(logo)
Putnam
U.S. Government
Income Trust
Semiannual
Report
March 31, 1994
(artwork)
For investors seeking
current income consistent
with capital preservation
primarily through
securities backed by the
full faith and credit of the
United States government
A member
of the Putnam
Family of Funds
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
7 Report of Independent Accountants
8 Portfolio of investments owned
10 Financial statements
19 Fund performance supplement
<PAGE>
<TABLE>
<CAPTION>
How your
fund performed
For periods ended March 31, 1994
Total return* Lehman Lehman
Class A Class B Mortgage-backed Intermediate
NAV POP NAV CDSC Securities IndexTreasury Index
<S> <C> <C> <C> <C> <C> <C>
6 months -2.25% -6.89% -2.70% -7.40% -1.44% -1.72%
1 year 0.01 -4.74 -0.80 -5.43 1.36 2.35
5 years 50.06 42.91 -- -- 62.95 58.19
annualized 8.46 7.40 -- -- 10.26 9.61
10 years 144.68 133.09 -- -- 207.86 165.74
annualized 9.36 8.83 -- -- 11.90 10.27
Life-of-class+
(class B shares) -- -- 7.81 4.06 11.50 13.83
annualized -- -- 3.97 2.08 5.84 6.99
Share data Class A Class B
NAV POP NAV
September 30, 1993 $13.63 $14.31 $13.60
March 31, 1994 $12.84 $13.48 $12.80
Distributions Investment Capital
6 months ended 3/31/94 Number income gains Total
Class A 6 $0.496 -- $0.496
Class B 6 $0.446 -- $0.446
Current returns Class A Class B
at the end of the period NAV POP NAV
Current dividend rate 7.10% 6.77% 6.38%
Current 30-day yield 5.55 5.29 4.79
/TABLE
<PAGE>
*Performance data represent past results. Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, may be worth more or less than their original cost.
+Class A shares have been offered since the fund's inception on
2/8/84. Effective 4/27/92, the fund began offering class B
shares. Performance for each share class will differ.
Terms you need to know
Total return Total return is the change in value of an investment
from the beginning to the end of a period, assuming the
reinvestment of all distributions. It may be shown at net asset
value or at public offering price.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not reflecting any sales charge.
Public offering price (POP) is the price of a mutual fund share
plus the fund's maximum 4.75% sales charge levied at the time of
purchase.
Contingent deferred sales charge (CDSC) is a charge applied at
the time of the redemption of shares rather than the time of
purchase. It generally declines and eventually disappears over a
stated period.
Class A shares are the shares of your fund offered subject to an
initial sales charge. Your fund's POP includes the maximum 4.75%
sales charge.
Class B shares are the shares of your fund offered with no
initial sales charge. Within the first six years of purchase,
they are subject to a CDSC declining from 5% to 1%. After the
sixth year, the CDSC no longer applies.
Current dividend rate is calculated by annualizing the net
investment income paid to shareholders in the fund's most recent
distribution, then dividing by the NAV or POP on the last day of
the period.
Current 30-day yield, based only on the fund's net investment
income earnings, is calculated in accordance with Securities and
Exchange Commission guidelines.
Please see the fund performance supplement on page 19 for
additional information about performance comparisons.
<PAGE>
From the
Chairman
(photograph of George Putnam)
(c) Karsh, Ottawa
George Putnam
Chairman
of the Trustees
Dear Shareholder:
The period in which we now write is a difficult one. A series of
bond- and stock-market corrections has exacerbated market
volatility and sparked investor concerns.
But despite the gloomy headlines, we believe economic
fundamentals remain sound. At this stage of the recovery, with
interest rates having edged upward for the first time in several
years, market volatility is a natural occurrence. The performance
of Putnam U.S. Government Income Trust should be expected to
reflect the environment in which it invests. The fund is an
intermediate- to long-term investment, and, unlike short-term
investments such as money market funds, it is likely to have
periodic fluctuations of principal.
On a brighter note, I am pleased to inform you of a change in the
management of your fund. Michael Martino started managing the
day-to-day operations of Putnam U.S. Government Income Trust in
March but is no newcomer to the investment business. Mike brings
considerable talent and over 18 years of investment experience to
Putnam, having managed portfolios for New England Mutual Life
Insurance Company and Back Bay Advisors. We are delighted to
welcome him to our management team.
In these uncertain times, professional management is more
important than ever. As you review your investment program in
light of current events, we hope you will proceed cautiously. A
well-reasoned investment strategy, fashioned to meet your
long-term needs, should not be altered without careful thought.
We believe that the advent of calmer markets and the portfolio
changes discussed in the following Report from Putnam Management
will contribute toward continued competitive returns for Putnam
U.S. Government Income Trust.
Respectfully yours,
George Putnam
May 18, 1994
<PAGE>
Report from
Putnam Management
In early February, after more than five years of declining
interest rates, the Federal Reserve raised short-term interest
rates by a quarter of a percentage point, then raised them
another quarter point in March. Each increase has had a
disastrous effect on the bond market, culminating in a complete
reversal of bond-investor psychology to one of widespread
pessimism. The average 10-year Treasury returned -5.79% for the
first quarter of 1994, with a yield of 6.78% -- the highest since
November 1992.
Putnam U.S. Government Income Fund's performance during this
period was average for its peer group, its class A and B shares
returning -2.25% and -2.70% respectively at NAV for the six
months ended March 31, 1994. The average GNMA fund as reported by
Lipper Analytical Services, Inc., an independent research firm,
returned -2.20%. Your fund's performance, while negative, should
be taken in the context of a wide-scale, bond market decline. For
additional performance information, please see the table on page
2.
Investors overreact, bonds oversold Given the size and breadth of
the first-quarter correction, a few words of explanation are
appropriate. It is our view that the market's sell-off was an
overreaction to and possibly a misinterpretation of the Fed's
actions. It is important to remember that, up until the end of
1993, interest rates had been declining for years, with the
Federal Reserve making accommodative cuts along the way. More
encouraging still, the economic recovery seemed to be progressing
slowly enough that inflation need not be a concern. Inflation, of
course, is the bond market's primary worry, since it erodes the
income earned from fixed-income investments.
All that changed abruptly in the first quarter of 1994. First,
when reports detailing unusually strong economic growth started
surfacing in early January, bond traders and analysts on Wall
Street began to get nervous. Then, when the Fed raised short-term
rates in February, shareholders and money managers alike
interpreted it as an effort to stem existing inflation --
inflation they had not detected. They had been caught off guard.
An outburst of selling erupted on two fronts. First,
shareholders, particularly those invested in no-load mutual
funds, cashed in their shares. Fund managers met these
redemptions by selling securities. Second, multibillion-dollar
hedge funds, which manage large, private investor accounts by
using a host of complex derivative securities, began to unload
bundles of these securities, particularly principal-only CMOs
(collateralized mortgage obligations). And, at this point, the
markets did not want them. The result was further price declines
amid aggravated selling -- some hedge funds lost hundreds of
millions of dollars.
Gearing up for change Late in 1993, we began to conclude that
interest rates had hit rock bottom. If you remember, short-term
rates, minus inflation, were practically zero. While it was not
possible to predict when interest rates would pick up again, it
was obvious that, sooner or later, they would. Early in the first
quarter of 1994, in anticipation of rising rates, we decided to
keep the fund's duration relatively short -- just 4.6 years at
the end of the period. Duration is a mathematical measure of a
bond's sensitivity to changes in interest rates and, like
maturity, is expressed in years. In general, bonds with shorter
durations will be affected less adversely by rising interest
rates. Currently, the fund is managed to produce as much income
as the average GNMA but with less volatility.
As we've seen with hedge funds, some derivative securities can be
difficult to sell during periods of rising rates. It is precisely
when rates rise that most investors retreat to shorter maturities
and better-quality holdings. While Putnam U.S. Government Income
Trust has the flexibility to invest in CMOs and other related
derivative securities, historically, it has not done so. The fund
invests entirely in AAA-rated securities backed by the full faith
and credit of the United States Government, or in forward
commitment contracts and repurchase agreements related to those
securities.
The bond market's silver lining As investment managers, we are
trained to find the good in every downturn, and we believe the
recent bond market correction offers a host of opportunities. One
significant result of the first-quarter correction is that
mortgage-backed securities were oversold relative to comparable
U.S. Treasuries. This had a lot to do with the fierce selling of
derivative and highly leveraged mortgage-backed securities. Your
fund's share price was affected by this market volatility to a
lesser degree, even though it did not own derivative securities
during the period.
This decline has also provided us with a tremendous opportunity
to add value to the portfolio with quality, mortgage-backed
securities now selling at a discount. We expect to increase the
fund's position in these bonds by 10% in the coming weeks, to a
full 85% of the portfolio. In particular, we intend to hold
predominantly 7.5% to 8.5% current-coupon bonds, with a
smattering of bonds in the 8.5% to 10.0% range. With interest
rates again on the rise, the level of mortgage prepayments has
slowed dramatically, and we believe the bonds we are targeting
will outperform comparable U.S. Treasuries.
Moderation in the coming months While it is highly likely that
the Federal Reserve will continue raising rates in the coming
weeks and months, it is unlikely that these moves will continue
to create the level of volatility seen in the first quarter.
Calmer markets should eventually prevail because the element of
surprise has been removed, and investors are now expecting higher
rates. What's more, we believe that the surge of economic growth
in the fourth quarter of 1993 was an aberration that will be
replaced this year with growth rates more along the lines of 3%.
This should go a long way toward keeping inflation under control.
An environment of steadily rising rates, while far from ideal, is
at least manageable. We believe that our combined strategy of an
increased mortgage weighting coupled with a shorter, more
conservative average duration is not only appropriate, but will
lead to continued competitive performance for the remainder of
fiscal year 1994.
<PAGE>
Putnam
U.S. Government
Income Trust
Semiannual Report for the six months ended March 31, 1994
Report of Independent Accountants
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 March 31, 1994, and the
related statement of operations for the period then ended, the
statement of changes in net assets for the six months then ended
and for the year ended September 30, 1993 and the "Financial
Highlights" for Class A shares for the six months ended March 31,
1994, for each of the eight years in the period ended September
30, 1993, for the ten months ended September 30, 1985 and for the
period January 12, 1984 (commencement of operations) to November
30, 1984 and for Class B shares for the six months ended March
31, 1994, for the year ended September 30, 1993 and for the
period April 27, 1992 (commencement of operations) to September
30, 1992. These financial statements and "Financial Highlights"
are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial
statements and "Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and "Financial Highlights" are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of March 31, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and "Financial
Highlights" referred to above present fairly, in all material
respects, the financial position of Putnam U.S. Government Income
Trust as of March 31, 1994, the results of its operations for the
six months then ended, the changes in its net assets for the six
months then ended and for the year ended September 30, 1993 and
the "Financial Highlights" for Class A shares for the six months
ended March 31, 1994, for each of the eight years in the period
ended September 30, 1993, for the ten months ended September 30,
1985 and for the period January 12, 1984 (commencement of
operations) to November 30, 1984 and for Class B shares for the
six months ended March 31, 1994, for the year ended September 30,
1993 and for the period April 27, 1992 (commencement of
operations) to September 30, 1992, in conformity with generally
accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
May 17, 1994
<PAGE>
Portfolio of
investments owned
March 31, 1994
U.S. Government and Agency Obligations (108.3%)(a)
Principal Amount Value
Government National
Mortgage Association
$ 434,390 16s , with various due dates
to March 15, 2012 $ 525,612
681,342 15s, with various due dates
to March 15, 2013 824,424
483,427 14s, with various due dates
to August 15, 2014 575,232
98,561,715 13 1/2s, with various due
dates to June 15, 2015 118,205,346
4,094,205 13 1/4s, Project Loans,
November 15, 2025 4,626,452
76,650,020 13s, with various due dates
to August 15, 2015 91,150,475
85,464,899 12 1/2s, with various due
dates to November 15, 2015 99,949,676
44,470,371 12s, with various due dates
to September 15, 2015 51,543,105
5,882,419 11 1/2s , with various due dates
to September 15, 2015 6,779,488
2,538,403 11 1/2s , TBA, April 14,
2024(b) 2,862,049
96,874,396 11s, with various due dates
to April 15, 2021 110,231,103
248,866 11s, Midgets , July 15, 2000 271,886
438,735 10 7/8s, February 15, 2010 492,617
71,045,544 10 1/2s, with various due dates
to November 14, 2021 79,571,009
12,130,819 10 1/2s, Midgets , with
various due dates to
February 15, 2001 13,222,593
100,502,202 10s, with various dates to
January 15, 2022 109,483,721
353,404,690 9 1/2s, with various due
dates to August 15, 2023 377,340,271
2,301,754 9 1/2s , Project Loans ,
September 15, 2021 2,426,912
57,013,596 9 1/2s, Midgets, with various
due dates to July 15, 2007 61,004,548
419,359,262 9s, with various due dates to
September 15, 2022 443,590,386
7,263,888 9s, Project Loans, with
various due dates to
June 15, 2021 7,579,413
38,583,729 9s, Midgets , with various
due dates to June 15, 2006 40,754,064
359,129,983 8 1/2s , with various due
dates to March 15, 2023 372,612,060
5,854,907 8 1/2s, Project Loans,
March 15, 2027 6,017,747
34,169,462 8 1/2s, Midgets, with
various due dates to
December 15, 2006 35,696,410
666,811,654 8s, with various due dates
to November 15, 2023 674,948,213
31,059,817 8s, Midgets, with various
due dates to August 15, 2023 31,972,199
200,000,000 8s, TBA , April 14, 2024(b) 201,875,000
200,000,000 7 1/2s, TBA, April 14, 2024(b) 196,562,500
147,036,481 7 1/2s, Midgets, with various
due dates to March 15, 2009 148,552,795
853,701,708 7 1/2s, with various due
dates to March 15, 2024 838,950,826
99,319,385 7s, Midgets, with various
due dates to February 15,
2009 98,326,191
732,321,428 7s, with various due dates to
March 15, 2024 698,153,060
23,000,000 7s, TBA, April 14, 2024(b) 21,929,063
100,000,000 6 1/2s, TBA, April 14, 2024(b) 91,968,750
24,659,294 6 1/2s, Midgets, with various
due dates to February 15,
2009 23,904,103
256,394,310 6 1/2s, with various due
dates to March 15, 2024 235,806,281
Government National
Mortgage Association
Graduated Payment
Mortgages
120,137 15s, with various due dates
to September 15, 2012 142,362
5,271 14s, May 15, 2011 6,246
130,218 13 3/4s, with various due
dates to November 20, 2014 152,681
454,293 13 1/2s, with various due
dates to November 15, 2012 533,794
307,934 13 1/4s, with various due
dates to June 20, 2015 356,822
204,205 13s, with various due dates
to October 15, 2012 236,878
3,963,754 12 3/4s, with various due
dates to July 20, 2015 4,533,627
566,779 12 1/2s, with various due
dates to January 20, 2014 640,815
2,956,423 12 1/4s, with various due
dates to November 15, 2014 3,340,145
5,673,793 11 1/4s, with various due
dates to January 15, 2016 6,297,910
1,376,673 10 3/4s, with various due
dates to March 15, 2016 1,494,551
2,700,113 10 1/4s, with various due
dates to December 15, 2020 2,851,151
3,435,253 10s, with various due dates
to May 15, 2010 3,585,545
3,919,586 9 1/4s, with various due
dates to February 20, 2020 4,002,877
400,000,000 U. S. Treasury Bonds 11 1/8s,
August 15, 2003 518,625,000
106,500,000 U.S. Treasury Bonds 7 1/4s,
May 15, 2016 106,433,438
260,000,000 U.S. Treasury Notes 9 3/8s,
April 15, 1996 280,312,500
Total U. S. Government and
Agency Obligations
(cost $6,430,912,711) $6,233,831,922
Short-Term Investments (0.3%)(a) (cost $ 18,867,834)
Principal Amount Value
$ 18,866,000 Interest in $66,810,000 joint
repurchase agreement
dated March 31, 1994
with JP Morgan Securities
Inc., due April 4, 1994 with
respect to U.S. Treasury
Bonds 13 3/4s, November 15,
2010 maturity value of
$18,873,337 for an
effective yield of 3.5% $ 18,867,834
Total Investments
(cost $6,449,780,545)(c) $6,252,699,756
(a) Percentages indicated are based on net assets of
$5,755,596,413, which correspond to a net asset value per class A
share and class B share of $12.84 and $12.80, respectively.
(b) TBAs are mortgage backed securities traded under delayed
delivery commitments settling after March 31, 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. Income on the securities will not be earned until
settlement date. The cost of TBA purchases at March 31, 1994 is
$515,197,362
<PAGE>
TBA Sale Commitments at March 31, 1994
(proceeds receivable $293,593,752)
Principal Delivery Coupon Market
Agency Amount Month Rate Value
GNMA $100,000,000 April 8% $100,937,500
GNMA 200,000,000 April 6 1/2% 183,937,500
$284,875,000
(c) The aggregate identified cost on a tax basis is
$6,450,092,272, resulting in gross unrealized appreciation and
depreciation of $22,209,714 and $219,602,230, respectively, or
net unrealized depreciation of $197,392,516.
<PAGE>
<TABLE>
<CAPTION>
Statement of
assets and liabilities
March 31, 1994
<S> <C> <C> <C>
Assets
Investments in securities, at value (identified cost
$6,449,780,545) (Note 1) $6,252,699,756
Cash 5,972,906
Interest receivable 53,968,044
Receivable for shares of the Fund sold 7,440,559
Receivable for securities sold 295,665,031
Total assets 6,615,746,296
Liabilities
Payable for securities purchased $534,060,116
Payable for shares of the Fund repurchased 25,595,145
Payable for compensation of Manager (Note 2) 6,732,359
Payable for compensation of Trustees (Note 2) 6,117
Payable for investor servicing and custodian
fees (Note 2) 2,610,911
Payable for administrative services (Note 2) 28,218
Payable for distribution fees (Note 2) 6,071,352
Other accrued expenses 170,665
TBA sale commitment at value (proceeds
receivable $293,593,752) 284,875,000
Total liabilities 860,149,883
Net assets $5,755,596,413
Represented by
Paid-in capital (Notes 4 and 5) $6,179,671,893
Distributions in excess of net investment income (4,083,435)
Accumulated net realized loss on investment transactions (231,630,008)
Net unrealized depreciation of investments and
TBA sale commitments (188,362,037)
Total -- Representing net assets applicable to
capital shares outstanding $5,755,596,413
Computation of net asset value and offering price
Net asset value and redemption price of Class A shares
($3,745,137,219 divided by 291,722,661 shares) $12.84
Offering price per share (100/95.25 of $12.84)* $13.48
Net asset value and offering price of Class B shares
($2,010,459,194 divided by 157,035,088 shares)** $12.80
*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.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
operations
Six months ended March 31, 1994
<S> <C> <C> <C>
Interest income $ 271,709,225
Expenses:
Compensation of Manager (Note 2) $14,087,850
Investor servicing and custodian fees (Note 2) 5,402,222
Compensation of Trustees (Note 2) 67,663
Reports to shareholders 42,755
Auditing 88,299
Legal 34,671
Postage 339,489
Registration 52,547
Administrative services (Note 2) 59,224
Distribution fees -- Class A (Note 2) 5,462,163
Distribution fees -- Class B (Note 2) 11,014,067
Other 152,169
Total expenses 36,803,119
Net investment income 234,906,106
Net realized loss on investments (Notes 1 and 3) (228,171,395)
Net unrealized depreciation of investments and
TBA sale commitments during the year (149,692,496)
Net loss on investments transactions (377,863,891)
Net decrease in net assets resulting from operations $(142,957,785)
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
changes in net assets
<S> <C> <C> <C>
Six months ended Year ended
March 31 September 30
1994 1993
Increase (decrease) in net assets
Operations:
Net investment income $ 234,906,106 $ 476,580,551
Net realized loss on investments (228,171,395) (48,160,441)
Net unrealized depreciation of investments
and TBA sale commitments (149,692,496) (103,163,283)
Net increase (decrease) in net assets resulting
from operations (142,957,785) 325,256,827
Undistributed net investment income included in price
of shares sold and repurchased, net -- 1,812,458
Distributions to shareholders from:
Net investment income:
Class A (164,568,094) (365,348,743)
Class B (74,421,447) (99,934,305)
Increase (decrease) from capital share
transactions (Note 4) (892,155,868) 2,042,236,300
Total increase (decrease) in net assets (1,274,103,194) 1,904,022,537
Net assets
Beginning of period 7,029,699,607 5,125,677,070
End of period (including distributions in excess of and
undistributed net investment income of $(4,083,435) and
$14,675,398, respectively) $5,755,596,413 $7,029,699,607
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Financial highlights*
(For a share outstanding
throughout the period)
April 27, 1992
Six months (commencement Six Months
ended Year ended of operations) to ended Year ended
March 31 September 30September 30 March 31 September 30
1994 1993 1992*** 1994 1993 1992
Class B Class A
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.60 $13.93 $13.64 $13.63 $13.96 $13.89
Investment Operations
Net Investment Income .44 1.00 .48 0.49 1.10 1.19
Net Realized and Unrealized
Gain (Loss) on Investments (0.79) (.35) .28 (0.78) (.36) .12
Total from
Investment Operations (.35) .65 .76 (.29) .74 1.31
Less Distributions from:
Net Investment Income (.45) (.98) (.47) (.50) (1.07) (1.21)
Net Realized Gain
on Investments -- -- -- -- -- (0.03)
Paid-in Capital (b) -- -- -- -- -- --
Total Distributions (.45) (.98) (.47) (.50) (1.07) (1.24)
Net Asset Value,
End of Period $12.80 $13.60 $13.93 $12.84 $13.63 $13.96
Total Investment Return at
Net Asset Value (%) (c) (5.41)(d) 4.85 13.19(d) (4.51)(d) 5.55 9.92
<PAGE>
Net Assets,
End of Period
(in thousands) $2,010,459 $2,232,219 $660,515 $3,745,137 $4,797,481 $4,465,162
Ratio of Expenses to
Average Net Assets (%) 1.61(d) 1.61 1.80(d) 0.86(d) .88 1.01
Ratio of Net Investment
Income to Average
Net Assets (%) 6.61(d) 7.11 7.25(d) 7.37(d) 7.92 8.44
Portfolio Turnover (%)(f) 236.15(e) 295.88 293.36(e) 236.15(e) 295.88 293.36
See page 14 for notes to Financial highlights.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Financial highlights*(continued)
For the period
January 12, 1984
Ten months (commencement
ended of operations) to
Year ended September 30 September 30 November 30
Class A
1991 1990 1989 1988 1987 1986 1985 1984**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.51 $13.73 $13.84 $13.60 $14.60 $14.58 $14.15 $14.29
Investment
Operations
Net Investment Income 1.34 1.33 1.36 1.38 1.39 1.55 1.46 1.22(a)
Net Realized and Unrealized
Gain (Loss) on Investments .35 (.21) (.10) .23 (.95) .07 .36 (.14)
Total from
Investment Operations 1.69 1.12 1.26 1.61 .44 1.62 1.82 1.08
Less Distributions from:
Net Investment Income (1.31) (1.33) (1.37) (1.37) (1.44) (1.59) (1.39) (1.22)
Net Realized Gain
on Investments -- -- -- -- -- (.01) -- --
Paid-in Capital (b) -- (.01) -- -- -- -- -- --
Total Distributions (1.31) (1.34) (1.37) (1.37) (1.44) (1.60) (1.39) (1.22)
Net Asset Value,
End of Period $13.89 $13.51 $13.73 $13.84 $13.60 $14.60 $14.58 $14.15
Total Investment Return at
Net Asset Value (%) (c) 13.10 8.54 9.65 12.27 2.91 11.71 16.22(d) 9.32(d)
<PAGE>
Net Assets,
End of Period
(in thousands) $2,540,541 $1,590,990$1,386,960 $1,369,547 $1,196,133 $966,551 $408,374 $129,801
Ratio of Expenses to
Average Net Assets (%) .91 .75 .65 .61 .58 .56 .72(d) .69(a)(d)
Ratio of Net Investment
Income to Average
Net Assets (%) 9.67 9.66 9.90 9.81 9.55 10.30 11.83(d) 11.30(a)(d)
Portfolio Turnover (%)(f) 118.96 63.46 167.60 54.51 43.03 116.32 136.44(e) --
*Financial highlights for periods ended through September 30, 1992 have been restated to conform with requirements
issued by the SEC in April 1993.
**Investment operations commenced on February 8, 1984.
***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)Reflects a voluntary expense limitation applicable during the period. As a result of such limitation, expenses of the
Fund for the period ended November 30, 1984 reflect a reduction of $0.01 per share.
(b)See Note 1 to the Financial Statements.
(c)Total Investment Return assumes dividend reinvestment and does not reflect the effect of sales charges.
(d)Annualized.
(e)Not annualized.
(f)Portfolio turnover calculations for fiscal 1985 and thereafter include transactions in U.S. government securities
with maturities greater than one year. The prior period portfolio turnover calculation excluded all transactions in U.S.
government securities.
/TABLE
<PAGE>
Notes to
financial statements
March 31, 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 objective is to seek as high a
level of current income as is consistent with preservation 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 both Class A and Class B shares. 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. Expenses
of the Fund are borne pro-rata by the holders of both 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
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 policies are in conformity with
generally accepted accounting principles.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are reported
- -- as in the case of some securities traded 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) purchase commitments to purchase securities for a
fixed price at a future date beyond customary settlement time if
the Fund holds, and maintains until the settlement 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 offsetting contracts for the forward sale of other
securities it owns. TBA purchase 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 settlement
date, which risk is in addition to the risk of decline in the
value of the Fund's other assets. Unsettled TBA purchase
commitments are valued at the current market value of the
underlying securities, generally according to the procedures
described under "Security valuation" above.
Although the Fund will generally enter into TBA purchase
commitments with the intention of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has
entered into, the Fund may dispose of a commitment prior to
settlement if Putnam Management deems it appropriate to do so.
TBA sale commitments The Fund may enter into TBA sale commitments
to hedge its portfolio positions or to sell mortgage-backed
securities it owns under delayed delivery arrangements. Proceeds
of TBA sale commitments are not received until the contractual
settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market
value of the underlying securities, generally according to the
procedures described under "Security valuation" above. The
contract is "marked-to-market" daily and the change in market
value is recorded by the Fund as an unrealized gain or loss. If
the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the Fund realizes a gain or loss
on the commitment without regard to any unrealized gain or loss
on the underlying security. If the Fund delivers securities 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 companies managed by
Putnam Investment Management Inc. (Putnam Management), the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.
and certain 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 custodian, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. 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). Interest 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 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. Therefore, no provision has been 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, 1993, the Fund had capital loss carryovers of
approximately $1,685,556, available to offset future realized
capital gains, if any. This amount will expire September 30,
1999. To the extent that capital loss carryovers are used to
offset realized gains, it is unlikely that gains so offset will
be distributed to shareholders, since any such distribution might
be taxable as ordinary income. Based on investment results for
the period ended March 31, 1994, there is the potential for a
small portion of the distributions for the calendar year 1994, to
be designated as a tax return of capital. The actual tax status
of all of the distributions for the calendar year 1994, will be
sent to shareholders via IRS Form 1099Div in January of 1995.
G) Distributions to shareholders Distributions to shareholders
are recorded by the Fund on the ex-dividend date. Distributions
are declared from net investment income based on projections of
the net investment income that the Fund is likely to earn over
the longer term. At certain times, the Fund may continue to pay
monthly distributions at a level rate even though, as a result of
market conditions or investment decisions, the Fund may not
achieve projected investment results for a given period. Based on
investment results for the year ended September 30, 1990, $0.01
of per share distributions have been designated as distributions
from paid-in capital.
H) Equalization Prior to October 1, 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 allocating 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 Funds total net assets, net
asset value per share, or its net increase (decrease) in net
assets from operations. Discontinuing the use of equalization
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 services is paid quarterly based on the average net
assets of the Fund for the quarter. Such fee is 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, subject to
reduction under current law in any year to the extent that
expenses (exclusive 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 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. For the six months ended March 31, 1994, the Fund paid
$59,224 for these services.
Trustees of the Fund receive an annual Trustee's fee of $6,900
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 Company (PFTC), a subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are
currently provided by Putnam Investor Services, a division of
PFTC.
Fees paid for these investor servicing and custodial functions
for the six months ended March 31, 1994 amounted to $5,402,222.
Investor servicing and custodian fees reported in the Statement
of operations for the six months ended March 31, 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
expenses 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 six months ended March
31, 1994, the Fund paid $5,462,163 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 six months ended March 31, 1994,
Putnam Mutual Funds Corp., acting as underwriter, received
$222,725 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 services 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 six months ended
March 31, 1994, the Fund paid Putnam Mutual Funds Corp.
distribution fees of $11,014,067 for Class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of
contingent deferred sales 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 value of
the redeemed shares. Putnam Mutual Funds Corp. received
contingent deferred sales charges of $4,497,737 from such
redemptions during the six months ended March 31, 1994.
During the six months ended March 31, 1994, Putnam Mutual Funds
Corp., acting as an underwriter, received net commissions of
$481,499 from the sale of class A shares of the Fund.
Note 3 Purchases and sales of securities
During the six months ended March 31, 1994, purchases and sales
of U.S. government obligations other than short-term investments
aggregated $7,695,029,427 and $9,246,333,011, 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.
<PAGE>
<TABLE>
<CAPTION>
Note 4 Capital shares
At March 31, 1994, there was an unlimited number of shares of beneficial interest
authorized, divided into two classes, Class A and Class B capital stock. Transactions in
capital shares were as follows:
Six months ended Year ended
March 31 September 30
1994 1993
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 17,544,036 $235,440,350 92,070,737 $1,267,094,739
Shares issued in connection with
reinvestment of
distributions 7,327,760 98,101,132 15,542,235 213,403,739
24,871,796 333,541,482 107,612,972 1,480,498,478
Shares repurchased (85,033,900) (1,134,184,874) (75,666,713) (1,039,726,085)
Portion represented by
undistributed net investment
income -- -- -- (59,442)
Net increase (decrease) (60,162,104) $(800,643,392) 31,946,259 $440,712,951
Six months ended Year ended
March 31 September 30
1994 1993
Class B Shares Amount Shares Amount
Shares sold 28,230,815 $378,623,165 128,597,794 $1,765,613,997
Shares issued in connection
with reinvestment of
distributions 3,595,095 48,001,619 4,656,147 63,765,501
31,825,910 426,624,784 133,253,941 1,829,379,498
Shares repurchased (38,962,477) (518,137,260) (16,503,521) (226,103,133)
Portion represented by
undistributed net
investment income -- -- (1,753,016)
Net increase (decrease) (7,136,567) $(91,512,476) 116,750,420 $1,601,523,349
/TABLE
<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 uniformity in the
presentation of distributions by investment companies.
As a result of the SOP, the Fund has reclassified $5,957,806 to
decrease undistributed net investment income and $103,940,053 to
decrease accumulated net realized loss with a decrease of
$97,982,247 to additional paid-in capital.
These adjustments represent the cumulative amounts necessary to
report these balances through September 30, 1994, the close of
the Fund most recent fiscal year end for financial reporting and
tax purposes.
Note 6 Subsequent Events
Effective April 1, 1994, the Fund began to issue Class Y shares.
Fund
performance
supplement
Putnam U.S. Government Income Trust is a portfolio managed for
current income consistent with capital preservation through
securities backed by the full faith and credit of the United
States Government. The Lehman Brothers Mortgage-Backed Securities
Index is an unmanaged list of GNMA bonds. The Lehman Brothers
Intermediate-Term Treasury Bond Index is an unmanaged list of
Treasury bonds. The indexes do not take into account brokerage
commissions or other costs and may pose different risks from the
fund. Total return performance for the indexes reflect
mathematically derived changes of market price and reinvestment
of interest payments, as computed by Putnam management. The
fund's portfolio contains securities that do not match those in
the indexes.
The fund performance supplement has been prepared by Putnam
Management to provide additional information about the fund and
the indexes used for performance comparisons. The information is
not part of the portfolio of investments owned or the financial
statements.
<PAGE>
Putnam
U.S. Government
Income Trust
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
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
Independent accountants
Coopers & Lybrand
(DALBAR logo)
Putnam Investor Services
has received the DALBAR
award each year since the
award's 1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
AOY A/S6-11907<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John R. Verani
Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Michael Martino
Vice President
and Fund Manager
William N. Shiebler
Vice President
Paul O'Neil
Vice President
John D. Hughes
Vice President
and Treasurer
Beverly Marcus
Clerk and
Assistant Treasurer
Trustees
George Putnam, Chairman
William F. Pounds, Vice Chairman
Hans H. Estin, John A. Hill,
Elizabeth T. Kennan, Lawrence J. Lasser,
Jameson Adkins Baxter, Robert E. Patterson,
Donald S. Perkins, George Putnam, III,
A.J.C. Smith, W. Nicholas Thorndike
<PAGE>
This report is for the information of shareholders of Putnam U.S.
Government Income Trust. It may also be used as sales literature
when preceded or accompanied by the current prospectus, which
gives details of sales charges, investment objectives, and
operating policies of the fund.
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
- ---------------------
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS:
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g, the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
