PUTNAM
U.S.
GOVERNMENT
INCOME TRUST
[GRAPHIC OMITTED:
art work]
ANNUAL REPORT
September 30, 1995
[LOGO:
BOSTON- LONDON - TOKYO]
<PAGE>
PERFORMANCE HIGHLIGHTS
o "One of the largest funds in the Government-Mortgage peer group, Putnam U.S.
Government Income Trust has also been one of its most consistent performers.
Over the long term, the fund has provided above-average yields and total
returns while keeping price volatility at a controlled level."
-- The Value Line Mutual Fund Survey, October 3, 1995
-----------------------------------------------------------------------------
FISCAL 1995 RESULTS AT A GLANCE
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS M
TOTAL RETURN NAV POP NAV CDSC NAV POP
-----------------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
12 months ended 9/30/95 12.62% 7.24% 11.82% 6.82% -- --
Life of class M -- -- -- -- 10.54% 6.97%
SHARE VALUE NAV POP NAV NAV POP
-----------------------------------------------------------------------------
9/30/94 $12.37 $12.99 $12.33 -- --
2/6/95 (inception -- -- -- $12.29 $12.70
of class M shares)
9/30/95 12.95 13.60 12.91 12.96 13.40
RETURN OF
DISTRIBUTIONS NO. INCOME CAPITAL(3) TOTAL
-----------------------------------------------------------------------------
Class A 12 $0.832 $0.080 $0.912
Class B 12 0.747 0.072 0.819
Class M 8 0.544 0.053 0.597
CURRENT RETURN NAV POP NAV NAV POP
-----------------------------------------------------------------------------
End of period
Current dividend rate(1) 7.04% 6.71% 6.41% 6.85% 6.63%
Current 30-day SEC yield(2) 6.48 6.17 5.73 6.07 5.86
-----------------------------------------------------------------------------
Performance data above represent past results and are not indicative of
future performance. For performance over longer periods, see pages 8 and 9.
POP assumes 4.75% maximum sales charge for class A and 3.25% for class M
shares. CDSC assumes 5% maximum contingent deferred sales charge. (1)Income
portion of most recent distribution, annualized and divided by NAV or POP at
end of period. (2)Based on investment income calculated using SEC guidelines.
(3)For an explanation, see page 22.
<PAGE>
FROM THE CHAIRMAN
[GRAPHIC OMITTED:
Photo of
George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
Putnam U.S. Government Income Trust ends one fiscal year and begins another in
one of the most vibrant bond markets in years. During the past year, inflation
peaked at 3%, a lower level than in the mid-1980s. With modest economic growth,
it could continue to fall, making real yields even more attractive than they are
now. All in all, this is an ideal environment for financial assets.
Nevertheless, the fund's management team expects some anxiety to persist over
the near term as investors await clearer economic and interest rate trends and
progress in Washington toward reducing the federal budget deficit. In the team's
view, most of the uncertainties over the economy and interest rates will soon
ease and some budget cuts will be forthcoming. Progress on either front should
help sustain the bond market's rise.
It is in this setting that the management team looks at your fund's fiscal 1995
performance and prospects for fiscal 1996.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
November 15, 1995
<PAGE>
REPORT FROM THE FUND MANAGERS
MICHAEL MARTINO, LEAD MANAGER
DIANE D.F. WHEELER
Fueled by a dramatic rebound in fixed-income securities that began in
November 1994, Putnam U.S. Government Income Trust generated solid total
returns in fiscal 1995. For the 12 months ended September 30, 1995, your
fund's class A shares returned 12.62% at net asset value (NAV), while the
total return for class B shares was 11.82% at NAV. These figures represent a
significant recovery from fiscal 1994, when rising interest rates, brought
about by above-average economic growth and the fear of inflation, restrained
the bond market.
While the bond market's renewed strength was the most important contributor
to your fund's recovery, specific components of our investment strategy were
also instrumental in improving performance. Throughout the period, as the
markets for Treasuries and mortgage-backed securities fluctuated, we
continually adjusted the portfolio's allocations to these securities to reap
the greatest benefit for your fund. In addition, we positioned Treasury
holdings to capitalize on the price appreciation that resulted from falling
interest rates.
o THE FIXED-INCOME MARKET'S RALLY CONTINUES
Toward the end of calendar 1994, as the dramatic bond-market decline began to
ease, investors began to migrate back to bonds. They were attracted by the
environment of high bond yields and low prices, as well as by indications of
slowing economic growth and benign inflation. As demand for fixed-income
securities increased, the yield on the 30-year Treasury bond gradually
declined from 8.15% in November to 6.51% on September 30, 1995. At the same
time, bond prices, which move in the opposite direction of yields, rallied
considerably in all domestic market sectors.
Currently, leading indicators suggest that the economy continues to expand
only moderately, at a 2.5% annual pace. This growth rate,
<PAGE>
considered productive but noninflationary, is the pace the Federal Reserve
Board has tried to achieve since earlier this year by manipulating short-term
interest rates. Indeed, as the Fed has guided the economy toward this rate of
growth, inflation has remained under control.
The ongoing Congressional budget negotiation is an additional economic
variable that may influence the near-term environment for fixed-income
securities. If Congress is able to agree on a budget that cuts spending to
reduce the government's annual deficit, the outlook for bonds may remain
healthy. Although there can be no assurances, reduced government spending has
the potential to benefit fixed-income markets. Such a measure may slow the
economy further and prompt the Fed to cut short-term interest rates again.
This, in turn, may ignite another bond-market rally. In addition, reduced
spending may decrease the government's need to borrow money. As a result, the
government may issue fewer bonds, and, if demand for government bonds remains
steady, the values of existing bonds would likely increase.
o GNMA SECURITIES: LOWER COUPON BONDS PROTECT PORTFOLIO VALUE
In fiscal 1994, the fund reaped substantial benefits from the undervalued
Government National Mortgage Association (GNMA) market
[GRAPHIC OMITTED: horizontal bar chart GNMA COUPON ALLOCATION* showing:
GNMA coupon % of total GNMA allocation
----------- --------------------------
6.0%-6.9% 15.4%
7.0%-7.9% 39.7%
8.0%-8.9% 26.4%
9.0%-9.9% 14.2%
10.0% and above 4.3%
Footnote reads:
*Based on net assets as of 9/30/95. This chart illustrates that a
majority of the fund's GNMA holdings have coupons below 8%. The fund's
management has chosen this strategy to protect against mortgage
prepayments in the event that interest rates continue to decline.
GNMA allocations will vary over time.]
<PAGE>
as we allocated more than 90% of the portfolio to GNMAs at times, and by
holding high-coupon GNMAs (those with relatively high interest rates) that
performed well as interest rates rose. This trend continued until earlier
this year, when interest rates began to decline.
As interest rates fell, higher-coupon GNMAs became more vulnerable to
mortgage prepayment. Prepayments typically accelerate as falling long-term
rates diminish the value of mortgage-backed securities and mortgage holders
rush to refinance. In response to this, we have shifted the fund's GNMA
holdings primarily into bonds with coupons below 8%, while many GNMAs
available in the market continue to offer coupons of 8% and above.
In an environment of declining interest rates, lower coupons offer a degree
of protection against prepayment risk. Logically, the lower the interest rate
on a mortgage, the less likely it is that the mortgage holder will refinance.
Going forward, if interest rates continue to decline, we may shift our GNMA
holdings to those with even lower coupons in an effort to minimize the fund's
prepayment risk.
o PORTFOLIO DURATION EXTENDED TO TAKE ADVANTAGE OF RATE ENVIRONMENT
Early in the fund's fiscal year, we kept the portfolio's duration relatively
short to protect the fund's value as long-term interest rates continued to
climb. Duration is a measure of the price sensitivity of a portfolio of bonds
to changes in interest rates. Like maturity, with which it is often confused,
duration is measured in years.
As economic growth moderated in recent months, investors abandoned their fear
of inflation, a fear that had taken root while the economy boomed in 1994,
and long-term interest rates began to decline. At the same time, we extended
the portfolio's duration -- from 4.46 years on March 31 to 4.95 years on
September 30 -- in order to capitalize on the interest-rate decline. Because
bond prices rise as interest rates decline, the portfolio's longer duration
enabled the fund to derive greater benefit from falling long-term rates. If
interest rates continue to drop, as we anticipate, the port-
<PAGE>
[GRAPHIC OMITTED: vertical bar chart PORTFOLIO ALLOCATIONS*
3 white bars represent Mortgage-related securities (see below: "M-RS")
3 gray bars represent U.S. Treasury securities (see below: "USTS")
3 black bars represent Cash and short-term investments (see below: "Cash")
Date M-RS USTS Cash
------- ---- ---- ----
9/30/94 88.2% 16.5% 0.6%
3/31/95 84.9 11.1 5.6
9/30/95 81.3 18.9 5.7
Footnote reads:
*Based on net assets as of the indicated date. Holdings will vary over time.]
folio's longer duration may continue to boost performance, although there can
be no assurances. However, with such a strategy, an increase in interest
rates could adversely affect the fund.
o A FUND FOR THE LONG TERM
Our objective for the fund is to deliver attractive income that corresponds
with the portfolio's earnings and relatively low share price volatility over
the long term. Investors in this fund should have an investment horizon of at
least three years in order to allow the fund to benefit from economic
activity through an entire interest-rate cycle. As each cycle progresses, we
will continue to monitor interest-rate trends and price relationships among
government bond sectors in order to add value to the portfolio.
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 9/30/95, there is no guarantee the fund will continue
to hold these securities in the future. Mortgage-backed securities are
subject to prepayment risk, which is the risk that the investor's principal
will be returned in full at some point earlier or later than the security's
stated maturity date. Such prepayment may cause an investor's actual rate of
return to differ from the expected rate of return. The yield and value of
fund shares are neither insured nor guaranteed, and will fluctuate.
<PAGE>
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,
assuming you held the shares through the entire period and reinvested all
distributions 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 varying periods.
Performance should always be considered in light of a fund's investment
strategy. Putnam U.S. Government Income Trust is designed for investors seeking
current income consistent with capital preservation. The fund primarily invests
in securities backed by the full faith and credit of the United States
government, and in repurchase agreements and forward commitments with respect to
these securities.
TOTAL RETURN FOR PERIODS ENDED 9/30/95
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------------
1 year 12.62% 7.24% 11.82% 6.82% -- --
- --------------------------------------------------------------------------------
5 years 44.30 37.49 -- -- -- --
Annual average 7.61 6.58 -- -- -- --
- --------------------------------------------------------------------------------
10 years 121.67 111.12 -- -- -- --
Annual average 8.29 7.76 -- -- -- --
- --------------------------------------------------------------------------------
Life of class B -- -- 19.98 17.14 -- --
Annual average -- -- 5.45 4.72 -- --
- --------------------------------------------------------------------------------
Life of class M -- -- 10.54% 6.97%
- --------------------------------------------------------------------------------
COMPARATIVE INDEXES AND BENCHMARKS
LEHMAN BROS. CONSUMER
MORTGAGE BACKED PRICE
SECURITIES INDEX INDEX
- --------------------------------------------------------------------------------
1 year 13.53% 2.54%
- --------------------------------------------------------------------------------
5 years 54.43 15.45
Annual average 9.08 2.91
- --------------------------------------------------------------------------------
10 years 161.40 41.46
Annual average 10.09 3.53
- --------------------------------------------------------------------------------
Life of class B 26.97 9.82
Annual average 7.24 2.77
- --------------------------------------------------------------------------------
Life of class M 10.68 1.93
- --------------------------------------------------------------------------------
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
investment operations on 2/8/84, offering shares now known as class A. Effective
4/27/92, the fund began investment operations for class B shares and on 2/6/95,
class M shares. Performance data represent past results and will differ for each
share class. Investment returns and principal value will fluctuate so an
investor's shares, when sold, may be worth more or less than their original
cost.
<PAGE>
[GRAPHIC OMITTED: line chart GROWTH OF A $10,000 INVESTMENT
Legend reads:
Cumulative total return of a $10,000 investment since 9/30/85
Y-axis reads (top to bottom) $25,000 to 10,500 in $5,000 decrements
X-axis reads (left to right) 9/85 through 9/95 in one year increments
A solid black line represents Lehman Bros. Mortgage-backed Securities Index,
ranging from $10,000 to $26,140 (see plot points below: "Lehman M-BSI")
A solid white line represents Fund's class A shares at POP, ranging from
$9,525 to $21,112) see plot points below: "Shares at POP")
A solid gray line represents Consumer Price Index, ranging from
$10,000 to $14,146 (see plot points below: "CPI")
Date Lehman M-BSI Shares at POP CPI
---- ------------ ------------- -------
9/85 $10,000 $ 9,525 $10,000
9/86 11,824 10,638 10,175
9/87 12,114 10,948 10,619
9/88 13,389 12,292 11,062
9/89 15,431 13,478 11,542
9/90 16,926 14,629 12,253
9/91 19,687 16,545 12,669
9/92 21,839 18,185 13,047
9/93 23,290 19,195 13,398
9/94 23,024 18,745 13,795
9/95 26,140 21,112 14,146
Caption reads:
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 $11,998
on 9/30/95 ($11,714 with a redemption at the end of the period). A $10,000
investment in the fund's class M shares at inception on 2/6/95 would have been
valued at $11,054 on 9/30/95 ($10,697 at maximum POP).]
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.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
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 and 3.25% for class M
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.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged list of GNMA
bonds. This index does 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. It is not possible to invest directly in an
index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the year ended September 30, 1995
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, 1995, 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
indicated therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with 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
September 30, 1995, 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 September 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the periods then ended, and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 16, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1995
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (100.2%)*
PRINCIPAL AMOUNT VALUE
U.S. AGENCY MORTGAGE PASS-THROUGHS (81.3%)
- ---------------------------------------------------------------------------------------
<C> <S> <C>
Government National Mortgage Association
$ 290,206 16s, with various due dates to December 15, 2011 $ 332,104
546,000 15s, with various due dates to March 15, 2013 622,781
377,198 14s, with various due dates to January 20, 2015 417,548
1,731,970 13 1/2s, with various due dates to June 20, 2015 1,912,744
1,723,718 13s, with various due dates to October 20, 2015 1,906,944
1,063,809 12 1/2s, with various due dates to November 20, 2015 1,182,158
813,968 12s, with various due dates to November 20, 2015 897,400
5,289,788 11 1/2s, with various due dates to October 15, 2019 5,951,322
3,938,445 11s, with various due dates to May 20, 2019 4,317,520
110,228 11s, Midgets, with various due dates to July 15, 2000 116,248
305,559 10 7/8s, February 15, 2010 338,216
44,246,152 10 1/2s, with various due dates to September 15, 2021 48,966,691
7,288,108 10 1/2s, Midgets, with various due dates to
February 15, 2001 7,659,346
65,218,277 10s, with various due dates to January 20, 2021 71,253,106
165,283,953 9 1/2s, with various due dates to March 15, 2023 178,714,518
37,503,423 9 1/2s, Midgets, with various due dates to
July 15, 2007 39,378,594
217,052,016 9s, with various due dates to January 15, 2025 247,943,975
5,981,282 9s, Project Loans, with various due dates to
June 15, 2021 6,265,393
56,277,119 9s, Midgets, with various due dates to June 15, 2009 55,454,502
4,976,933 8.58s, Project Loans, with various due dates to
July 15, 2024 5,113,799
5,806,105 8 1/2s, Project Loans, March 15, 2027 6,049,236
332,941,981 8 1/2s , with various due dates to June 15, 2025 349,434,039
24,192,972 8 1/2s, Midgets, with various due dates to
April 15, 2008 25,236,294
70,914,756 8s, Midgets, with various due dates to
October 15, 2009 73,219,486
509,419,648 8s, with various due dates to December 15, 2024 525,693,107
859,541,922 7 1/2s, with various due dates to September 15, 2025 869,335,238
618,649,256 7s, with various due dates to September 15, 2025 611,689,453
296,296,675 6 1/2s, with various due dates to September 15, 2025 286,338,727
299,999,942 6 1/2s, TBA, October 14, 2025+++ 289,499,944
Government National Mortgage Association
Graduated Payment Mortgages
93,424 15s, with various due dates to September 15, 2012 104,226
78,195 13 3/4s, with various due dates to November 20, 2014 86,063
321,271 13 1/2s, with various due dates to November 15, 2012 354,402
255,092 13 1/4s, with various due dates to November 15, 2014 280,036
140,671 13s, with various due dates to December 15, 2010 154,650
2,001,314 12 3/4s, with various due dates to June 15, 2015 2,219,658
366,764 12 1/2s, with various due dates to June 15, 2010 409,489
2,568,213 12 1/4s, with various due dates to July 15, 2015 2,864,025
2,949,374 11 1/4s, with various due dates to January 15, 2016 3,244,311
614,741 10 3/4s, with various due dates to March 15, 2016 675,639
1,616,388 10 1/4s, with various due dates to December 15, 2020 1,763,378
<PAGE>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
PRINCIPAL AMOUNT VALUE
U.S. AGENCY MORTGAGE PASS-THROUGHS (continued)
- ---------------------------------------------------------------------------------------
$ 2,378,905 10s, with various due dates to May 15, 2010 $ 2,595,237
2,694,256 9 1/4s, with various due dates to
February 15, 2020 2,825,601
--------------
$3,732,817,148
U.S. TREASURY OBLIGATIONS (18.9%)
- ---------------------------------------------------------------------------------------
$100,000,000 U.S. Treasury Bonds 7 5/8s, February 15, 2025 $ 113,234,000
400,000,000 U.S. Treasury Bonds 6 7/8s August 15, 2025 420,312,000
30,000,000 U.S. Treasury Notes 6 3/4s, April 30, 2000 30,848,400
150,000,000 U.S. Treasury Notes 6 1/2s, August 15, 2005 153,679,500
150,000,000 U.S. Treasury Notes 6 1/4s, August 31, 2000 151,429,500
--------------
$ 869,503,400
- ---------------------------------------------------------------------------------------
TOTAL U. S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $ 4,547,185,751) $4,602,320,548
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (5.7%)*
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------
$100,000,000 U.S. Treasury Notes 5.27s, October 12, 1995 $ 99,838,972
162,326,000 Interest in $162,326,000 joint repurchase agreement
dated September 29, 1995 with Goldman Sachs Inc.,
due October 2, 1995 with respect to various
U.S. Treasury obligations maturity value of
$162,412,236 for an effective yield
of 6.35% 162,383,490
- ---------------------------------------------------------------------------------------
TOTAL SHORT TERM INVESTMENTS (cost $262,222,462) $ 262,222,462
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $4,809,408,213)*** $4,864,543,010
- ---------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,592,743,712 which correspond to
a net asset value per class A share, class B share, class Y share and class M share
of $12.95, $12.91, $12.98, and $12.96 respectively.
+++ TBAs are mortgage backed securities traded under delayed delivery commitments
settling after September 30, 1995. 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, 1995 is $289,546,875.
*** The aggregate identified cost on a tax cost basis is $4,826,083,671, resulting in
gross unrealized appreciation and depreciation of $70,433,862 and $31,974,523,
respectively, or net unrealized appreciation of $38,459,339.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
<TABLE>
<S> <C>
ASSETS
- --------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,809,408,213) (Note 1) $4,864,543,010
- --------------------------------------------------------------------------------------
Cash 165
- --------------------------------------------------------------------------------------
Interest receivable 29,108,742
- --------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,991,675
- --------------------------------------------------------------------------------------
Receivable for securities sold 563,740
- --------------------------------------------------------------------------------------
TOTAL ASSETS 4,897,207,332
LIABILITIES
- --------------------------------------------------------------------------------------
Payable for securities purchased 290,521,875
- --------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,263,013
- --------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,825,355
- --------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 3,207
- --------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,104,791
- --------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 13,213
- --------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,189,200
- --------------------------------------------------------------------------------------
Other accrued expenses 542,966
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES 304,463,620
- --------------------------------------------------------------------------------------
NET ASSETS $4,592,743,712
REPRESENTED BY
- --------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,889,310,265
- --------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Note 1) (351,701,350)
- --------------------------------------------------------------------------------------
Net unrealized appreciation of investments 55,134,797
- --------------------------------------------------------------------------------------
TOTAL--REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES
OUTSTANDING $4,592,743,712
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- --------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($2,903,015,706 divided by 224,179,246 shares) $12.95
- --------------------------------------------------------------------------------------
Offering price per share (100/95.25 of $12.95)* $13.60
- --------------------------------------------------------------------------------------
Net asset value and redemption price of class B shares
($1,643,922,941 divided by 127,355,016 shares)+ $12.91
- --------------------------------------------------------------------------------------
Net asset value, offering price and redemption price of class Y
shares ($43,195,754 divided by 3,328,057 shares) $12.98
- --------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($2,609,311 divided by 201,328 shares) $12.96
- --------------------------------------------------------------------------------------
Offering price per share (100/96.75 of $12.96)* $13.40
- --------------------------------------------------------------------------------------
* 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.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Year ended September 30, 1995
<TABLE>
<S> <C>
INTEREST INCOME $367,344,632
- --------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 19,359,542
- --------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 9,306,360
- --------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 112,074
- --------------------------------------------------------------------------------------
Reports to shareholders 128,913
- --------------------------------------------------------------------------------------
Auditing 247,304
- --------------------------------------------------------------------------------------
Legal 53,270
- --------------------------------------------------------------------------------------
Postage 773,827
- --------------------------------------------------------------------------------------
Registration 12,765
- --------------------------------------------------------------------------------------
Administrative services (Note 2) 55,625
- --------------------------------------------------------------------------------------
Distribution fees--Class A--(Note 2) 7,474,206
- --------------------------------------------------------------------------------------
Distribution fees--Class B--(Note 2) 16,418,379
- --------------------------------------------------------------------------------------
Distribution fees--Class M--(Note 2) 2,834
- --------------------------------------------------------------------------------------
Other expenses 133,881
- --------------------------------------------------------------------------------------
TOTAL EXPENSES 54,078,980
- --------------------------------------------------------------------------------------
FEES PAID INDIRECTLY (Note 2) (4,503,635)
- --------------------------------------------------------------------------------------
NET EXPENSES 49,575,345
- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME 317,769,287
- --------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (99,396,679)
- --------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 316,729,443
- --------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS TRANSACTIONS 217,332,764
- --------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $535,102,051
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
DECREASE IN NET ASSETS
- --------------------------------------------------------------------------------------
OPERATIONS:
- --------------------------------------------------------------------------------------
Net investment income $ 317,769,287 $ 420,237,452
- --------------------------------------------------------------------------------------
Net realized loss on investments (99,396,679) (356,267,400)
- --------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 316,729,443 (222,925,105)
- --------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 535,102,051 (158,955,053)
- --------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------
From net investment income:
- --------------------------------------------------------------------------------------
Class A (199,250,498) (225,599,421)
- --------------------------------------------------------------------------------------
Class B (98,392,028) (105,397,633)
- --------------------------------------------------------------------------------------
Class Y (1,724,058) (192,090)
- --------------------------------------------------------------------------------------
Class M (29,669) --
- --------------------------------------------------------------------------------------
Return of capital (Note 1)
- --------------------------------------------------------------------------------------
Class A (19,291,284) (64,372,323)
- --------------------------------------------------------------------------------------
Class B (9,526,242) (30,074,059)
- --------------------------------------------------------------------------------------
Class Y (166,922) (54,811)
- --------------------------------------------------------------------------------------
Class M (2,873) --
- --------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (599,626,772) (1,459,402,210)
- --------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (392,908,295) (2,044,047,600)
NET ASSETS
- --------------------------------------------------------------------------------------
Beginning of period 4,985,652,007 7,029,699,607
- --------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of $0 and $0,
respectively) $4,592,743,712 $4,985,652,007
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FEBRUARY 6, 1995 APRIL 11, 1994
(COMMENCE- (COMMENCE-
MENT OF MENT OF
OPERATIONS) TO YEAR ENDED OPERATIONS) TO
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
- ---------------------------------------------------------------------------
1995 1995 1994
- ---------------------------------------------------------------------------
CLASS M CLASS Y
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.29 $12.38 $12.68
- ---------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------
Net investment income .61 .90 .39
- ---------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments .66 .64 (.30)
- ---------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.27 1.54 .09
- ---------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS:
- ---------------------------------------------------------------------------
From net investment
income (.55) (.86) (.30)
- ---------------------------------------------------------------------------
From net realized
gain on investments -- -- --
- ---------------------------------------------------------------------------
Return of capital (a) (.05) (.08) (.09)
- ---------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.60) (.94) (.39)
- ---------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $12.96 $12.98 $12.38
- ---------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE (%)(b) 10.54(c) 13.07 .11(c)
- ---------------------------------------------------------------------------
NET ASSETS, END OF
PERIOD (in thousands) $2,609 $43,196 $19,337
- ---------------------------------------------------------------------------
Ratio of expenses
to average net
assets (%) (d) .79(c) .65 .29(c)
- ---------------------------------------------------------------------------
Ratio of net investment
income to average
net assets (%) 4.14(c) 7.16 3.63(c)
- ---------------------------------------------------------------------------
Portfolio turnover (%) 195.45 195.45 209
- ---------------------------------------------------------------------------
<PAGE>
<CAPTION>
FINANCIAL HIGHLIGHTS [continued]
(For a share outstanding throughout the period) [continued]
APRIL 27, 1992
(COMMENCE-
MENT OF
YEAR ENDED OPERATIONS) TO
SEPTEMBER 30 SEPTEMBER 30 YEAR ENDED SEPTEMBER 30
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992+ 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.33 $13.60 $13.93 $13.64 $12.37 $13.63 $13.96 $13.89 $13.51
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .79 .64 1.00 .48 .88 .69 1.10 1.19 1.34
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments .61 (1.05) (.35) .28 .61 (1.00) (.36) .12 .35
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.40 (.41) .65 .76 1.49 (.31) .74 1.31 1.69
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS:
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment
income (.75) (.67) (.98) (.47) (.83) (.74) (1.07) (1.21) (1.31)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- -- -- -- -- (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital (a) (.07) (.19) -- -- (.08) (.21) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.82) (.86) (.98) (.47) (.91) (.95) (1.07) (1.24) (1.31)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $12.91 $12.33 $13.60 $13.93 $12.95 $12.37 $13.63 $13.96 $13.89
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE (%)(b) 11.82 (3.16) 4.85 5.67(c) 12.62 (2.35) 5.55 9.92 13.10
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF
PERIOD (in thousands) $1,643,923 $1,752,887 $2,232,219 $660,515 $2,903,016 $3,213,428 $4,797,481 $4,465,162 $2,540,541
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses
to average net
assets (%) (d) 1.65 1.60 1.61 .77(c) .90 .85 .88 1.01 .91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets (%) 6.33 6.55 7.11 3.10(c) 7.09 7.31 7.92 8.44 9.67
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 195.45 209 295.88 293.36 195.45 209 295.88 293.36 118.96
- ------------------------------------------------------------------------------------------------------------------------------------
+ Weighted average share method
(a) Distributions of capital for the year ended September 30, 1995 and September 30, 1994 have been calculated in accordance with
Statement of Position 93-2 "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies." See Note 1.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Not annualized.
(d) The ratio of expenses to average net assets for the year ended September 30, 1995 includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts (see Note 2).
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
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 class A, class B, class M and class Y shares. The fund commenced
its public offering of class M shares on February 6, 1995. 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 M shares are sold with a
maximum front end sales charge of 3.25% and pay a distribution fee that is lower
than class A shares. 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 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 Putnam. Expenses of
the fund are borne pro-rata by the holders of each class of shares, except that
each class bears expenses unique to that class (including the distribution fees
applicable to such class). Each class votes as a class only with respect to its
own distribution plan or other matters on which a class vote is required by law
to be 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
<PAGE>
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.
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. 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. Putnam Management is responsible
for determining that the value of these underlying securities is at all times at
least equal to the resale price, including accrued interest.
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 taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. 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, 1995, the fund had capital loss carryovers of approximately
$277,035,906 available to offset future realized capital gains, if any. The
amount of the carryovers and expiration dates are:
LOSS CARRYOVER EXPIRATION
- -------------------------------------
$ 1,685,556 September 30, 1999
9,296,752 September 30, 2002
266,053,598 September 30, 2003
- -------------------------------------
G DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
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.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of paydown gains and
losses on mortgage backed securities, post-October loss deferrals and losses on
wash sale transactions. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year
<PAGE>
ended September 30, 1995, the fund reclassified $18,373,034 to increase
distributions in excess of net investment income and $18,373,034 to decrease
accumulated net realized loss on investments.
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: 0.57% of the first
$500 million of average net assets, 0.475% of the next $500 million, 0.4275% of
the next $500 million, and 0.38% of any amount over $1.5 billion.
The fund also reimburses the Putnam Management 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.
Trustees of the fund receive an annual Trustee's fee of $5,320 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.
During the year ended September 30, 1995, the fund adopted a Trustee Fee
Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all
or a portion of Trustees fees payable on or after July 1, 1995. The deferred
fees remain in the fund and are invested in the fund or in other Putnam funds
until distribution in accordance with the Plan.
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 provided by Putnam Investor Services, Inc., a division of
PFTC.
For the year ended September 30, 1995, fund expenses were reduced by $4,503,635
under expense offset arrangements with PFTC. Investor servicing and custodian
fees reported in the Statement of operations exclude these credits. The fund
could have invested a portion of the assets utilized in connection with the
offset arrangements in an income-producing asset if it had not entered into such
arrangements.
The fund has adopted distribution plans (the "Plans") with respect to its class
A shares, class B shares and class M shares pursuant to Rule 12B-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam
Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for
services provided and expenses incurred by it in distributing shares of the
fund. The plans provide for payment by the fund to Putnam Mutual Funds Corp. at
an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The Trustees
have approved payment by the fund at an annual rate of 0.25%, 1.00% and 0.50% of
the average net assets attributable to class A, class B and class M shares,
respectively.
For the year ended September 30, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $318,140 and $2,533 from the sale of
class A and class M shares, respectively, and $5,971,692 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of up
to 1% is assessed on certain redemptions. For the year ended September 30, 1995,
Putnam Mutual Funds Corp., acting as underwriter received $44,217 on class A
redemptions.
<PAGE>
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 1995, purchases and sales of U.S. government
obligations other than short-term investments aggregated $8,697,763,991 and
$9,453,920,377, 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, 1995, there was an unlimited number of shares of beneficial
interest authorized, divided into four classes, class A, class B, class Y and
class M capital stock. Transactions in capital shares were as follows:
YEAR ENDED SEPTEMBER 30 YEAR ENDED SEPTEMBER 30
1995 1994
- -------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 20,513,586 $256,364,519 27,988,595 $366,620,412
- -------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,581,956 131,699,356 13,265,583 172,473,338
- -------------------------------------------------------------------------------
31,095,542 388,063,875 41,254,178 539,093,750
- -------------------------------------------------------------------------------
Shares repurchased (66,744,399) (831,363,423) (133,310,840) (1,740,121,034)
- -------------------------------------------------------------------------------
NET DECREASE (35,648,857) $(443,299,548) (92,056,662) $(1,201,027,284)
- -------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30 YEAR ENDED SEPTEMBER 30
1995 1994
- -------------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 15,354,943 $191,981,320 36,373,071 $480,643,840
- -------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,507,748 68,384,864 6,740,193 87,303,265
- -------------------------------------------------------------------------------
20,862,691 260,366,184 43,113,264 567,947,105
- -------------------------------------------------------------------------------
Shares repurchased (35,657,194) (442,144,853) (65,135,400) (845,878,972)
- -------------------------------------------------------------------------------
NET DECREASE (14,794,503) $(181,778,669) (22,022,136) $(277,931,867)
- -------------------------------------------------------------------------------
FOR THE PERIOD APRIL 11, 1994
(COMMENCEMENT OF OPERATIONS)
YEAR ENDED SEPTEMBER 30 TO SEPTEMBER 30
1995 1994
- -------------------------------------------------------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 2,236,635 $28,839,492 1,645,385 $20,599,551
- -------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 150,768 1,890,972 19,884 247,695
- -------------------------------------------------------------------------------
2,387,403 30,730,464 1,665,269 20,847,246
- -------------------------------------------------------------------------------
Shares repurchased (621,380) (7,851,105) (103,235) (1,290,305)
- -------------------------------------------------------------------------------
NET INCREASE 1,766,023 $22,879,359 1,562,034 $19,556,941
- -------------------------------------------------------------------------------
<PAGE>
FOR THE PERIOD
FEBRUARY 6, 1995
(COMMENCEMENT
OPERATIONS) TO
SEPTEMBER 30
1995
- -------------------------------------------------------------------------------
CLASS M SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 215,216 $2,752,612
- -------------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of distributions 2,262 28,915
- -------------------------------------------------------------------------------
217,478 2,781,527
- -------------------------------------------------------------------------------
Shares repurchased (16,150) (209,441)
- -------------------------------------------------------------------------------
NET INCREASE 201,328 $2,572,086
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
For the year ended September 30, 1995, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to shareholders.
This resulted from prepayments on higher-coupon mortgage-backed securities as
long-term interest rates declined early in the fiscal year, and from the fund's
subsequent investments in lower coupon mortgage-backed securities. While
lower-coupon securities offered a degree of protection against prepayments,
their lower yields caused the fund's income to be less than was projected.
The form 1099 you receive in January 1996 will show the tax status of all
distributions paid to your account in calendar 1995, as well as the amount of
the distribution not subject to tax.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER OFFICERS
Putnam Investment George Putnam
Management, Inc. President
One Post Office Square
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES
Putnam Mutual Funds Corp. Patricia C. Flaherty
One Post Office Square Senior Vice President
Boston, MA 02109
Lawrence J. Lasser
CUSTODIAN Vice President
Putnam Fiduciary Trust Company
Gordon H. Silver
LEGAL COUNSEL Vice President
Ropes & Gray
Gary N. Coburn
INDEPENDENT ACCOUNTANTS Vice President
Coopers & Lybrand, L.L.P.
Alan J. Bankart
TRUSTEES Vice President
George Putnam, Chairman
Michael Martino
William F. Pounds, Vice Chairman Vice President and Fund Manager
Jameson Adkins Baxter Diane D.F. Wheeler
Vice President and Fund Manager
Hans H. Estin
William N. Shiebler
John A. Hill Vice President
Elizabeth T. Kennan John R. Verani
Vice President
Lawrence J. Lasser
Paul M. O'Neil
Robert E. Patterson Vice President
Donald S. Perkins John D. Hughes
Vice President and Treasurer
George Putnam, III
Beverly Marcus
Eli Shapiro Clerk and Assistant Treasurer
A.J.C. Smith
W. Nicholas Thorndike
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, 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.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<PAGE>
[LOGO: PUTNAM INVESTMENTS] ------------
Bulk Rate
THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
------------
20976-032/885/689 11/95
