Putnam
U.S.
Government
Income Trust
ANNUAL REPORT
September 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Conservative investors seeking a derivative-free* portfolio of
U.S. government securities (primarily Ginnie Maes) should find this
fund's mix of above-average yields and modest volatility
particularly enticing."
-- The Value Line Mutual Fund Survey, July 23, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
14 Portfolio holdings
16 Financial statements
*Although as of September 30, 1996, the fund's portfolio was free of
derivative securities such as collateralized mortgage obligations
(CMOs), the fund's investment policy does not prohibit it from
investing in derivatives.
From the Chairman
[PHOTO OF GEORGE PUTNAM OMITTED]
(copyright) Karsh, Ottawa
Dear Shareholder:
Fiscal 1996, the 12 months ended September 30, was a year of
contrasts for Putnam U.S. Government Income Trust. The year began
amid one of the most vibrant bond market advances in recent times.
By the year's midpoint, the rally suddenly became a retreat as
investors, reading stronger-than-expected economic numbers as a
presage to a pickup in inflation, sent the bond markets tumbling.
Interest rates, moving inversely to bond prices, bounded sharply
higher.
The market settled down somewhat during the fiscal year's second
half. Investors remained generally aloof, however, waiting to
discern a definite trend in interest rates. Fund Manager Michael
Martino, focusing on yield, trimmed back on Treasury securities in
favor of mortgage-backed issues.
As the fund begins a new fiscal year, Mike believes rates may trend
lower over the next few months as economic growth moderates. He
discusses the fund's performance and prospects in the report that
follows.
Respectfully yours,
/S/ George Putnam
George Putnam
Chairman of the Trustees
November 20, 1996
Report from the Fund Manager
Michael Martino
Putnam U.S. Government Income Trust's 1996 fiscal year, which ended
on September 30, encompassed two periods of pronounced market
strength -- the first three months and the final month of the year -
- - with alternating periods of turbulence and stability in between.
Fiscal 1996 began with the bond market strength that capped off a
successful calendar 1995. Beginning in January, however, and
extending through the first four months of calendar 1996, interest
rates rose dramatically across the spectrum of bond maturities.
Then, from May to the end of the fiscal year, rates stayed in a
relatively tight range of 6.7% to 7.2% for the 30-year Treasury bond
and were accompanied by a somewhat surprising lack of activity by
the Federal Reserve Board. In fact, the bond market's September
advance was in response to the Fed's decision to keep the target for
short-term bank-lending rates unchanged at 5.25% -- a level it
established last January -- based on evidence of a slowing economy.
For the year as a whole, your fund posted solid total returns
relative to many other Ginnie Mae* funds, while continuing to focus
on strategies for seeking high current income. (Please refer to the
tables on pages 8 through 10 for complete performance and dividend
information.)
*ACTIVE MANAGEMENT OF INTEREST-RATE EXPOSURE WAS KEY TO PERIOD'S
RESULTS
The key determinant of your fund's performance over the period was
active management of the portfolio's duration. Duration is the
principal indicator of interest-rate sensitivity for a given
portfolio of bonds. It is measured in years. The longer the
duration, the more sensitive a portfolio is to a given change in
rates. When rates are falling, as was the case during the first
three months and the final month of the fiscal year, bond prices
rise, and a relatively long portfolio duration enables the fund to
capture a greater portion of that price appreciation.
*Government National Mortgage Association. Lipper Analytical
Services categorizes the fund as a Ginnie Mae fund.
When interest rates rise, however, a long duration has the opposite
effect, causing the portfolio's value to decline more rapidly for a
given change in rates. Consequently, over the course of the fiscal
year, we adjusted the fund's duration from approximately 5 years
during the first 3 months to under 4 years at the period's midpoint
and back out to just over 5 years at the period's end.
*GINNIE MAES BOLSTER PERFORMANCE DURING PERIOD OF BROAD MARKET
WEAKNESS
Lack of momentum in the U.S. Treasury market during much of the
fund's fiscal year led bond investors to look elsewhere for yield.
This, in turn, led to an increased demand for mortgage-backed
securities at a time when the supply of such bonds was relatively
low. Premium mortgages -- those offering higher income streams than
the current yields of similar bonds -- outperformed Treasuries as
rising interest rates allayed prepayment fears.+ All told, although
your fund would have benefited more from a greater allocation to
premium mortgages, its considerable exposure to Ginnie Maes worked
in its favor.
[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND
DURATION]
Average effective maturity Duration
9/30/95 10.5 5.0
3/31/96 6.1 3.8
9/30/96 9.3 5.1
Footnote reads:
This chart depicts the fund's average effective maturity and
portfolio duration measures at the beginning, middle, and end of the
1996 fiscal year. Average effective maturity and duration, stated
in years, are derived from calculations that incorporate assumptions
about prepayment rates and cash flows of mortgage-backed securities.
Measures of effective maturity, duration, and the assumptions on
which they are based will vary over time.
As we approached the end of the fiscal year, Ginnie Maes appeared to
be fully valued relative to Treasuries. Therefore, during the
September market rally, when we extended the fund's duration, we
accomplished this by adding intermediate and long-term Treasuries --
not Ginnie Maes. Ginnie Maes, nevertheless, still represent the bulk
of your fund's portfolio, accounting for approximately 75% of total
net assets at the end of the period. As for Treasuries, your fund
ended the year with nearly 24% of its net assets allocated to
Treasuries versus 19% at the beginning.
*SLOWER GROWTH MAY PROVIDE CONTINUED SUPPORT TO BONDS
When the Federal Reserve Board last met in September, we believe it
made the right decision in taking no action on short-term interest
rates. The Fed's attempts to control inflation by adjusting monetary
policy have, thus far, been successful. Indeed, we believe the
economy's growth rate is likely to moderate, perhaps moving back
toward a 2% annual level. It is possible that inflation may exhibit
some near-term signs of accelerating, given the rising price of oil
and the trend toward increasing labor costs. We believe, however,
that should economic growth slow in the months ahead, inflation is
likely to remain well behaved.
Although we cannot provide assurances, if our expectations for the
economy prove correct, then the current favorable environment for
bonds may persist for some time. Given such a scenario, we would
likely maintain a portfolio that is moderately long in duration in
order to position the fund to participate should market strength
continue.
+Mortgage-backed securities are subject to prepayment risk, which is
the risk that an investor's principal will be returned in full at
some point prior to 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. Prepayment risk is greatest when
interest rates are falling, since mortgage holders rush to
refinance, forcing retirement of the bonds that back their existing
mortgages.
[GRAPHIC OMITTED pie chart PORTFOLIO ALLOCATIONS (9/30/96)*
Cash and short-term investments 0.7%
U.S. Treasury securities 23.8%
Mortage-backed securities 75.5%
Footnote reads:
*Based on total market value of assets. The allocation to mortgage-
backed securities is primarily concentrated in bonds issued by the
Government National Mortgage Association (Ginnie Mae). Allocations
will vary over time.
While mortgage-backed securities typically provide a higher yield
than Treasuries of comparable maturity, they generally underperform
during periods of market strength. Consequently, we are comfortable
with the fund's current allocation to mortgage-backed securities
and, consistent with our view of the broader market, do not plan to
increase the weighting at this time. We believe that intermediate
and long-term Treasuries represent better value at current yield
levels and plan, for now, to focus a greater share of our investment
activities on that segment of the government securities market.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described
holdings were viewed favorably as of 9/30/96, there is no guarantee
the fund will continue to hold these securities in the future. While
U.S. government backing of individual securities does not insure
your principal, which will fluctuate with market conditions, it does
guarantee that the fund's government-backed holdings will make
timely payments of interest and principal.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 9/30/96
Class A Class B Class M
(inception date) (2/8/84) (4/27/92) (2/6/95)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------
1 year 4.32% -0.67% 3.52% -1.36% 3.99% 0.57%
- -------------------------------------------------------------------
5 years 33.10 26.79 -- -- -- --
Annual average 5.88 4.86 -- -- -- --
- -------------------------------------------------------------------
10 years 106.99 97.12 -- -- -- --
Annual average 7.55 7.02 -- -- -- --
- -------------------------------------------------------------------
Life of class B -- -- 24.20 22.36 -- --
Annual average -- -- 5.02 4.66 -- --
- -------------------------------------------------------------------
Life of class M -- -- -- -- 14.95 11.24
Annual average -- -- -- -- 8.81 6.67
- -------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They 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. Investment
returns and net asset value will fluctuate so that an investor's
shares, when sold, may be worth more or less than their original
cost. POP assumes 4.75% maximum sales charge for class A shares and
3.25% for class M shares. CDSC for class B shares assumes the
applicable sales charge, with the maximum being 5%.
[GRAPHIC OMITTED: worm chart]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/30/96
Starting value (Insert ending Total)
$9,525 Fund's class A shares at POP $19,712
$10,000 Lehman Bros. Mortgage-backed
Securities Index $23,389
$10,000 Consumer Price Index $14,319
(plot points for 10-year total return mountain chart)
Lehman Bros.
Mortgage-backed
Date/year Fund at POP Securities Index CPI
9/30/86 9525 10000 10000
9/30/87 9801 10245 10436
9/30/88 11005 11746 10871
9/30/89 12066 13051 11343
9/30/90 13096 14315 12042
9/30/91 14811 16650 12450
9/30/92 16280 18470 12822
9/30/93 17184 19697 13167
9/30/94 16781 19472 13557
9/30/95 18899 22108 13902
9/30/96 19712 23389 14319
Footnote 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 $12,420 on 9/30/96 ($12,236 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 $11,495 at net asset value on 9/30/96 $11,124 at public offering
price.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/96
Lehman Bros.
Mortgage-backed Consumer
Securities Index Price Index
- -------------------------------------------------------------------
1 year 5.80% 3.00%
- -------------------------------------------------------------------
5 years 40.48 15.02
Annual average 7.03 2.84
- -------------------------------------------------------------------
10 years 133.89 43.19
Annual average 8.87 3.66
- -------------------------------------------------------------------
Life of class B 34.33 13.12
Annual average 6.91 2.82
- -------------------------------------------------------------------
Life of class M 17.10 4.99
Annual average 9.95 3.00
- -------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment
returns and net asset value will fluctuate so that an investor's
shares, when sold, may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/96
Class A Class B Class M
- -------------------------------------------------------------------
Distributions (number) 12 12 12
- -------------------------------------------------------------------
Income $0.811 $0.718 $0.783
- -------------------------------------------------------------------
Return of capital* 0.048 0.042 0.046
- -------------------------------------------------------------------
Total $0.859 $0.760 $0.829
- -------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -------------------------------------------------------------------
9/30/95 $12.95 $13.60 $12.91 $12.96 $13.40
- -------------------------------------------------------------------
9/30/96 12.63 13.26 12.59 12.63 13.05
- -------------------------------------------------------------------
Current return
(end of period)
- -------------------------------------------------------------------
Current dividend
rate1 6.01% 5.73% 5.22% 5.74% 5.56%
- -------------------------------------------------------------------
Current 30-day
SEC yield2 6.54 6.22 5.76 6.28 6.07
- -------------------------------------------------------------------
* Please see page 27 for additional information.
1Income portion of most recent distribution, annualized and divided
by NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
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 assumes reinvestment of all
distributions and interest payments, 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.
Consumer Price Index (CPI) is a commonly used measure of inflation;
it does not represent an investment return.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC Emerging Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [DBL. DAGGER]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments to help maximize your return and reduce your
risk.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS [SECTION MARK]
Putnam money market funds: **
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts ++
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Not available in all states.
[SECTION MARK] Relative to above.
** An investment in a money market fund is neither
insured nor guaranteed by the U.S. government. These
funds are managed to maintain a price of $1.00 per
share, although there is no assurance that this
price will be maintained in the future.
++ Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be
insured up to certain limits by federal/state
agencies. Savings accounts may also be insured up
to certain limits. Please call your financial
advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more
complete information, including charges and
expenses. Please read it carefully before you invest
or send money.
Report of independent accountants
For the fiscal year ended September 30, 1996
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, 1996, 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, 1996, 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, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the
periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 15, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1996
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (98.8%) *
PRINCIPAL AMOUNT VALUE
U. S. Agency Mortgage Pass-Through Certificates (75.2%)
- --------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
$230,615 16s, with various due dates to Decemebr 15, 2011 $288,123
445,985 15s, with various due dates to March 15, 2013 550,469
280,411 14s, with various due dates to January 20, 2015 340,516
1,408,971 13 1/2s, with various due dates to June 20, 2015 1,689,027
1,413,504 13s, with various due dates to October 20, 2015 1,670,003
745,520 12 1/2s, with various due dates to November 20, 2015 869,924
657,365 12s, with various due dates to March 20, 2016 763,365
4,053,307 11 1/2s, with various due dates to November 15, 2019 4,626,379
3,710,805 11s, with various due dates to June 20, 2019 4,185,080
87,068 11s, Midgets, with various due dates to July 15, 2000 92,183
211,264 10 7/8s, with various due dates to February 15, 2010 232,255
34,648,631 10 1/2s, with various due dates to November 15, 2021 38,154,746
1,599,247 10s, with various due dates to January 20, 2021 1,725,683
125,934,130 9 1/2s, with various due dates to April 15, 2023 135,899,647
158,020,516 9s, with various due dates to January 15, 2025 167,002,603
2,474,813 9s, Project Loans, June 15, 2021 2,580,760
4,937,620 8.58s, Project Loans, July 15, 2024 5,008,598
339,753,168 8 1/2s, with various due dates to May 15, 2026 352,107,876
18,701,044 8 1/2s, Midgets, with various due dates to January 15, 2008 19,443,103
5,769,862 8 1/2s, Project Loans, March 15, 2027 5,933,899
731,856,511 8s, with various due dates to September 15, 2026 743,374,794
59,996,590 8s, Midgets, with various due dates to November 15, 2009 61,496,511
731,633,953 7 1/2s, with various due dates to September 15, 2026 725,870,722
622,767,565 7s, with various due dates to September 15, 2026 599,413,780
50,875 7s, Midgets, with various due dates to November 15, 2007 48,967
64,732,983 6 1/2s, with various due dates to October 15, 2025 60,525,345
Government National Mortgage Association
Graduated Payment Mortgages
49,865 13 3/4s, with various due dates to November 20, 2014 58,840
263,987 3 1/2s, with various due dates to November 15, 2012 312,826
216,744 13 1/4s, with various due dates to January 20, 2015 254,891
77,067 13s, with various due dates to December 15, 2010 91,132
1,366,382 12 3/4s, with various due dates to October 15, 2013 1,610,717
326,997 12 1/2s, with various due dates to June 15, 2010 379,836
1,184,170 12 1/4s, with various due dates to January 15, 2014 1,381,062
2,083,988 11 1/4s, with various due dates to January 15, 2016 2,354,242
331,398 10 3/4s, with various due dates to February 15, 2016 371,785
638,560 10 1/4s, with various due dates to December 20, 2015 705,009
1,949,601 10s, with various due dates to May 15, 2010 2,151,872
2,232,770 9 1/4s, with various due dates to February 15, 2020 2,366,736
-------------
2,945,933,306
U.S. Treasury Oblitgations (23.6%)
- --------------------------------------------------------------------------------------------------------------------
$169,000,000 U.S. Treasury Notes 9 1/8s, May 15, 1999 180,591,710
150,000,000 U.S. Treasury Notes 7 1/2s, May 15, 2002 157,054,500
100,000,000 U.S. Treasury Notes 7 1/4s, May 15, 2004 103,609,000
150,000,000 U.S. Treasury Notes 7s, July 15, 2006 153,117,000
340,000,000 U.S. Treasury Bonds 6 3/4s, August 15, 2026 332,295,600
926,667,810
-------------
Total U.S. Government and Agency Obligations (cost $3,889,515,311) 3,872,601,116
SHORT-TERM INVESTMENTS (0.7%) * (cost $27,070,229)
PRINCIPAL AMOUNT VALUE
$27,066,000 Interest in $365,453,000 joint repurchase agreement dated
September 30, 1996 with Goldman, Sachs & Co. due October 1, 1996 with
respect to various U.S. Treasury obligations-maturity
value of $27,074,229 for an effective yield of 5.625% 27,070,229
- --------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,916,585,540) *** 3,899,671,345
- --------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,918,529,415.
*** The aggregate identified cost on a tax cost basis is $3,933,260,998
resulting in gross unrealized appreciation and depreciation of
$52,731,223 and $86,320,876 respectively, or net unrealized
depreciation of $33,589,653.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1996
<S> <C>
Assets
- --------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$3,916,585,540) (Note 1) $3,899,671,345
- --------------------------------------------------------------------------------------------------
Cash 858,906
- --------------------------------------------------------------------------------------------------
Interest receivable 37,257,589
- --------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,050,692
- --------------------------------------------------------------------------------------------------
Total assets 3,939,838,532
Liabilities
- --------------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,773
- --------------------------------------------------------------------------------------------------
Payable for securities purchased 858,805
- --------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 11,849,397
- --------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,272,585
- --------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 877,929
- --------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,006
- --------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 10,326
- --------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,779,734
- --------------------------------------------------------------------------------------------------
Other accrued expenses 654,562
- --------------------------------------------------------------------------------------------------
Total liabilities 21,309,117
- --------------------------------------------------------------------------------------------------
Net assets $3,918,529,415
Represented by
- --------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,306,369,238
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (370,925,628)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (16,914,195)
- --------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,918,529,415
Computation of net asset value and offering price
- --------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,450,376,234 divided by 194,000,478 shares) $12.63
- --------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.63)* $13.26
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,458,847,689 divided by 115,858,019 shares)** $12.59
- --------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($3,189,635 divided by 252,483 shares) $12.63
- --------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($6,115,857 divided by 484,274 shares) $12.63
- --------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.63)* $13.05
- --------------------------------------------------------------------------------------------------
* 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>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30,1996
<S> <C>
Interest income $318,245,756
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 18,073,706
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 7,537,785
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 99,404
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 42,360
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 6,781,668
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 15,816,744
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 23,781
- --------------------------------------------------------------------------------------------------
Reports to shareholders 117,748
- --------------------------------------------------------------------------------------------------
Registration fees 550
- --------------------------------------------------------------------------------------------------
Auditing 147,625
- --------------------------------------------------------------------------------------------------
Legal 76,161
- --------------------------------------------------------------------------------------------------
Postage 1,047,986
- --------------------------------------------------------------------------------------------------
Other 74,003
- --------------------------------------------------------------------------------------------------
Total expenses 49,839,521
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,745,883)
- --------------------------------------------------------------------------------------------------
Net expenses 48,093,638
- --------------------------------------------------------------------------------------------------
Net investment income 270,152,118
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (26,992,361)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (72,048,992)
- --------------------------------------------------------------------------------------------------
Net loss on investments (99,041,353)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $171,110,765
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30,
----------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $270,152,118 $317,769,287
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (26,992,361) (99,396,679)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (72,048,992) 316,729,443
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 171,110,765 535,102,051
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
- ---------------------------------------------------------------------------------------------------------------
Class A (172,223,146) (199,250,498)
- ---------------------------------------------------------------------------------------------------------------
Class B (82,029,511) (98,392,028)
- ---------------------------------------------------------------------------------------------------------------
Class M (281,755) (29,669)
- ---------------------------------------------------------------------------------------------------------------
Class Y (849,623) (1,724,058)
- ---------------------------------------------------------------------------------------------------------------
From return of capital
- ---------------------------------------------------------------------------------------------------------------
Class A (10,073,580) (19,291,284)
- ---------------------------------------------------------------------------------------------------------------
Class B (5,207,464) (9,526,242)
- ---------------------------------------------------------------------------------------------------------------
Class M (16,480) (2,873)
- ---------------------------------------------------------------------------------------------------------------
Class Y (49,694) (166,922)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (567,593,809) (599,626,772)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (664,214,297) (392,908,295)
- ---------------------------------------------------------------------------------------------------------------
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 4,592,743,712 4,985,652,007
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $0 and $0, respectively) $3,918,529,415 $4,592,743,712
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
February 6, 1995
(commencement
Year ended of operations) Year ended
September 30 to September 30 September 30
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1996
- ---------------------------------------------------------------------------------------------------------------------
Class M Class Y
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.96 $12.29 $12.98
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .82+ .61 .88+
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.32) .66 (.34)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .50 1.27 .54
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.78) (.55) (.84)
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------
From return of capital (.05) (.05) (.05)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.83) (.60) (.89)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.63 $12.96 $12.63
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) 3.99 10.54 * 4.34
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $6,116 $2,609 $3,190
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) 1.14 .79 * .62
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.37 4.14 * 6.51
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 138.97 195.45 138.97
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
April 11, 1994
commencement
Year ended of operations) Year ended
September 30 September 30 September 30
- -------------------------------------------------------------------------------------------------------------------------
1995 1994 1996
- -------------------------------------------------------------------------------------------------------------------------
Class Y Class B
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.38 $12.68 $12.91
- -------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------
Net investment income .90 .39 .74+
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .64 (.30) (.30)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.54 .09 .44
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------------
From net investment income (.86) (.30) (.72)
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- -------------------------------------------------------------------------------------------------------------------------
From return of capital (.08) (.09) (.04)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.94) (.39) (.76)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.98 $12.38 $12.59
- -------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) 13.07 .11* 3.52
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $43,196 $19,337 $1,458,848
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) .65 .29* 1.63
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.16 3.63 * 5.80
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 195.45 209.00 138.97
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended September 30
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Class B
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.33 $13.60 $13.93
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .79 .64 1.00
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .61 (1.05) (.35)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.40 (.41) .65
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income (.75) (.67) (.98)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
From return of capital (.07) (.19) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.82) (.86) (.98)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.91 $12.33 $13.60
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) 11.82 (3.16) 4.85
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,643,923 $1,752,887 $2,232,219
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) 1.65 1.60 1.61
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 6.33 6.55 7.11
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 195.45 209.00 295.88
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
April 27, 1992
(commencement
of operations)
to September 30 Year ended September 30
- -------------------------------------------------------------------------------------------------------------------------------
1992 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
Class B Class A
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.64 $12.95 $12.37
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .48+ .84+ .88
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .28 (.30) .61
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .76 .54 1.49
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income (.47) (.81) (.83)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.05) (.08)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.86) (.91)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.93 $12.63 $12.95
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) 5.67* 4.32 12.62
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $660,515 $2,450,376 $2,903,016
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) .77* .88 .90
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.10* 6.55 7.09
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 293.36 138.97 195.45
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
Class A
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.63 $13.96 $13.89
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .69 1.10 1.19
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (1.00) (.36) .12
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.31) .74 1.31
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------------------------------
From net investment income (.74) (1.07) (1.21)
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- (.03)
- --------------------------------------------------------------------------------------------------------------------------------
From return of capital (.21) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (1.07) (1.24)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.37 $13.63 $13.96
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) (2.35) 5.55 9.92
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $3,213,428 $4,797,481 $4,465,162
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) .85 .88 1.01
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 7.31 7.92 8.44
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 209.00 295.88 293.36
- --------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
+ Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(a) Total investment return assumes dividend and does not reflect
the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended September 30,
1995 and thereafter, includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts (Note 2)
</TABLE>
Notes to financial statements
September 30, 1996
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. Class
A shares are sold with a maximum front-end sales charge of 4.75%.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge but pay a higher
ongoing distribution fee than class A shares, and may be 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 an ongoing distribution fee
that is higher than class A shares but lower than class B shares.
Class Y shares, which are sold at net asset value, are generally
subject to the same expenses as class A shares, class B and class M
shares, but do not bear a distribution fee. Class Y shares are sold
to defined contribution plans that initially invest at least $250
million in a combination of Putnam Funds.
Expenses of the trust are borne pro-rata by the holders of each
class of shares, except that each class bears expenses unique to
that class (including the distribution fees applicable to such
class). Each class votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required
by law or determined by the Trustees. Shares of each class would
receive their pro-rata share of the net assets of the fund, if that
fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies
followed by the trust in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities. Actual results could
differ from those estimates.
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. 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) 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 and certain accounts
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.
C) Repurchase agreements The fund, or any joint trading account,
through its custodian, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued
interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual
basis.
E) 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 on securities held and for
excise tax on income and capital gains.
At September 30, 1996, the fund had a capital loss carryover of
approximately $328,920,000 available to offset future capital gains,
if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- --------------
$ 1,686,000 September 30, 1999
9,297,000 September 30, 2002
266,054,000 September 30, 2003
51,883,000 September 30, 2004
F) 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 ended
September 30, 1996, the fund reclassified $7,768,083 to decrease
undistributed net investment income with a decrease to accumulated
net realized loss on investments of $7,768,083. The calculation of
net investment income per share in the financial highlights table
excludes these adjustments.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets
of the fund. Such fee is based on the 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 subject, under current law, to reduction in
any year by the amount of certain brokerage commissions and fees
(less expenses) received by affiliates of Putnam Management on the
fund's portfolio transactions.
The fund reimburses 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.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended September 30, 1996, fund expenses were reduced by
$1,745,883 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 expense offset arrangements
in an income producing asset if it had not entered into such
arrangements.
Trustees of the fund receive an annual Trustees fee of $4,510 and an
additional fee for each Trustee's meeting attended. Trustees who are
not interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance at
certain committee meetings.
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 certain Putnam funds until
distribution in accordance with the Plan.
The fund has adopted distribution plans (the "Plans") with respect
to its class A, class B 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 payments by the fund to Putnam Mutual Funds Corp.
at an annual rate up to 0.35%, 1.00%, 1.00% and 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, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $359,979 and
$6,928 from the sale of class A and class M shares, respectively and
received $3,747,218 in contingent deferred sales charges from
redemptions of class B shares. A deferred sales charge of up to 1%
is assessed on certain redemptions of class A shares. For the year
ended September 30, 1996, Putnam Mutual Funds Corp., acting as
underwriter received $48,311 on class A redemptions.
Note 3
Purchases and sales of securities
During the period ended September 30, 1996, purchases and sales of
U.S. government obligations other than short-term investments
aggregated $5,818,717,546, and $6,611,712,006, respectively. 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, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were
as follows:
Year ended
September 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 19,366,419 $ 247,688,012
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,731,954 111,274,606
- ----------------------------------------------------
28,098,373 358,962,618
Shares
repurchased (58,277,141) (744,377,165)
- ----------------------------------------------------
Net decrease (30,178,768) $(385,414,547)
- ----------------------------------------------------
Year ended
September 30, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 20,513,586 $ 256,364,519
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,581,956 131,699,356
- ----------------------------------------------------
31,095,542 388,063,875
Shares
repurchased (66,744,399) (831,363,423)
- ----------------------------------------------------
Net decrease (35,648,857) $(443,299,548)
- ----------------------------------------------------
Year ended
September 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 15,353,056 $ 196,512,877
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,731,254 60,119,880
- ----------------------------------------------------
20,084,310 256,632,757
Shares
repurchased (31,581,307) (401,947,885)
- ----------------------------------------------------
Net decrease (11,496,997) $(145,315,128)
- ----------------------------------------------------
Year ended
September 30, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 15,354,943 $ 191,981,320
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,507,748 68,384,864
- ----------------------------------------------------
20,862,691 260,366,184
Shares
repurchased (35,657,194) (442,144,853)
- ----------------------------------------------------
Net decrease (14,794,503) $(181,778,669)
- ----------------------------------------------------
Year ended
September 30, 1996
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 235,622 $ 3,051,374
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 69,593 899,319
- ----------------------------------------------------
305,215 3,950,693
Shares
repurchased (3,380,789) (44,465,630)
- ----------------------------------------------------
Net decrease (3,075,574) $(40,514,937)
- ----------------------------------------------------
Year ended
September 30, 1995
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 2,236,635 $28,839,492
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 150,768 1,890,972
- ----------------------------------------------------
2,387,403 30,730,464
Shares
repurchased (621,380) (7,851,105)
- ----------------------------------------------------
Net increase 1,766,023 $22,879,359
- ----------------------------------------------------
Year ended
September 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 490,209 $6,293,248
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 19,052 241,581
- ----------------------------------------------------
509,261 6,534,829
Shares
repurchased (226,315) (2,884,026)
- ----------------------------------------------------
Net increase 282,946 $3,650,803
- ----------------------------------------------------
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
(Unaudited)
For the year ended September 30, 1996, a portion of the fund's
distribution represents a return of capital related to prepayment
activity with some of the fund's mortgage-backed holdings and is
therefore not taxable to shareholders.
The Form 1099 you receive in January 1997 will show the tax status
of all distributions paid to your account in calendar 1996.
Results of September 5, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on September 5, 1996.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
Jameson Adkins Baxter 195,676,518 3,374,318
Hans H. Estin 195,754,755 3,296,081
John A. Hill 195,771,333 3,279,503
R.J. Jackson 195,716,727 3,334,108
Elizabeth T. Kennan 195,690,928 3,359,908
Lawrence J. Lasser 195,499,789 3,551,047
Robert E. Patterson 195,810,185 3,240,651
Donald S. Perkins 195,758,550 3,292,286
William F. Pounds 195,534,332 3,516,503
George Putnam 195,455,213 3,595,623
George Putnam, III 195,490,246 3,560,590
Eli Shapiro 195,349,448 3,701,388
A.J.C. Smith 195,803,091 3,247,745
W. Nicholas Thorndike 195,663,266 3,387,570
A proposal to ratify the Trustees' selection of Coopers & Lybrand
L.L.P. as auditors for the fund was approved as follows: 191,230,570
votes for, and 1,660,919 votes against, with 6,159,346 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to diversification of investments was approved as
follows: 175,374,667 votes for, and 6,792,758 votes against, with
16,883,410 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to investments in the securities of a single issuer was
approved as follows: 172,868,717 votes for, and 8,503,123 votes
against, with 17,678,996 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to senior securities was approved as follows:
174,372,321 votes for, and 7,282,796 votes against, with 17,395,719
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to making loans was approved as follows: 170,018,065
votes for, and 11,455,349 votes against, with 17,577,423 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to concentration of its assets was approved as follows:
174,272,788 votes for, and 7,293,898 votes against, with 17,484,149
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investments in securities of issuers in
which management of the fund or Putnam Investment Management, Inc.
owns securities was approved as follows: 170,798,509 votes for, and
10,146,769 votes against, with 18,105,557 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to short sales was approved as follows:
169,338,547 votes for, and 11,384,565 votes against, with 18,327,724
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to pledging assets was approved as follows:
168,953,851 votes for, and 11,873,569 votes against, with 18,223,416
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investments in restricted securities was
approved as follows: 170,331,095 votes for, and 10,665,626 votes
against, with 18,054,115 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investments in other investment
companies was approved as follows: 171,213,090 votes for, and
9,885,232 votes against, with 17,952,514 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to margin transactions was approved as
follows: 167,895,228 votes for, and 12,868,548 votes against, with
18,287,060 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investments in certain oil, gas and
mineral interests was approved as follows: 170,859,549 votes for,
and 10,518,227 votes against, with 17,673,060 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investing to gain control of a company's
management was approved as follows: 169,879,702 votes for, and
11,020,174 votes against, with 18,150,960 abstentions and broker
non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Alan Bankart
Vice President
Michael Martino
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam U.S.
Government Income Trust Fund. It may also be used as sales
literature when preceded or accompanied by the current prospectus,
which gives details of sales charges, investment objectives, and
operating policies of the fund, and the most recent copy of Putnam's
Quarterly Performance Summary. For more information, or to request a
prospectus, call toll free: 1-800-225-1581. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109]
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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28355-032/885/689 11/96
PUTNAM INVESTMENTS [LOGO]
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Putnam U.S. Government Income Trust
Supplement to the Annual Report dated September 30, 1996
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $250 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A, B,
and M shares, which are discussed more extensively in the semiannual report.
FISCAL 1996 RESULTS AT A GLANCE
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Total return: NAV
One year ended 9/30/96 4.34%
Life of class (since 4/11/94 inception date) 18.85
Annual average 7.21
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Share value: NAV
9/30/95 $12.98
9/30/96 12.63
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Distributions: No. Income Total
12 $0.893 $0.893
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Current return (end of period) Total
Current dividend rate 1 6.65%
Current 30-day SEC yield 2 6.80
1 Income portion of most recent distribution, annualized and divided by
NAV at end of period.
2 Based on investment income only, calculated using SEC guidelines.
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Please note that past performance does not indicate future results. Investment
returns and net asset value will fluctuate so that your shares, when redeemed,
may be worth more or less than their original cost. See full report for
information on comparative benchmarks. If you have questions, please consult
your fund prospectus or call Putnam toll free at 1-800-752-9894.
