled; that is, holdings were concentrated in the shorter- and
longer-maturity areas of the yield curve.
Within the MBS allocation, we generally preferred securities issued by
the Federal National Mortgage Association (Fannie Mae) over those issued
by the Federal Home Loan Mortgage Corporation (Freddie Mac) due to
relatively attractive valuation and liquidity. The market for Fannie
Mae-issued securities is deeper and more liquid than Freddie Mac-issued
instruments, typically resulting in lower transaction costs.
Over the course of the period, we favored discounted or premium-priced
bonds over those that were par-priced; that is, priced at the face value
stated on the bond. Investors find it easier to value par bonds, which
increases demand and prices for those instruments. We feel we have
expertise in handling the extra prepayment risk that goes with
discounted and premium bonds, enabling us to add value through security
selection in those market segments.
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
the 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.
U.S. economic expansion has become more entrenched and inflation
apparently has turned up with more vigor than expected. In these
circumstances, we have been expecting that the Fed will soon begin
raising interest rates in order to ward off inflation (and this did, in
fact, take place after the end of the period). Although inflation has
accelerated, it is still mild. This gives the Fed room to lift rates
gradually, minimizing the risk to the economic expansion that this
transition might produce through the reaction of financial markets. In
the context of our outlook for growth and inflation, we believe that
should the federal funds rate rise to approximately 2% in the first half
of 2005, this would accomplish the removal of extraordinary stimulus
and still support a healthy ongoing expansion.
Given the potential for a continued upward trend in interest rates, we
plan to keep the fund slightly defensive; in other words, we seek to
maintain a short-to-neutral duration profile relative to the benchmark.
Earlier this year, when rates were at 45-year lows, we felt that
maintaining a shorter portfolio duration was of paramount importance to
the fund. Going forward, we expect to be more flexible and tactical with
the portfolio's duration positioning. In terms of sector allocations, we
continue to favor MBSs toward the shorter end of the yield curve and
agency securities and Treasuries toward the longer end of the curve.
In future months, we will continue to balance our efforts to take
advantage of the income opportunities that will accompany rising
interest rates with our efforts to preserve capital and maintain a
prudent level of risk exposure.
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. Mutual funds that invest in
bonds are subject to certain risks, including interest-rate risk, credit
risk, and inflation risk. As interest rates rise, the prices of bonds
fall. Long-term bonds are more exposed to interest-rate risk than
short-term bonds. Unlike bonds, bond funds have ongoing fees and
expenses.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended May 31, 2004. 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. Data represents past performance. Past
performance does not guarantee 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. For the most recent month-end performance, please visit
www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 5/31/04
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Class A Class B Class C Class M Class R
(inception dates) (2/16/93) (2/16/93) (7/26/99) (4/3/95) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 0.00% -3.18% -0.30% -3.26% -0.38% -1.36% -0.06% -2.14% -0.09%
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1 year -0.86 -4.12 -1.45 -4.36 -1.62 -2.58 -1.00 -3.04 -1.05
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5 years 28.44 24.32 24.54 24.54 23.08 23.08 27.35 24.79 26.97
Annual average 5.13 4.45 4.49 4.49 4.24 4.24 4.95 4.53 4.89
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10 years 77.62 71.77 67.88 67.88 64.11 64.11 75.20 71.58 73.18
Annual average 5.91 5.56 5.32 5.32 5.08 5.08 5.77 5.55 5.64
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Annual average
(life of fund) 5.28 4.97 4.67 4.67 4.45 4.45 5.14 4.96 5.03
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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. Class R share returns have no initial sales
charge or CDSC. Performance for class B, C, M, and R 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.
For a portion of the period, this fund limited expenses, without which
returns would have been lower.
A 2% short-term trading fee will be imposed on shares exchanged or sold
within 5 days of purchase.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/04
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Lehman Lipper Short-
Intermediate Intermediate U.S.
Government Government Funds
Bond Index category average*
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6 months 0.38% 0.06%
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1 year -0.89 -1.16
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5 years 35.27 28.68
Annual average 6.23 5.17
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10 years 88.34 72.68
Annual average 6.54 5.60
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Annual average
(life of fund) 5.99 5.26
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 5/31/04, there
were 81, 79, 68, and 36 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 6 6 6 6 6
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Income $0.040885 $0.025297 $0.021488 $0.036976 $0.035802
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Capital gains
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Long-term 0.025000 0.025000 0.025000 0.025000 0.025000
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Short-term 0.015000 0.015000 0.015000 0.015000 0.015000
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Total $0.080885 $0.065297 $0.061488 $0.076976 $0.075802
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Share value: NAV POP NAV NAV NAV POP NAV
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11/30/03 $5.18 $5.35 $5.19 $5.18 $5.20 $5.31 --
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12/1/03* -- -- -- -- -- -- $5.18
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5/31/04 5.10 5.27 5.11 5.10 5.12 5.22 5.10
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Current return
(end of period)
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Current dividend rate 1 2.04% 1.97% 1.45% 1.31% 1.89% 1.86% 1.82%
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Current 30-day
SEC yield 2 1.85 1.79 1.26 1.11 1.70 1.67 1.63
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* Inception date of class R shares.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 For a portion of the period, this fund limited expenses, without which
returns would have been lower. Based only on investment income,
calculated using SEC guidelines.
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TOTAL RETURN FOR PERIODS ENDED 6/30/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception dates) (2/16/93) (2/16/93) (7/26/99) (4/3/95) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months -0.22% -3.39% -0.70% -3.67% -0.78% -1.77% -0.28% -2.37% -0.31%
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1 year -0.65 -3.91 -1.23 -4.14 -1.40 -2.37 -0.79 -2.83 -0.84
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5 years 28.89 24.74 25.23 25.23 23.69 23.69 28.05 25.46 27.38
Annual average 5.21 4.52 4.60 4.60 4.34 4.34 5.07 4.64 4.96
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10 years 78.53 72.62 68.38 68.38 64.82 64.82 76.09 72.42 74.01
Annual average 5.97 5.61 5.35 5.35 5.12 5.12 5.82 5.60 5.70
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Annual average
(life of fund) 5.27 4.96 4.66 4.66 4.44 4.44 5.14 4.95 5.02
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Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. In the most
recent six-month period, your fund limited these expenses; had it not done
so, expenses may have been higher. Using the information below, you can
estimate how these expenses affect your investment and compare them with
the expenses of other funds. You may also pay one-time transaction
expenses, including sales charges (loads) and redemption fees, which are
not shown in this section and would have resulted in higher total
expenses. For more information, see your fund's prospectus or talk to your
financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Intermediate U.S. Government Income Fund from
December 1, 2003, to May 31, 2004. It also shows how much a $1,000
investment would be worth at the close of the period, assuming actual
returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 5/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $5 $8 $9 $6 $6
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Ending value (after
expenses) $1,000 $997 $996 $999 $999
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 5/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended May 31,
2004, use the calculation method below. To find the value of your
investment on December 1, 2003, go to www.putnaminvestments.com and log on
to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 12/01/2003 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 12/1/03 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $5 (see table above) = $50
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to
help investors assess fund expenses. Per these guidelines, the table below
shows your fund's expenses based on a $1,000 investment, assuming a
hypothetical 5% annualized return. You can use this information to compare
the ongoing expenses (but not transaction expenses or total costs) of
investing in the fund with those of other funds. All mutual fund
shareholder reports will provide this information to help you make this
comparison. Please note that you cannot use this information to estimate
your actual ending account balance and expenses paid during the period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 5/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $5 $8 $9 $6 $6
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Ending value (after
expenses) $1,020 $1,017 $1,016 $1,019 $1,019
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 5/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). Expenses are calculated by multiplying the expense
ratio by the average account value for the period; then multiplying the
result by the number of days in the period; and then dividing that
result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment styles
or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay ongoing
expenses during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio 1.01% 1.61% 1.76% 1.16% 1.26%
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Average annualized expense
ratio for Lipper peer group + 0.98% 1.58% 1.73% 1.13% 1.23%
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+ For class A shares, expenses shown represent the average of the
expenses of front-end load funds viewed by Lipper as having the same
investment classification or objective as the fund, calculated in
accordance with Lipper's standard reporting methodology for comparing
expenses within a given universe. All Lipper data is for the most
recent fiscal periods available as of 3/31/04. For class B, C, M and R
shares, Putnam has adjusted the Lipper total expense average to reflect
higher 12b-1 fees incurred by these classes of shares. The peer growp
may include funds that are significantly larger or smaller than the
fund, which may limit the comparability of the fund's expenses to the
Lipper average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.08
Taxable bond
fund average 0.33
0% Increasing Risk 100%
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of 6/30/04. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
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).
Class R shares are not subject to an initial sales charge or CDSC and
are available only to certain defined contribution plans.
Comparative indexes
JP Morgan 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 is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
May 31, 2004 (Unaudited)
- -------------------------------------------------------------------------------
U.S. government and agency mortgage obligations (38.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
U.S. Government Guaranteed Mortgage Obligations (0.5%)
$146,612 Government National Mortgage
Association Adjustable Rate
Mortgages 7s, July 20, 2026 $148,527
Government National Mortgage
Association Pass-Through
Certificates
3,183,361 7 1/2s, with due dates from December
15, 2023 to March 15, 2032 3,419,434
606,474 7s, with due dates from July 15,
2029 to May 15, 2032 641,982
--------------
4,209,943
U.S. Government Agency Mortgage Obligations (38.1%)
Federal Home Loan Mortgage
Corporation
143,084 7 1/2s, with due dates from April 1,
2016 to December 1, 2017 153,965
Federal National Mortgage
Association Adjustable Rate
Mortgages
32,485 5 1/2s, November 1, 2024 32,497
38,484 3.535s, July 1, 2026 38,990
Federal National Mortgage
Association Pass-Through
Certificates
828 11 1/4s, October 1, 2010 838
1,393 8s, May 1, 2013 1,434
581,504 7 1/2s, with due dates from October
1, 2022 to November 1, 2030 621,834
32,009,220 7s, with due dates from January 1,
2025 to November 1, 2033 33,684,589
1,131,342 7s, with due dates from September 1,
2007 to January 1, 2015 1,202,718
13,053,327 6 1/2s, with due dates from
September 1, 2023 to January 1, 2034 13,551,756
2,553,064 6 1/2s, with due dates from February
1, 2014 to February 1, 2017 2,697,405
2,810,000 6 1/2s, TBA, June 1, 2034 2,909,227
4,300,358 6s, with due dates from April 1,
2033 to March 1, 2034 4,374,171
1,259,518 6s, with due dates from March 1,
2014 to October 1, 2016 1,311,076
452,867 5 1/2s, with due dates from June 1,
2013 to December 1, 2013 465,287
51,710,000 5 1/2s, TBA, June 1, 2034 51,176,766
9,462,982 5s, with due dates from December 1,
2018 to June 1, 2019 9,469,748
67,094,498 4 1/2s, with due dates from February
1, 2033 to June 1, 2034 62,509,591
100,000 4 1/2s, TBA, June 1, 2034 93,063
101,249,101 4s, with due dates from June 1, 2018
to May 1, 2019 96,702,711
17,100,000 4s, TBA, June 1, 2019 16,287,750
--------------
297,285,416
--------------
Total U.S. government and agency
mortgage obligations
(cost $300,524,029) $301,495,359
U.S. government agency obligations (7.8%) (a) (cost $61,909,815)
Principal amount Value
- -------------------------------------------------------------------------------
$53,694,000 Fannie Mae 7 1/4s, January 15, 2010 $60,959,872
U.S. treasury obligations (44.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$65,596,000 U.S. Treasury Bonds 4 1/4s, August
15, 2013 $63,771,644
U.S. Treasury Notes
25,000,000 4s, February 15, 2014 23,765,625
110,338,000 2 5/8s, May 15, 2008 106,864,118
40,500,000 1 7/8s, January 31, 2006 40,189,932
97,198,000 1 5/8s, January 31, 2005 97,243,586
15,000,000 1 1/8s, June 30, 2005 14,879,295
--------------
Total U.S. treasury obligations
(cost $351,593,719) $346,714,200
Collateralized mortgage obligations (8.8%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
Fannie Mae
$4,359,472 Ser. 03-W6, Class PT1, 9.429s, 2042 $4,928,257
6,075,134 Ser. 02-T18, Class A4, 7 1/2s, 2042 6,521,479
6,132,769 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 6,583,349
15,960,801 Ser. 02-T16, Class A3, 7 1/2s, 2042 17,133,455
1,105,310 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 1,186,518
3,586,436 Ser. 02-W4, Class A5, 7 1/2s, 2042 3,849,934
149,827 Ser. 02-W1, Class 2A, 7 1/2s, 2042 160,835
478,201 Ser. 02-14, Class A2, 7 1/2s, 2042 513,335
3,308,387 Ser. 01-T10, Class A2, 7 1/2s, 2041 3,551,457
2,359,480 Ser. 02-T4, Class A3, 7 1/2s, 2041 2,532,833
859,180 Ser. 02-T6, Class A2, 7 1/2s, 2041 922,304
1,400,900 Ser. 01-T12, Class A2, 7 1/2s, 2041 1,503,825
915,229 Ser. 01-T8, Class A1, 7 1/2s, 2041 982,472
5,499,503 Ser. 01-T7, Class A1, 7 1/2s, 2041 5,903,556
281,514 Ser. 99-T2, Class A1, 7 1/2s, 2039 302,197
4,048,137 Ser. 02-T1, Class A3, 7 1/2s, 2031 4,345,557
1,708,049 Ser. 00-T6, Class A1, 7 1/2s, 2030 1,833,540
435,546 Ser. 02-W3, Class A5, 7 1/2s, 2028 467,546
4,794,245 Ser. 343, Class 5, IO, 5s, 2033 1,229,274
5,428,513 Ser. 343, Class 9, IO, 5s, 2033 1,439,404
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
1,464,328 Ser. T-58, Class 4A, 7 1/2s, 2043 1,571,913
816,103 Ser. T-42, Class A5, 7 1/2s, 2042 876,064
--------------
Total collateralized mortgage
obligations (cost $68,841,428) $68,339,104
Short-term investments (10.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$17,000,000 Federal National Mortgage
Association 1.04%, June 9, 2004 $16,996,071
1,175,000 U.S. Treasury Bills zero %, July 8,
2004 (SEG) 1,173,901
31,247,000 Interest in $160,000,000 joint
repurchase agreement dated May 28,
2004 with Bank of America due June
1, 2004 with respect to various
U.S. Government obligations --
maturity value of $31,250,611 for
an effective yield of 1.04% 31,247,000
30,000,000 Interest in $150,000,000 joint
repurchase agreement dated May 28,
2004 with UBS Securities due June 1,
2004 with respect to various U.S.
Government obligations -- maturity
value of $30,003,433 for an
effective yield of 1.03% 30,000,000
--------------
Total Short-term investments
(cost $79,416,972) $79,416,972
- -------------------------------------------------------------------------------
Total Investments
(cost $862,285,963) $856,925,507
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $780,595,309.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at May 31, 2004.
TBA after the name of a security represents to be announced securities
(Note 1).
Futures contracts outstanding at May 31, 2004 (Unaudited)
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
CBT Interest Rate Swap
10 yr (Long) $639,000 $685,526 Jun-04 $(46,526)
Euro 90 day (Long) 6,899,725 6,913,982 Jun-04 (14,257)
Euro 90 day (Long) 3,432,625 3,444,947 Sep-04 (12,322)
Euro 90 day (Long) 3,415,475 3,431,397 Dec-04 (15,922)
Euro 90 day (Long) 3,399,375 3,417,160 Mar-05 (17,785)
Euro 90 day (Long) 3,384,675 3,403,097 Jun-05 (18,422)
Euro 90 day (Long) 3,371,900 3,390,597 Sep-05 (18,697)
Euro 90 day (Long) 3,360,175 3,379,835 Dec-05 (19,660)
U.S. Treasury Bond (Long) 13,152,344 13,051,392 Sep-04 100,952
U.S. Treasury Note
5 yr (Short) 24,987,703 24,949,638 Sep-04 (38,065)
U.S. Treasury Note
10 yr (Long) 70,010,250 69,640,634 Sep-04 369,616
- ------------------------------------------------------------------------------------------------------
$268,912
- ------------------------------------------------------------------------------------------------------
TBA sales commitments outstanding at May 31, 2004 (Unaudited)
(proceeds receivable $63,600,616)
Principal Settlement
amount date Value
- ------------------------------------------------------------------------------------------------------
FNMA 6s, June 1, 2034 $1,700,000 6/14/04 $1,727,095
FNMA 5 1/2s, June 1, 2034 1,210,000 6/14/04 1,197,522
FNMA 4 1/2s, June 1, 2034 11,100,000 6/14/04 10,329,938
FNMA 4s, June 1, 2019 53,200,000 6/17/04 50,673,000
- ------------------------------------------------------------------------------------------------------
$63,927,555
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at May 31, 2004 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A.
dated December 1, 2003 to receive
semi-annually the notional amount
multiplied by 2.44% and pay quarterly
the notional amount multiplied by the
three month USD LIBOR. $10,538,000 12/4/05 $(79,535)
Agreement with Bank of America N.A.
dated December 12, 2003 to pay
semi-annually the notional amount
multiplied by 2.1125% and receive
quarterly the notional amount multiplied
by three month USD-LIBOR. 1,861,000 12/16/05 (257)
Agreement with Bank of America, N.A.
dated March 25, 2004 to pay
semi-annually the notional amount
multiplied by 3.075% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR. 19,500,000 3/30/09 908,066
Agreement with Lehman Brothers Special
Financing, Inc. dated December 5, 2003
to receive semi-annually the notional
amount multiplied by 2.23762% and pay
quarterly the notional amount multiplied
by three month USD-LIBOR-BBA. 21,743,000 12/9/05 64,740
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003
to pay semi-annually the notional amount
multiplied by 2.235% and receive
quarterly the notional amount multiplied
by three month USD-LIBOR-BBA. 1,020,000 12/15/05 (2,653)
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004
to pay semi-annually the notional amount
multiplied by 2.008% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA.
13,848,000 1/23/06 68,223
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004
to pay semi-annually the notional amount
multiplied by 2.009% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA.
13,848,000 1/23/06 68,174
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004
to pay semi-annually the notional amount
multiplied by 2.007% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA.
7,438,000 1/26/06 37,943
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004
to pay semi-annually the notional amount
multiplied by 1.999% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 14,191,000 1/26/06 74,205
Agreement with Lehman Brothers Special
Financing, Inc. dated December 9, 2003
to pay semi-annually the notional amount
multiplied by 4.64101% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 39,362,000 12/11/13 579,111
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003
to pay semi-annually the notional amount
multiplied by 4.71% and receive
quarterly the notional amount multiplied
by three month USD-LIBOR-BBA. 4,268,000 12/15/13 39,636
Agreement with Lehman Brothers Special
Financing, Inc. dated December 12, 2003
to pay semi-annually the notional amount
multiplied by 4.5792% and receive
quarterly the notional amount multiplied
by three month USD-LIBOR-BBA. 5,783,000 12/16/13 116,164
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004
to pay semi-annually the notional amount
multiplied by 4.408% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 4,578,000 1/23/14 177,594
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004
to pay semi-annually the notional amount
multiplied by 4.419% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 4,578,000 1/23/14 173,296
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004
to pay semi-annually the notional amount
multiplied by 4.375% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 4,692,000 1/26/14 196,497
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004
to pay semi-annually the notional amount
multiplied by 4.379% and receive
quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 2,403,000 1/26/14 99,883
- ------------------------------------------------------------------------------------------------------
$2,521,087
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
May 31, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$862,285,963) (Note 1) $856,925,507
- -------------------------------------------------------------------------------
Cash 1,716,051
- -------------------------------------------------------------------------------
Interest and other receivables 4,976,088
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 344,092
- -------------------------------------------------------------------------------
Receivable for securities sold 74,643,019
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 2,603,532
- -------------------------------------------------------------------------------
Total assets 941,208,289
Liabilities
- -------------------------------------------------------------------------------
Payable for variation margin (Note 1) 373,209
- -------------------------------------------------------------------------------
Distributions payable to shareholders 196,396
- -------------------------------------------------------------------------------
Payable for securities purchased 92,764,033
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,646,456
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 752,071
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 398,305
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 55,534
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,259
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 334,778
- -------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 82,445
- -------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$63,600,616) (Note 1) 63,927,555
- -------------------------------------------------------------------------------
Other accrued expenses 80,939
- -------------------------------------------------------------------------------
Total liabilities 160,612,980
- -------------------------------------------------------------------------------
Net assets $780,595,309
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $784,784,573
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 361,421
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,653,289)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,897,396)
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $780,595,309
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($366,415,126 divided by 71,899,017 shares) $5.10
- -------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $5.10)* $5.27
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($217,786,697 divided by 42,637,694 shares)** $5.11
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($19,235,481 divided by 3,773,660 shares)** $5.10
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($9,908,143 divided by 1,937,025 shares) $5.12
- -------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $5.12)* $5.22
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($10,213 divided by 2,004 shares) $5.10
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($167,239,649 divided by 32,869,274 shares) $5.09
- -------------------------------------------------------------------------------
* 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
Six months ended May 31, 2004 (Unaudited)
Interest income: $11,557,342
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,133,048
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,257,859
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 14,007
- -------------------------------------------------------------------------------
Administrative services (Note 2) 6,529
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 494,459
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,065,639
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 116,420
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 23,027
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 9
- -------------------------------------------------------------------------------
Other 153,564
- -------------------------------------------------------------------------------
Non-recurring costs (Note 5) 18,365
- -------------------------------------------------------------------------------
Costs assumed by Manager (Note 5) (18,365)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (312,848)
- -------------------------------------------------------------------------------
Total expenses 4,951,713
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (19,742)
- -------------------------------------------------------------------------------
Net expenses 4,931,971
- -------------------------------------------------------------------------------
Net investment income 6,625,371
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (755,386)
- -------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 802,119
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,545,027)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts, swap contracts and TBA sale commitments during
the period (5,187,920)
- -------------------------------------------------------------------------------
Net loss on investments (6,686,214)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $(60,843)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
Increase (decrease) in net assets 2004* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $6,625,371 $12,925,449
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,498,294) 12,165,422
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (5,187,920) (1,734,560)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ( 60,843) 23,356,311
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (3,138,038) (7,617,460)
- -------------------------------------------------------------------------------
Class B (1,234,937) (3,076,877)
- -------------------------------------------------------------------------------
Class C (98,049) (241,025)
- -------------------------------------------------------------------------------
Class M (82,691) (234,336)
- -------------------------------------------------------------------------------
Class R (24) --
- -------------------------------------------------------------------------------
Class Y (1,568,646) (2,897,316)
- -------------------------------------------------------------------------------
From net realized short-term gain on investments
Class A (1,228,109) (2,053,244)
- -------------------------------------------------------------------------------
Class B (804,888) (1,379,848)
- -------------------------------------------------------------------------------
Class C (76,639) (133,739)
- -------------------------------------------------------------------------------
Class M (37,371) (62,829)
- -------------------------------------------------------------------------------
Class R (3) --
- -------------------------------------------------------------------------------
Class Y (498,806) (765,454)
- -------------------------------------------------------------------------------
From net realized long-term gain on investments
Class A (2,046,849) (561,571)
- -------------------------------------------------------------------------------
Class B (1,341,480) (394,333)
- -------------------------------------------------------------------------------
Class C (127,733) (37,551)
- -------------------------------------------------------------------------------
Class M (62,285) (20,985)
- -------------------------------------------------------------------------------
Class R (5) --
- -------------------------------------------------------------------------------
Class Y (831,343) (179,914)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (149,571,477) (304,484,181)
- -------------------------------------------------------------------------------
Total decrease in net assets (162,810,216) (300,784,352)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 943,405,525 1,244,189,877
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $361,421 and
distributions in excess of net investment
income of $141,565, respectively) $780,595,309 $943,405,525
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2004 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.17 $5.10 $4.90 $4.81 $5.01
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .04 (c) .06 .17 .26 (f) .28 .25
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.04) .04 .12 .19 .06 (.20)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations -- .10 .29 .45 .34 .05
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.06) (.20) (.25) (.25) (.25)
- ----------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.09) (.22) (.25) (.25) (.25)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.10 $5.18 $5.17 $5.10 $4.90 $4.81
- ----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) -- *(d) 2.00 5.85 9.29 7.23 1.09
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $366,415 $439,463 $588,232 $327,332 $217,197 $243,927
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .51*(c) .98 .97 .96 1.00 .99
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .85*(c) 1.26 3.18 5.15 5.84 5.20
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.72* 509.05 (e) 538.64 (e) 224.31 (e) 401.30 318.67
- ----------------------------------------------------------------------------------------------------------------------------
* 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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of 0.04% based on average net assets for
class A shares (Note 2).
(d) Amount represents less than 0.01%.
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(f) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the periods.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2004 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.19 $5.18 $5.11 $4.91 $4.81 $5.01
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .03 (c) .03 .14 .23 (e) .25 .22
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.04) .04 .12 .19 .07 (.20)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.01) .07 .26 .42 .32 .02
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.03) (.03) (.17) (.22) (.22) (.22)
- ----------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.06) (.19) (.22) (.22) (.22)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.11 $5.19 $5.18 $5.11 $4.91 $4.81
- ----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.30)* 1.38 5.21 8.61 6.79 .48
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $217,787 $290,981 $410,169 $194,202 $103,543 $137,130
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81*(c) 1.58 1.57 1.56 1.60 1.59
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .55*(c) .65 2.47 4.49 5.24 4.60
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.72* 509.05 (d) 538.64 (d) 224.31 (d) 401.30 318.67
- ----------------------------------------------------------------------------------------------------------------------------
* 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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of 0.04% based on average net assets for
class B shares (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) 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
Six months period
ended July 26,
May 31 1999+ to
Per-share (Unaudited) Year ended November 30 Nov. 30
operating performance 2004 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.17 $5.10 $4.90 $4.81 $4.81
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .02 (c) .02 .13 .21 (e) .24 .07
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.04) .04 .12 .20 .06 -- (f)
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.02) .06 .25 .41 .30 .07
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.02) (.02) (.16) (.21) (.21) (.07)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.06) (.05) (.18) (.21) (.21) (.07)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.10 $5.18 $5.17 $5.10 $4.90 $4.81
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.38)* 1.23 5.06 8.46 6.38 1.53*
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $19,235 $28,346 $38,613 $18,335 $5,221 $2,746
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .88*(c) 1.73 1.72 1.71 1.75 .61*
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment incom
to average net assets (%) .47*(c) .49 2.38 4.23 5.12 1.58*
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.72* 509.05 (d) 538.64 (d) 224.31 (d) 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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of 0.04% based on average net assets for
class C shares (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the periods.
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ----------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2004 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.20 $5.18 $5.11 $4.92 $4.82 $5.02
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .04 (c) .05 .16 .25 (e) .26 .24
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.04) .06 .12 .18 .08 (.20)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations -- .11 .28 .43 .34 .04
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.06) (.19) (.24) (.24) (.24)
- ----------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.09) (.21) (.24) (.24) (.24)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.12 $5.20 $5.18 $5.11 $4.92 $4.82
- ----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.06)* 2.04 5.68 8.88 7.26 .93
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,908 $12,376 $21,874 $15,244 $9,121 $10,918
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .58*(c) 1.13 1.12 1.11 1.15 1.14
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .77*(c) 1.12 3.07 4.95 5.69 5.09
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.72* 509.05 (d) 538.64 (d) 224.31 (d) 401.30 318.67
- ----------------------------------------------------------------------------------------------------------------------------
* 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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of 0.04% based on average net assets for
class M shares (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) 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 R
- ------------------------------------------------------------------------
For the period
December 1,
2003+ to
May 31
Per-share (Unaudited)
operating performance 2004
- ------------------------------------------------------------------------
Net asset value,
beginning of period $5.18
- ------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------
Net investment income .04 (a)
- ------------------------------------------------------------------------
Net realized and unrealized
loss on investments
- ------------------------------------------------------------------------
Total from
investment operations --
- ------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------
From net
investment income (.04)
- ------------------------------------------------------------------------
From net realized
gain on investments (.04)
- ------------------------------------------------------------------------
Total distributions (.08)
- ------------------------------------------------------------------------
Net asset value,
end of period $5.10
- ------------------------------------------------------------------------
Total return at
net asset value (%)(b) (0.09)*
- ------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10
- ------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .63*(a)
- ------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .78*(a)
- ------------------------------------------------------------------------
Portfolio turnover (%) 134.72*
- ------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended
May 31, 2004 reflect a reduction of less than 0.04% based on average
net assets for class R shares (Note 2).
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- ----------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2004 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.17 $5.16 $5.09 $4.90 $4.80 $5.01
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .05 (c) .07 .18 .27 (e) .29 .26
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.04) .05 .12 .18 .07 (.21)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .01 .12 .30 .45 .36 .05
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.08) (.21) (.26) (.26) (.26)
- ----------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.11) (.23) (.26) (.26) (.26)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.09 $5.17 $5.16 $5.09 $4.90 $4.80
- ----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.14* 2.27 6.13 9.35 7.73 1.14
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $167,240 $172,240 $185,303 $171,498 $132,245 $114,881
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .38*(c) .73 .72 .71 .75 .74
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment incom
to average net assets (%) .98*(c) 1.51 3.55 5.41 6.11 5.45
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 134.72* 509.05 (d) 538.64 (d) 224.31 (d) 401.30 318.67
- ----------------------------------------------------------------------------------------------------------------------------
* 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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of 0.04% based on average net assets for
class Y shares (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the periods.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
May 31, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam Intermediate U.S. Government Income Fund (the "fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund seeks high
current income consistent with preservation of capital, through
investments primarily in U.S. government securities.
The fund offers class A, class B, class C, class M, class R and class Y
shares. The fund began 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, class M and class R 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 A, class B, class M and class R
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, class C and class
R shares. Class R shares are sold without a front-end sales charge and
pay an ongoing distribution fee that is higher than class A and class M
shares, but lower than class B and class C shares. Class R shares are
offered to qualified employee-benefit plans. Class Y shares, which are
sold at net asset value, are generally subject to the same expenses as
class A, class B, class C, class M and class R 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.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase.
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 at fair value 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 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. Risks may exceed amounts recognized on
the statement of assets and liabilities. 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, if any,
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 received or made
are recorded as realized gains 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. Risks may exceed amounts recognized on the statement of assets
and liabilities. Interest rate swap contracts outstanding at period end,
if any, 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 fair value of the underlying
securities, 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.
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 fair 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, if any, 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 (the "Code"), as amended.
Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
The aggregate identified cost on a tax basis is $862,462,457, resulting
in gross unrealized appreciation and depreciation of $2,011,631 and
$7,548,581, respectively, or net unrealized depreciation of $5,536,950.
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. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services 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.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for
the fund's Lipper peer group of front-end load funds.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months May 31, 2004, the fund paid
PFTC $1,045,693 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended May 31, 2004,
the fund's expenses were reduced by $19,742 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,248 as a quarterly retainer, 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses 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, class M and class R 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 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%, 1.00% and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 0.85%, 1.00%, 0.40% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the six months ended May 31, 2004, Putnam Retail Management, acting
as underwriter, received net commissions of $12,132 and $430 from the
sale of class A and class M shares, respectively, and received $400,151
and $11,588 in contingent deferred sales charges from redemptions of
class B and class C shares, respectively. A deferred sales charge of up
to 1.00% and 0.40% is assessed on certain redemptions of class A and
class M shares, respectively. For the six months ended May 31, 2004,
Putnam Retail Management, acting as underwriter, received $3,021 and no
monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended May 31, 2004, cost of purchases and proceeds
from sales of investment securities other than U.S. government
securities and short-term investments aggregated $604,698,233 and
$945,952,216, respectively. Purchases and sales of U.S. government
securities aggregated $461,615,145 and $273,580,382, respectively.
Note 4
Capital shares
At May 31, 2004, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 8,276,458 $42,833,000
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,135,846 5,870,947
- ----------------------------------------------------------------
9,412,304 48,703,947
Shares repurchased (22,316,956) (115,552,830)
- ----------------------------------------------------------------
Net decrease (12,904,652) $(66,848,883)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 4,117,187 $21,323,283
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 534,618 2,773,022
- ----------------------------------------------------------------
4,651,805 24,096,305
Shares repurchased (18,041,939) (93,585,555)
- ----------------------------------------------------------------
Net decrease (13,390,134) $(69,489,250)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 599,787 $3,116,150
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 49,318 254,978
- ----------------------------------------------------------------
649,105 3,371,128
Shares repurchased (2,343,802) (12,144,936)
- ----------------------------------------------------------------
Net decrease (1,694,697) $(8,773,808)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 406,722 $2,119,531
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 32,921 164,869
- ----------------------------------------------------------------
439,643 2,284,400
Shares repurchased (881,989) (4,584,010)
- ----------------------------------------------------------------
Net decrease (442,346) $(2,299,610)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
For the period December 1, 2003
(commencement of operations)
to May 31, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 1,998 $10,334
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 6 32
- ----------------------------------------------------------------
2,004 10,366
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 2,004 $10,366
- ----------------------------------------------------------------
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 1,469,852 $7,792,888
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 598,300 2,898,795
- ----------------------------------------------------------------
2,068,152 10,691,683
Shares repurchased (2,487,688) (12,861,975)
- ----------------------------------------------------------------
Net decrease (419,536) $(2,170,292)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
At May 31, 2004, Putnam, LLC owned 196 class R shares of the fund
(9.8% of class R shares outstanding), valued at $1,000.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division'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.
For the period ended May 31, 2004, Putnam Management has assumed $18,365
of legal, shareholder servicing and communication, audit, and Trustee
fees incurred by the Fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
Putnam puts your interests first
In January, Putnam announced a number of voluntary initiatives designed
to reduce fund expenses, provide investors with more useful information,
and help safeguard the interests of all Putnam investors. For details,
visit www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A shares has
been reduced to 5.25% for equity funds (formerly 5.75%) and 4.50% for
most income funds (formerly 4.75%).*
Lower class B purchase
limit To help ensure that investors are in the most cost-effective share
class, the maximum amount that can be invested in class B shares has
been reduced to $100,000. (Larger trades or accumulated amounts will be
directed to class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees
for all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. For more information,
please see the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders
in the six global and international funds that had short-term trading
issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare
funds and weigh their costs and risks along with their potential
benefits. Shareholders will find easy-to-understand information about
fund expense ratios, portfolio manager compensation, risk comparisons,
brokerage commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being enhanced to
alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a fund's
long-term strategy, a 2% short-term trading fee will be imposed on any
Putnam fund shares redeemed or exchanged within five calendar days of
purchase.
* The maximum sales charge for class A shares of Putnam U.S.
Intermediate Government Income Fund remains 3.25%.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should carefully 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++
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund++
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio and Pennsylvania
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 between 6
and 90 days of purchase may be imposed for all share classes of these
funds.
+ Closed to new investors.
++ An investment in a money market fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
With the exception of money market funds, a 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end 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
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,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
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, the
most recent copy of Putnam's Quarterly Performance Summary, and Putnam's
Quarterly Ranking Summary. For more recent performance, please visit
www.putnaminvestments.com. Investors should carefully consider the
investment objective, risks, charges, and expenses of a fund, which are
described in its prospectus. For this and other information or to
request a prospectus, call 1-800-225-1581 toll free. Please read the
prospectus carefully before investing. 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.
Not FDIC Insured May Lose Value No Bank Guarantee
SA036-215037 398/428/674 7/04
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Intermediate U.S. Government Income Fund
Supplement to Semiannual Report dated 5/31/04
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to clients that meet the
eligibility requirements specified in the fund's prospectus for such
shares. Performance of class Y shares, which do not incur a front-end
load, a distribution fee, or a contingent deferred sales charge, will
differ from the performance of class A, B, C, M, and R shares, which are
discussed more extensively in the semiannual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 5/31/04
NAV
6 months 0.14%
1 year -0.58
5 years 29.82
Annual average 5.36
10 years 80.31
Annual average 6.07
Life of fund (since class A inception, 2/16/93)
Annual average 5.42
Share value: NAV
11/30/03 $5.17
5/31/04 $5.09
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
Short Long
6 $0.047 $0.015 $0.025 $0.087
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results.
More recent returns may be more or less than those shown. Returns shown
for class Y shares for periods prior to their inception are derived from
the historical performance of class A shares, and are not adjusted to
reflect the initial sales charge currently applicable to class A shares.
These returns have not been adjusted to reflect differences in operating
expenses which, for class Y shares, typically are lower than the
operating expenses applicable to class A shares. All returns assume
reinvestment of distributions at net asset value. Investment return and
principal value will fluctuate so your shares, when redeemed, may be
worth more or less than their original cost. See full report for
information on comparative benchmarks. If you have questions, please
consult your fund prospectus or call Putnam toll free at 1-800-752-9894.
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- ---------------------------------
(a) The registrant's principal executive officer and principal financial
officer 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 generally 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.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: July 27, 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/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: July 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 27, 2004