Putnam
U.S. Government
Income Trust
[Artwork]
ANNUAL REPORT
September 30, 1994
[Putnam Logo]
Boston * London * Tokyo
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PERFORMANCE HIGHLIGHTS
According to Lipper Analytical Services, the fund's -2.35% total return for
class A shares at net asset value for the year ended September 30, 1994, sur-
passed the -2.53% average total return for the 44 GNMA funds tracked over the
same period.*
In a commentary dated September 16, 1994, Morningstar, an independent rating
service, stated that Fund Manager Michael Martino's efforts are "more likely to
keep NAV stable in the future than have past strategies," although there can be
no assurance that he will be successful.
Performance should always be considered in light of a fund's investment strate-
gy. Putnam U.S. Government Income Trust is designed for investors seeking cu-
rrent income consistent with capital preservation. The fund invests in securi-
ties backed by the full faith and credit of the United States government, and in
repurchase agreements and forward commitments with respect to these securities.
FISCAL 1994 RESULTS AT A GLANCE
Class A Class B
Total Return: NAV POP NAV CDSC
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12 months ended 9/30/94
(change in value during
period plus reinvested
distributions) -2.35% -6.99% -3.16% -7.69%
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Share value: NAV POP NAV
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9/30/93 $13.63 $14.31 $13.60
9/30/94 12.37 12.99 12.33
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Distributions No. Income Paid-In Capital Total
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Class A 12 $0.742 $0.21 $0.952
Class B 12 0.665 0.19 0.855
Current return NAV POP NAV
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End of period
Current dividend rate (1) 7.37% 7.02% 6.72%
Current 30-day SEC yield (2) 6.54 6.23 5.78
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Performance data represent past results. For performance over longer periods,
see pages 8 and 9. POP assumes 4.75% maximum sales charge. CDSC assumes 5% ma-
ximum contingent deferred sales charge. (1) Income portion of most recent dis-
tribution, annualized and divided by NAV or POP at end of period. (2) Based
only on investment income, calculated using SEC guidelines.
* Rankings by Lipper, an industry research firm, vary over time and do not in-
clude the effects of sales charges. The firm ranked the fund 20th out of 44
funds for one year, 28th out of 32 funds for five years and 6th out of 10
funds for 10 years. Past performance is not indicative of future results.
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FROM THE CHAIRMAN [Photograph of George Putnam]
* (C) Karsh, Ottawa
Dear Shareholder:
A prolonged period of bond market volatility has given fixed-income investors
more than their share of anxiety over the past several months. Putnam U.S. Go-
vernment Income Trust's performance during the fiscal year ended September 30,
1994, reflects this unsettled environment.
After declining sharply in the spring, bond prices have begun to stabilize, al-
though the market remains volatile. The disparity between yields on short-term
and longer-term securities, which widened as the market declined, has begun to
narrow.
We may yet see further increases in short-term interest rates as the Federal Re-
serve Board adamantly sticks to its policy of keeping inflation in check. The
result is likely to be further bond market uncertainty. This, in turn, could
translate into continued price volatility over the next few months.
Your fund's management team has positioned the portfolio with this prospect in
mind. In the report that follows, Fund Manager Michael Martino discusses the
fund's performance and prospects in the context of this investment climate.
Respectfully yours,
George Putnam
Chairman of the Trustees
November 16, 1994
* (C) Copyright
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REPORT FROM THE FUND MANAGER
MICHAEL MARTINO
The beginning of Putnam U.S. Government Income Trust's 1994 fiscal year coinci-
ded with the end of one of the longest fixed-income market advances in history.
The U.S. bond markets reached their peak in October 1993 as economic growth ac-
celerated, spawning fears of renewed inflation and rising interest rates. Those
fears were realized early in calendar 1994 as word of 1993.s very strong fourth
quarter gross domestic product confirmed the economy's strength. This, in turn,
prompted the Federal Reserve Board to shift to a tighter stance on U.S. monetary
policy by initiating a series of increases in short-term interest rates. The now
well-documented effect of those increases on the bond market, in concert with
continuing fears of rising inflation, produced a difficult environment for all
fixed-income funds.
Despite these challenging conditions, your fund's total return for the fiscal
year ended September 30, 1994, surpassed that of many other funds with large
holdings of mortgage-backed securities. We attribute this relative outperforman-
ce to a maximum allocation to Government National Mortgage Association (GNMA)
securities, an avoidance of illiquid securities, and a shorter duration than the
average mortgage fund.
GNMA POSITION INCREASED FOLLOWING MARKET SELL-OFF
Since bond prices fall when interest rates rise, it's understandable why prices
of all government bonds declined precipitously during the first quarter of ca-
lendar 1994. Mortgage securities declined even more than Treasuries as hedge
funds - aggressively managed private partnerships - sold off their highest-qua-
lity, most-liquid investments to try to cover losses in less-liquid positions.
The resulting supply increase made bond prices more attractive, and provided us
with the chance to purchase high-quality GNMAs with substantial yield advantages
over U.S. Treasuries. We typically invest at least 80% of net assets in GNMAs.
However, given the value created by the dramatic market sell-off, we quickly in-
creased the fund's GNMA allocation to more than 90% of net assets. This proved
extremely rewarding as GNMAs went on to outperform longer-maturity Treasuries
for the calendar year through September 30, 1994.
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STRATEGY: SHORTER DURATION, AVOIDANCE OF DERIVATIVES
Duration kept shorter than group average. We tempered our opportunistic appro-
ach to market volatility with a measure of defensiveness by keeping the portfo-
lio's duration shorter than the mortgage fund group average. Duration is a ma-
thematical formula that indicates how much bond prices will move up or down with
each percentage-point shift in interest rates. Like maturity, with which it is
often confused, duration is measured in years. The shorter the duration, the
less volatility you can expect from the portfolio. In a rising interest rate en-
vironment, keeping the portfolio's average duration relatively short can be ins-
trumental in protecting its value.
Derivatives avoided; maximum liquidity maintained. Given this year's market
sell-off, our avoidance of derivatives and other relatively illiquid securities
has served the fund well. Pricing inaccuracies and subsequent security devalua-
tions that beset certain other mortgage securities funds did not present any
problems for your fund.
Dividend aligned with portfolio earnings. The dividend reduction implemented
last March -- from $0.084 to $0.076 per share -- has enabled the fund to bring
its income distributions in line with current portfolio earnings. Our objective
is to pay a competitive dividend that does not compromise the fund's net
(Line Chart)
U.S. TREASURY VERSUS GNMA SECURITIES*
Lehman Long-Term Lehman Mortgage
Treasury Index GNMA Index
10/93 0.72 0.17
11/93 -2.56 -0.14
12/93 0.32 0.93
1/94 2.40 0.79
2/94 -4.10 -0.50
3/94 -4.39 -2.70
4/94 -1.18 -0.68
5/94 -0.66 0.29
6/94 -0.95 -0.15
7/94 3.39 1.95
8/94 -0.73 0.31
9/94 -3.15 -1.41
This chart illustrates the significant performance advantage and lower rela-
tive volatility offered by GNMA securities versus long-term Treasury bonds
for the year ended September 30, 1994.
* Based on monthly total returns.
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asset value. Even with the dividend cut, the fund's yields as of fiscal year-
end -- as calculated according to the SEC-approved formula -- were 6.54% and
5.78% for class A and B shares, respectively, at net asset value, which is still
quite competitive. By taking the balanced approach of providing a competitive
yield while attempting to bolster the fund's total return, we believe that the
fund's performance will be more predictable and understandable for shareholders.
MODERATE PORTFOLIO SHIFTS AT YEAR'S END
As we neared the end of the fiscal year, we reduced the fund's GNMA investments
from about 93% of net assets to 88%. GNMA prices had risen significantly relati-
ve to U.S. Treasuries, making some reallocation from GNMAs to Treasuries appro-
priate.
Consistent with our focus on improving the fund's total return, we also lengthe-
ned the portfolio's duration from 3.8 years to just under 5 years. Given the
substantial rise in rates this year and the corresponding dramatic sell-off in
the bond market, we believe the risk of missing a short-term market rally is
greater than the risk of another major sell-off. A slightly longer duration ma-
kes the fund more likely to benefit should inflation fears ease and interest ra-
tes stabilize. Such a combination, if it occurs, would provide a significant
boost to the market.
We are currently managing the fund's interest-rate sensitivity to be comparable
to that of an intermediate-term, five- to seven-year bond. The fund's 80%-plus
allocation to GNMAs approximates the rate sensitivity of a five-year Treasury
note. The balance of the portfolio is split between longer-term Treasuries and
cash.
LOOKING FORWARD -- AND BACK
Coincident with the year-end financial review of the portfolio, it was determi-
ned that approximately 22% of the fiscal year's distribution must be classified
as a return of capital and is therefore not taxable to shareholders.
Your Form 1099, which will be mailed in January 1995, will indicate the exact
amount of the distributions not subject to tax. In addition, you will need to
adjust the cost basis of your shares when you eventually redeem or exchange
them. This will increase any resulting capital gain or decrease any capital loss
you incur at that time.
The return of capital is related to the massive wave of mortgage refinancings
that occurred during the fund's fiscal year; this resulted in early repayment
of principal on many of the fund's
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[Pie Chart]
PORTFOLIO COMPOSITION AS OF 9/30/94 *
Mortgage-backed securities 88%
U.S. Treasury securities 16%
Cash and short-term holdings 1%
* Based on net assets.
GNMA securities. Since GNMAs are backed by pools of mortgage loans, when home-
owners refinance and thereby retire their existing mortgages early, the securi-
ties backed by those mortgages are also retired early. An Internal Revenue Ser-
vice provision requires that the capital losses realized on these retired GNMAs
be reclassified as deductions from ordinary income for tax purposes. As a re-
sult, approximately 22% of the total per-share distribution for class A and
class B shares represents a return of capital, with the balance being ordinary
income dividends. As we discussed above, we believe that the level of dividends
reflects the current level of portfolio income, and that the return of capital
for fiscal 1994 is fundamentally the result of the rapid pace of prepayments
when interest rates reached cyclical lows.
Looking ahead, we believe that mortgage-backed securities are likely to continue
outperforming Treasuries over the next 12 months. If that occurs, the fund
stands to benefit, given its customary emphasis on GNMAs.
The interest rate environment that investors have endured this year was one of
the worst on record. However, out of volatility comes opportunity. Long-term
Treasury rates have risen by just over two percentage points since October 1993,
and real yields . yields minus inflation . are approaching 5%. Consequently, the
yields available from government securities have once again become competitive
with medium-grade corporate bonds and other fixed-income securities that are
subject to various additional risk factors. We think this bodes well for govern-
ment mortgage and Treasury funds in general, and for your fund in particular.
The views expressed in this report are exclusively those of Putnam Management,
and are not meant as investment advice. Although the described holdings were
viewed favorably as of September 30, 1994, there is no guarantee the fund will
continue to hold these securities in the future.
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PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions back into the fund. We show total return in two ways: on a cumulative
long-term basis and on average how the fund might have grown each year over va-
rying periods. For comparative purposes, we show how the fund performed relati-
ve to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 9/30/94
Lehman Bros. Lehman
Mortgage- Bros.
Backed Intermediate
Class A Class B Securities Treasury
NAV POP NAV CDSC Index Index CPI
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1 year -2.35% -6.99% -3.16% -7.69% -1.14% -1.51% 2.96%
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5 years 39.08 32.51 -- -- 49.20 47.02 19.52
Annual average 6.82 5.79 -- -- 8.33 8.01 3.63
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10 years 134.88 123.66 -- -- 189.37 134.12 42.29
Annual average 8.91 8.38 -- -- 11.21 9.28 3.59
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Life of class B -- -- 7.30 4.59 11.83 14.07 7.10
Annual average -- -- 2.94 1.86 4.74 5.60 2.86
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Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
implementation of the class A distribution plan in 1990. The fund began invest-
ment operations on February 8, 1984, offering shares now known as class A.
Effective April 27, 1992, the fund began offering class B shares. Performance
data represent past results and will differ for each share class. Investment re-
turns and net asset value will fluctuate so an investor.s shares, when sold, may
be worth more or less than their original cost.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged list of GNMA
bonds.
LEHMAN BROTHERS INTERMEDIATE TREASURY INDEX is an unmanaged list of Treasury
bonds; it is used as a general gauge of the market for intermediate-term fixed-
income securities. These indexes do not take into account brokerage commissions
or other costs, may include bonds different from those in the fund, and may pose
different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly' used measure of inflation; it does not
represent an investment return.
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[Line Chart]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/1/84
Lehman Bros. Lehman Bros.
Mortgage-Backed Intermediate
Securities index Treasury Index Fund at POP
10/1/84 $ 10,000 $ 10,000 $ 9,525
9/30/85 12,568 11,943 11,363
86 14,861 13,928 12,693
87 15,225 14,129 13,063
88 17,456 15,606 14,667
89 19,395 17,105 16,082
90 21,274 18,555 17,454
91 24,743 21,065 19,741
92 27,448 23,712 21,698
93 29,272 25,533 22,903
94 28,937 25,147 22,366
Past performance is no assurance of future results. A $10,000 investment in the
fund's class B shares at inception on 4/27/92 would have been valued at $10,730
on 9/30/94 ($10,459 with a redemption at the end of the period).
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any liabili-
ties, divided by the number of outstanding shares, not including any initial or
contingent deferred sales charges.
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 maximum 4.75% sales charge for class A shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
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THE PUTNAM FUND SELECTOR (TM)*
The Putnam Fund Selector shows the many opportunities for investors within every
investment strategy. All investors should first accumulate a base of conservati-
ve, cash-equivalent investments. Then, with the help of your investment advisor,
diversify your portfolio by investing in the Putnam Family of Funds.
[Pyramid Graphic]
Risk/Reward
PUTNAM GROWTH FUNDS
PUTNAM GROWTH AND INCOME FUNDS
PUTNAM INCOME OR TAX-FREE FUNDS
MOST CONSERVATIVE INVESTMENTS
* (TM) Trademark
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PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund Diversified Equity Trust
Europe Growth Fund Global Growth Fund
Health Sciences Trust Investors Fund
Natural Resources Fund * New Opportunities Fund
OTC Emerging Growth Fund Overseas Growth Fund
Vista Fund Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust Dividend Growth Fund
Equity Income Fund The George Putnam Fund of Boston
The Putnam Fund for Growth and Income Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund American Government Income Fund
Balanced Government Fund Corporate Asset Trust
Diversified Income Trust Federal Income Trust
Global Governmental Income Trust High Yield Advantage Fund
High Yield Trust Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund Municipal Income Fund
Tax Exempt Income Fund Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free funds +
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE (SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS ++
Putnam money market funds:
Money Market Fund +++
Tax Exempt Money Market Fund
California Tax Exempt Money Market Fund
New York Tax Exempt Money Market Fund
CDs and savings accounts **
* Formerly Energy-Resources Trust.
+ Not available in all states.
++ Relative to above.
+++ Formerly Putnam Daily Dividend Trust.
** Not offered by Putnam Investments. Certificates of deposit offer a fixed
rate of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information, in-
cluding charges and expenses. Read it carefully before you invest or send
money.
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REPORT OF INDEPENDENT ACCOUNTANTS
For the Fiscal Year Ended September 30, 1994
To the Trustees and Shareholders of
Putnam U.S. Government Income Trust
We have audited the accompanying statement of assets and liabilities of Putnam
U.S. Government Income Trust, including the portfolio of investments owned, as
of September 30, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the "Financial Highlights" for each of the periods indica-
ted therein. These financial statements and "Financial Highlights" are the res-
ponsibility of the Trust's management. Our responsibility is to express an opi-
nion on these financial statements and "Financial Highlights" based on our au-
dits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain rea-
sonable assurance about whether the financial statements and "Financial Highli-
ghts" are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial state-
ments. Our procedures included confirmation of securities owned as of September
30, 1994 by correspondence with the custodian and brokers. An audit also inclu-
des assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and "Financial Highlights" referred to
above present fairly, in all material respects, the financial position of Putnam
U.S. Government Income Trust as of September 30, 1994, the results of its opera-
tions for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the "Financial Highlights" for each of the
periods indicated therein, in conformity with generally accepted accounting pri-
nciples.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 9, 1994
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PORTFOLIO OF INVESTMENTS OWNED
September 30, 1994
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (104.6%)(a)
PRINCIPAL AMOUNT VALUE
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Government National Mortgage Association
$ 359,108 16s , with various due dates to March 15, 2012 $ 427,339
612,813 15s, with various due dates to March 15, 2013 726,183
459,226 14s, with various due dates to November 20, 2014 527,941
81,202,819 13 1/2s, with various due dates to June 20, 2015 94,546,040
4,090,096 13 1/4s, Project Loans, November 15, 2025 4,499,106
62,985,633 13s, with various due dates to October 20, 2015 73,013,055
69,008,278 12 1/2s, with various due dates to August 15, 2014 79,327,491
34,528,988 12s, with various due dates to October 15, 2015 39,163,869
6,461,984 11 1/2s , with various due dates to November 15, 2019 7,204,451
77,870,497 11s, with various due dates to July 15, 2020 86,280,217
191,820 11s, Midgets , July 15, 2000 207,465
335,005 10 7/8s, February 15, 2010 367,563
54,942,596 10 1/2s, with various due dates to March 15, 2021 60,052,651
9,799,318 10 1/2s, Midgets, with various due dates to
January 15, 1999 10,571,014
79,798,975 10s, with various dates to January 20, 2021 85,772,042
100,000,000 9 1/2s, TBA, October 14, 2024(b) 105,000,000
201,347,444 9 1/2s, with various due dates to December 15, 2022 212,716,135
46,535,006 9 1/2s, Midgets, with various due dates to February
15, 2006 49,079,889
30,000,000 9s, TBA, October 14, 2024(b) 30,759,375
453,655,949 9s, with various due dates to August 15, 2022 468,663,102
6,032,897 9s, Project Loans, with various due dates to June
15, 2021 6,155,440
69,048,949 9s, Midgets, with various due dates to January 15,
2008 71,897,218
5,012,950 8.58s, Project Loans, July 15, 2024 5,077,178
5,839,344 8 1/2s, Project Loans, March 15, 2027 5,830,220
326,591,164 8 1/2s , with various due dates to October 15, 2019 328,226,511
28,638,484 8 1/2s, Midgets, with various due dates to March 15,
2006 29,318,648
19,600,000 8s, TBA, October 14, 2024(b) 19,012,000
50,000,000 8s, Midget TBA, October 14, 2009(b) 50,109,375
27,518,292 8s, Midgets, with various due dates to March 15,
2008 27,578,488
772,628,963 8s, with various due dates to October 15, 2007 751,740,668
824,057,222 7 1/2s, with various due dates to June 15, 2024 774,187,226
41,746,271 7 1/2s, Midgets, with various due dates to August
15, 2007 40,846,117
50,000,000 7s, TBA, October 14, 2024(b) 45,312,500
795,784,522 7s, with various due dates to July 15, 2023 721,179,723
94,913,551 7s, Midgets, with various due dates to December
15, 2007 90,612,781
Government National Mortgage Association
Graduated Payment Mortgages
94,603 15s, with various due dates to September 15, 2012 109,739
99,426 13 3/4s, with various due dates to November 20, 2014 113,097
338,071 13 1/2s, with various due dates to November 15, 2012 385,401
257,883 13 1/4s, with various due dates to June 20, 2015 290,998
202,388 13s, with various due dates to October 15, 2012 228,698
2,720,883 12 3/4s, with various due dates to June 20, 2015 3,057,950
404,436 12 1/2s, with various due dates to January 20, 2014 453,605
1,990,010 12 1/4s, with various due dates to June 15, 2015 2,228,379
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U.S. GOVERNMENT AND AGENCY OBLIGATIONS
PRINCIPAL AMOUNT VALUE
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$ 4,305,418 11 1/4s, with various due dates to July 15, 2013 $ 4,768,250
960,208 10 3/4s, with various due dates to February 15, 2016 1,043,326
1,930,776 10 1/4s, with various due dates to December 15, 2020 2,055,673
2,952,825 10s, with various due dates to May 15, 2010 3,133,685
3,030,208 9 1/4s, with various due dates to February 15, 2020 3,080,396
50,000,000 U.S. Treasury Bonds 11 1/8s, August 15, 2003 61,234,375
250,000,000 U.S. Treasury Bonds 7 1/2s, November 15, 2024 240,781,250
450,000,000 U.S. Treasury Notes 9 3/8s, April 15, 1996 469,406,250
50,000,000 U.S. Treasury Notes 7 1/4s, August 15, 2004 48,781,250
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TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $5,482,058,096) $5,217,141,343
SHORT-TERM INVESTMENTS (0.6%) (a) (cost $ 27,248,000)
PRINCIPAL AMOUNT VALUE
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$ 27,248,000 Interest in $122,000,000 joint repurchase agreement
dated September 30, 1994 with Goldman Sachs Inc.,
due October 3, 1994 with respect to various U.S.
Treasury obligations.maturity value of $27,258,899
for an effective yield of 4.8% $ 27,248,000
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TOTAL INVESTMENTS (cost $5,509,306,096)(c) $5,244,389,343
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(a) Percentages indicated are based on net assets of $4,985,652,007, which co-
rrespond to a net asset value per class A share, class B share and class Y
share of $12.37, $12.33 and $12.38, respectively.
(b) TBAs are mortgage backed securities traded under delayed delivery commit-
ments settling after September 30, 1994. Although the unit price for the
trades has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 2.0%
from the principal amount. The cost of TBA purchases at September 30, 1994
is $250,935,250.
TBA SALE COMMITMENTS AT SEPTEMBER 30, 1994
(proceeds receivable $349,319,282 )
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Principal Delivery Coupon Market
Agency Amount Month Rate Value
GNMA $150,000,000 Oct. 8% $145,500,000
GNMA $119,959,000 Oct. 8% $119,247,175
GNMA $200,000,000 Oct. 7% $181,250,000
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$345,997,175
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(c) The aggregate identified cost for federal income tax purposes is
$5,517,221,765, resulting in gross unrealized appreciation and depreciation
of $12,497,591 and $285,330,013, respectively, or net unrealized deprecia-
tion of $272,832,422.
The accompanying notes are an integral part of these financial statements.
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STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994
ASSETS
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Investments in securities, at value
(identified cost $5,509,306,096) (Note 1) $5,244,389,343
Cash 679,789
Interest receivable 57,306,811
Receivable for shares of the fund sold 3,622,720
Receivable for securities sold 453,303,540
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TOTAL ASSETS $5,759,302,203
LIABILITIES
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Payable for securities purchased $ 405,567,400
Payable for shares of the fund repurchased 11,145,401
Payable for compensation of Manager (Note 2) 5,357,413
Payable for compensation of Trustees (Note 2) 4,237
Payable for investor servicing and custodian fees (Note 2) 1,297,603
Payable for administrative services (Note 2) 13,972
Payable for distribution fees (Note 2) 3,544,810
Other accrued expenses 722,185
TBA sale commitment at value
(proceeds receivable $349,319,282) (Note 1) 345,997,175
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 773,650,196
- -------------------------------------------------------------------------------
NET ASSETS $4,985,652,007
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $5,517,924,358
Accumulated net realized loss on investment transactions
(Notes 1 and 5) (270,677,705)
Net unrealized depreciation of investments and TBA
sale commitments (261,594,646)
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $4,985,652,007
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($3,213,427,950 divided by 259,828,103 shares) $12.37
Offering price per share (100/95.25 of $12.37)* $12.99
Net asset value and offering price of class B shares
($1,752,887,261 divided by 142,149,519 shares) ** $12.33
Net asset value, offering price and redemption price of
class Y shares ($19,336,796 divided by 1,562,034 shares) $12.38
- -------------------------------------------------------------------------------
* 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.
<PAGE>
<PAGE>
STATEMENT OF OPERATIONS
Year ended September 30, 1994
- -------------------------------------------------------------------------------
Interest income $486,433,118
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) $25,317,733
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 8,437,434
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 130,630
- -------------------------------------------------------------------------------
Reports to shareholders 487,096
- -------------------------------------------------------------------------------
Auditing 173,449
- -------------------------------------------------------------------------------
Legal 93,673
- -------------------------------------------------------------------------------
Postage 1,084,155
- -------------------------------------------------------------------------------
Registration 52,748
- -------------------------------------------------------------------------------
Administrative services (Note 2) 73,940
- -------------------------------------------------------------------------------
Distribution fees -- class A (Note 2) 9,757,082
- -------------------------------------------------------------------------------
Distribution fees -- class B (Note 2) 20,367,850
- -------------------------------------------------------------------------------
Other expenses 219,876
- -------------------------------------------------------------------------------
TOTAL EXPENSES 66,195,666
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 420,237,452
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (356,267,400)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments and TBA sale
commitments during the year (222,925,105)
- -------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS TRANSACTIONS (579,192,505)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(158,955,053)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended September 30
1994 1993
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $420,237,452 $476,580,551
- -------------------------------------------------------------------------------
Net realized loss on investments (356,267,400) (48,160,441)
- -------------------------------------------------------------------------------
Net unrealized depreciation of
- -------------------------------------------------------------------------------
investments and TBA sale commitments (222,925,105) (103,163,283)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (158,955,053) 325,256,827
- -------------------------------------------------------------------------------
Undistributed net investment income
included in price of shares sold and
repurchased, net (Note 1) --- 1,812,458
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
- -------------------------------------------------------------------------------
Class A (225,599,421) (365,348,743)
- -------------------------------------------------------------------------------
Class B (105,397,633) (99,934,305)
- -------------------------------------------------------------------------------
Class Y (192,090) ---
- -------------------------------------------------------------------------------
Paid-in capital:
Class A (64,372,323) ---
- -------------------------------------------------------------------------------
Class B (30,074,059) ---
- -------------------------------------------------------------------------------
Class Y (54,811) ---
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (1,459,402,210) 2,042,236,300
- -------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,044,047,600) 1,904,022,537
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of year 7,029,699,607 5,125,677,070
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $0 and $14,675,398,
respectively) $4,985,652,007 $7,029,699,607
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
April 11, 1994 April 27, 1992
(commencement (commencement
of operations) to of operations) to
September 30 September 30 Year ended September 30
1994 1994 1993 1992 + 1994 1993
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Class Y Class B Class A
- ------------------------------------------ ------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $12.68 $13.60 $13.93 $13.64 $13.63 $13.96
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Investment Operations
Net Investment Income .39 .64 1.00 .48 .69 1.10
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (.30) (1.05) (.35) .28 (1.00) (.36)
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Total from Investment Operations .09 (.41) .65 .76 (.31) .74
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Less Distributions from:
Net Investment Income (.30) (.67) (.98) (.47) (.74) (1.07)
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Net Realized Gain on Investments -- -- -- -- -- --
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Paid-in Capital (a) (.09) (.19) -- -- (.21) --
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Total Distributions (.39) (.86) (.98) (.47) (.95) (1.07)
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Net Asset Value, End of Period $12.38 $12.33 $13.60 $13.93 $12.37 $13.63
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Total Investment Return at
Net Asset Value (%) (b) 0.11(c) (3.16) 4.85 5.67(c) (2.35) 5.55
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Net Asset Value, End of Period
(in thousands) $19,337 $1,752,887 $2,232,219 $660,515 $3,213,428 $4,797,481
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Ratio of Expenses to Average
Net Assets (%) .29(c) 1.60 1.61 .77(c) .85 .88
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 3.63(c) 6.55 7.11 3.10(c) 7.31 7.92
- ------------------------------------------ ------------------------------------------- -----------------------------------------
Portfolio Turnover (%) 209 209 295.88 293.36 209 295.88
- ------------------------------------------ ------------------------------------------- -----------------------------------------
<FN>
+ Per share investment income, expenses and net investment income have been determined on the basis of the weighted average number
of shares outstanding during the period.
(a) Distributions of capital for the year end 9/30/94 have been calculated in accordance with Statement of Position 93-2, "Determi-
nation, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Invest-
ment Companies." See Notes 1 and 5.
(b) Total Investment Return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Not annualized.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
(For a share outstanding throughout the period)
Ten
months
ended
Year ended September 30 Sept. 30
1992 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $13.89 $13.51 $13.73 $13.84 $13.60 $14.60 $14.58 $14.15
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income 1.19 1.34 1.33 1.36 1.38 1.39 1.55 1.46
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments .12 .35 .21 (.10) .23 (.95) .07 .36
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.31 1.69 1.12 1.26 1.61 .44 1.62 1.82
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
Net Investment Income (1.21) (1.31) (1.33) (1.37) (1.37) (1.44) (1.59) (1.39)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Investments (0.03) -- -- -- -- -- (.01) --
- -----------------------------------------------------------------------------------------------------------------------------------
Paid-in Capital (a) -- -- (.01) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.24) (1.31) (1.34) (1.37) (1.37) (1.44) (1.60) (1.39)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.96 $13.89 $13.51 $13.73 $13.84 $13.60 $14.60 $14.58
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (b) 9.92 13.10 8.54 9.65 12.27 2.91 11.71 13.46(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period
(in thousands) $4,465,162 $2,540,541 $1,590,990 $1,386,960 $1,369,547 $1,196,133 $966,551 $408,374
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets (%) 1.01 .91 .75 .65 .61 .58 .56 .60(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 8.44 9.67 9.66 9.90 9.81 9.55 10.30 9.85(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 293.36 118.96 63.46 167.60 54.51 43.03 116.32 136.44(c)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The fund's investment ob-
jective is to seek as high a level of current income as is consistent with pre-
servation of capital by investing exclusively in securities backed by the full
faith and credit of the United States and in repurchase agreements and forward
commitments with respect to those securities.
The fund offers class A, class B and class Y shares. The fund commenced offering
of its class Y shares April 11, 1994. The fund commenced its public offering of
class B shares on April 27, 1992. Class A shares are sold with a maximum front-
end sales charge of 4.75%. Class B shares do not pay a front-end sales charge,
but pay a higher ongoing distribution fee than class A shares, and are subject
to a contingent deferred sales charge if those shares are redeemed within six
years of purchase. Class Y shares, which do not pay a front-end or contingent
deferred sales charge, are generally subject to the same expenses as class A
shares and class B shares, but do not bear a distribution fee. Class Y shares
are sold only to defined contribution plans with an initial investment of $250
million in a combination of Putnam funds and other investments managed by Put-
nam. Expenses of the fund are borne pro-rata by the holders of all classes of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class), and votes as a class only with
respect to its own distribution plan or other matters on which a class vote is
required by law to be determined by the Trustees. Shares of each class would re-
ceive their pro-rata share of the net assets of the fund, if the fund were li-
quidated. In addition, the Trustees declare separate dividends on each class of
shares.
The following is a summary of significant accounting policies consistently fo-
llowed by the fund in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
A SECURITY VALUATION Investments for which market quotations are readily avail-
able are stated at market value, which is determined using the last reported sa-
le price, or, if no sales are reported -- as in the case of some securities tra-
ded over-the-counter -- the last reported bid price, except that certain U.S.
government obligations are stated at the mean between the bid and asked prices.
Short-term investments having remaining maturities of 60 days or less are stated
at amortized cost, which approximates market, and other investments are stated
at fair value following procedures approved by the Trustees.
B TBA PURCHASE COMMITMENTS The fund may enter into "TBA" (to be announced) pur-
chase commitments to purchase securities for a fixed price at a future date be-
yond customary settlement time if the fund holds, and maintains until the set-
tlement date in a segregated account, cash or high-grade debt obligations in an
amount sufficient to meet the purchase price, or if the fund enters into offset-
ting contracts for the forward sale of other securities it owns. TBA purchase
<PAGE>
<PAGE>
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to the settle-
ment date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the cur-
rent market value of the underlying securities, generally according to the pro-
cedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a commitment pri-
or to settlement if Putnam Management deems it appropriate to do so.
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 out-
standing, equivalent deliverable securities, or an offsetting TBA purchase com-
mitment deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the un-
derlying securities, generally according to the procedures described under "Se-
curity 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 on the commitment without regard to
any unrealized gain or loss on the underlying security. If the fund delivers se-
curities under the commitment, the fund realizes a gain or loss from the sale of
the securities based upon the unit price established at the date the commitment
was entered into.
C JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the Securities
and Exchange Commission, the fund may transfer uninvested cash balances into a
joint trading account, along with the cash of other registered investment compa-
nies managed by Putnam Investment Management Inc. (Putnam Management), the
fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. and cer-
tain other accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
D REPURCHASE AGREEMENTS The fund, or any joint trading account, through its cus-
todian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. The fund's Manager 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.
E SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed). In-
terest income is recorded on the accrual basis.
F FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the In-
ternal 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.
Therefore, no provision has been
<PAGE>
<PAGE>
made for federal taxes on income, capital gains or unrealized appreciation of
securities held and excise tax on income and capital gains.
At September 30, 1994, the fund had approximately $10,982,308 in capital loss
carryovers available to offset future realized capital gains, if any. To the ex-
tent that the capital loss carryovers are used to offset realized gains, it is
unlikely that the gains so offset will be distributed to shareholders, since any
such distribution might be taxable as ordinary income.
LOSS CARRYOVER EXPIRATION
----------------------------------------------------
$1,685,556 September 30, 1999
9,296,752 September 30, 2002
----------------------------------------------------
$10,982,308
----------------------------------------------------
G DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the exdividend date. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These differences in-
clude treatment of post-October losses, wash sales and GNMA paydowns. Reclassi-
fications are made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under income
tax regulations. For the year ended September 30, 1994 the fund reclassified
$89,048,308 to increase distributions in excess of net investment income and
$89,048,308 to decrease accumulated net realized loss.
H EQUALIZATION Prior to October, 1993, the fund used the accounting practice
known as equalization to keep a continuing shareholder's per share interest in
undistributed net investment income unaffected by sales or repurchases of the
fund shares. This was accomplished by allocation of a per share portion of the
proceeds from sales and the costs of repurchases of shares to undistributed net
investment income.
As of October 1, 1993, the fund discontinued using equalization, this change has
no effect on the fund's total net assets, net asset value per share, or its net
increase (decrease) in net assets from operations. Discontinuing the use of e-
qualization will result in simpler financial statements. The cumulative effect
of the change was to decrease undistributed net investment income and increase
paid-in capital previously reported through September 30, 1993 by $8,717,592.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment advisory servi-
ces is paid quarterly based on the average net assets of the fund for the quar-
ter. As of July 8, 1994, such fee was based on the following annual rates: 0.57%
of the first $500 million of average net assets, 0.475% of the next $500 milli-
on; 0.4275% of the next $500 million, and 0.38% of any amount over $1.5 billion.
Prior to July 8, 1994, such fee was based on the following annual rates: 0.6% of
the first $500 million of average net assets, 0.5% of the next $500 million,
0.45% of the next $500 million, and 0.4% of any amount over $1.5 billion, sub-
ject to reduction in any year under current law to the extent that expenses (ex-
clusive of distribution fees, brokerage, interest and taxes) of the fund exceed
2.5% of the first $30 million of average net assets, 2% of the next $70 million
and 1.5% of any amount over $100 million and by the amount of certain brokerage
commissions and fees (less expenses) received by affiliates of the Manager on
the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of
<PAGE>
<PAGE>
the fund and their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by the Trus-
tees. For the year ended September 30, 1994, the fund paid $73,940 for these
services.
Trustees of the fund receive an annual Trustee.s fee of $5,990 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by the Putnam Fiduciary Trust Com-
pany (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent
functions are provided by Putnam Investor Services, a division of PFTC.
Fees paid for these investor servicing and custodial functions for the year end-
ed September 30, 1994 amounted to $8,437,434.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended September 30, 1994 have been reduced by credits allowed by
PFTC.
The fund has adopted a distribution plan with respect to its class A shares (the
Class A Plan) pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the Class A Plan is to compensate Putnam Mutual Funds Corp. a
wholly owned subsidiary of Putnam Investments Inc. for services provided and ex-
penses incurred by it in distributing class A shares. The Trustees have approved
payment by the fund to Putnam Mutual Funds Corp. at an annual rate of 0.25% of
the fund's average net assets attributable to class A shares. For the year ended
September 30, 1994, the fund paid $9,757,082 in distribution fees for class A
shares.
A deferred sales charge of up to 1% is assessed on certain redemptions of class
A shares purchased as part of an investment of $1 million or more. For the year
ended September 30, 1994, Putnam Mutual Funds Corp., acting as underwriter, re-
ceived $ 307,147 on class A redemptions.
The fund has adopted a distribution plan with respect to its class B shares (the
"Class B Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of Class B Plan is to compensate Putnam Mutual Funds Corp. for ser-
vices provided and expenses incurred by it in distributing class B shares. The
Class B Plan provides for payments by the fund to Putnam Mutual Funds Corp. at
an annual rate of 1.00% of the fund's average net assets attributable to class
B shares. For the year ended September 30, 1994, the fund paid Putnam Mutual
Funds Corp. distribution fees of $20,367,850 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred sa-
les charges levied on class B share redemptions within six years of purchase.
The charge is based on declining rates, which begin at 5.0% of the net asset va-
lue of the redeemed shares. Putnam Mutual Funds Corp. received contingent defe-
rred sales charges of $8,973,449 from such redemptions during the year ended
September 30, 1994.
During the year ended September 30, 1994, Putnam Mutual Funds Corp., acting as
an underwriter, received net commissions of $643,435 from the sale of class A
shares of the fund.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 1994, purchases and sales of U.S. government
obligations other than short-term investments aggregated $12,263,679,348 and
$14,687,282,168,
<PAGE>
<PAGE>
respectively. There were no purchases or sales of investment securities other
than U.S. government obligations during the period. In determining the net gain
or loss on securities sold, the cost of securities has been determined on the
identified cost basis.
NOTE 4
CAPITAL SHARES
At September 30, 1994, there was an unlimited number of shares of beneficial in-
terest authorized, divided into three classes, class A, class B and class Y ca-
pital stock. Transactions in capital shares were as follows:
Year ended September 30 1994
Class A Shares Amount
- -------------------------------------------------------------------------------
Shares sold 27,988,595 $366,620,412
- -------------------------------------------------------------------------------
Shares issued inconnection with
reinvestment of distributions 13,265,583 172,473,338
- -------------------------------------------------------------------------------
41,254,178 539,093,750
- -------------------------------------------------------------------------------
Shares repurchased (133,310,840) (1,740,121,034)
- -------------------------------------------------------------------------------
NET (DECREASE) (92,056,662) $(1,201,027,284)
Year ended September 30 1993
Class A Shares Amount
- -------------------------------------------------------------------------------
Shares sold 92,070,737 $1,267,094,739
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 15,542,235 213,403,739
- -------------------------------------------------------------------------------
107,612,972 1,480,498,478
- -------------------------------------------------------------------------------
Shares repurchased (75,666,713) (1,039,726,085)
- -------------------------------------------------------------------------------
Portion represented by undistributed
net investment income --- (59,442)
- -------------------------------------------------------------------------------
NET INCREASE 31,946,259 $440,712,951
Year ended September 30 1994
Class B Shares Amount
- -------------------------------------------------------------------------------
Shares sold 36,373,071 $480,643,840
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 6,740,193 87,303,265
- -------------------------------------------------------------------------------
43,113,264 567,947,105
- -------------------------------------------------------------------------------
Shares repurchased (65,135,400) (845,878,972)
- -------------------------------------------------------------------------------
NET (DECREASE) (22,022,136) $(277,931,867)
Year ended September 30 1993
Class B Shares Amount
- -------------------------------------------------------------------------------
Shares sold 128,597,794 $1,765,613,997
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 4,656,147 63,765,501
- -------------------------------------------------------------------------------
133,253,941 1,829,379,498
- -------------------------------------------------------------------------------
Shares repurchased (16,503,521) (226,103,133)
- -------------------------------------------------------------------------------
Portion represented by undistributed
- -------------------------------------------------------------------------------
net investment income --- (1,753,016)
- -------------------------------------------------------------------------------
NET INCREASE 116,750,420 $1,601,523,349
For the period April 11, 1994
(commencement of operations) to
September 30 1994
Class Y Shares Amount
- -------------------------------------------------------------------------------
Shares sold 1,645,385 $20,599,551
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 19,884 247,695
- -------------------------------------------------------------------------------
1,665,269 20,847,246
- -------------------------------------------------------------------------------
Shares repurchased (103,235) (1,290,305)
- -------------------------------------------------------------------------------
Net increase 1,562,034 $19,556,941
- -------------------------------------------------------------------------------
<PAGE>
<PAGE>
NOTE 5
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective October 1, 1993, Putnam U.S. Government Income Trust has adopted the
provisions of Statement of Position (SOP) 93-2 "Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain and Return of Capital
Distributions, by Investment Companies." The purpose of this SOP is to report
the accumulated net investment income (loss) and accumulated net realized gain
(loss) accounts in such a manner as to approximate amounts available for future
distributions (or to offset future realized capital gains) and to achieve uni-
formity in the presentation of distributions by investment companies.
As a result of the SOP, the Fund has reclassified $5,957,806 to decrease undis-
tributed net investment income and $103,940,053 to decrease accumulated net rea-
lized loss with a decrease of $97,982,247 to additional paid-in capital.
These adjustments represent the cumulative amounts necessary to report these ba-
lances through September 30, 1993, the close of the fund's prior fiscal year end
for financial reporting and tax purposes.
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
CLASS A SHARES: For Federal income tax purposes, $.742 per share for the year
ended September 30, 1994 should be designated as "dividend income" for federal
income tax purposes and $.21 per share (or 22%) as return of capital. The fund
has designated none of this amount as qualifying for the dividends-received de-
ductions for corporations.
CLASS B SHARES: For Federal income tax purposes, $.665 per share for the year
ended September 30, 1994 should be designated as "dividend income" for federal
income tax purposes and $.19 per share (or 22%) as return of capital. The fund
has designated none of this amount as qualifying for the dividends-received de-
ductions for corporations.
GENERAL: The Form 1099 you receive in January 1995 will show the tax status of
all distributions paid to your account in calendar 1994.
If you are a shareholder in an IRA or other tax-sheltered retirement plan, this
statement is for information only and will serve as a record of distributions
reinvested in your account during the fiscal year. Money invested in these plans
generally is not subject to federal income tax until you withdraw it.
<PAGE>
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal every
year since the award's 1990 inception. DALBAR, an independent research firm, ran
more than 10,000 tests of 38 shareholder service components. In every category,
Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account. *
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the then-
current net asset value, which may be more or less than their original cost.
For details about any of these or other services, contact your financial advi-
sor or call the toll-free number shown below and speak with a helpful Putnam re-
presentative.
To make an additional investment in this or any other Putnam fund, contact your
financial advisor or call our toll-free number:
1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to con-
tinue purchasing shares during periods of low price levels.
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FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Robert E. Patterson
Donald S. Perkins George Putnam, III
A.J.C. Smith W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Gary N. Coburn
Vice President Vice President
Albert J. Bankart Michael Martino
Vice President Vice President and Fund Manager
William N. Shiebler John R. Verani
Vice President Vice President
Paul M. O.Neil John D. Hughes
Vice President Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam U.S. Government
Trust. It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment objec-
tives and operating policies of the fund, and the most recent copy of Putnam's
Quarterly Performance Summary. For more information, or to request a prospectus,
call toll-free: 1-800-225-1581.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Bulk Rate
U.S. Postage
Paid
Putnam
Investments
032/885-14791
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APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
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displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The dagger symbol has been replaced by (+).
(8) The registered mark symbol has been replaced by (R).
