PUTNAM U S GOVERNMENT INCOME TRUST
N-30D, 1997-12-05
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Putnam
U.S.
Government
Income Trust

ANNUAL REPORT
September 30, 1997

[LOGO: BOSTON * LONDON * TOKYO]



Fund highlights

* "We intend to preserve the fund's slightly defensive duration
   stance in the coming months and expect to maintain a substantial 
   position in GNMAs, given our belief that rates are more likely
   to move up than down at this point. With a stake in both segments
   of the government market and a cautious eye toward the future
   direction of interest rates, we believe Putnam U.S. Government
   Income Trust is well positioned to make the most of whatever
   uncertainty lies ahead."
                               -- Michael Martino, fund manager

   CONTENTS

 4 Report from Putnam Management

 8 Fund performance summary

12 Portfolio holdings

15 Financial statements



From the Chairman

[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]

[copyright] Karsh, Ottawa

Dear Shareholder:

Astute portfolio maneuvers, coupled with well-timed defensive strategies,
helped Putnam U.S. Government Income Trust deliver a competitive total return
during the fiscal year that ended on September 30, 1997. Fund Manager Michael
Martino skillfully adjusted both the portfolio's average duration and its mix
of securities throughout the year in response to a continuing stream of
changing conditions to achieve these positive results.

Nevertheless, an underlying current of nervousness prevailed throughout the
period as both the Federal Reserve Board and investors kept a close watch on
inflation, fearing that the still robust economy might ignite it at any
moment. The Fed's preemptive thrust in March with a quarter-point increase in
short-term interest rates seemed to do the trick without extinguishing the
economy's long-standing growth cycle.

Plenty of challenges remain as your fund embarks on a new fiscal year. In the
following report, Mike discusses performance in the year just ended and takes
a look at prospects for the months ahead.

Respectfully yours,

/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 19, 1997



Report from the Fund Manager
Michael Martino

Although Putnam U.S. Government Income Trust began fiscal 1997 on a defensive
note, it completed the 12-month period ended September 30, 1997, with a near
double-digit total return. Your fund's 9.75% class A share return at net asset
value is roughly in line with the 10.04% return of its benchmark, the Lehman
Brothers Mortgage-Backed Securities Index. At public offering price, class A
shares returned 4.53%. For more performance information, including the results
for other share classes, please see pages 8 and 9.

* ROBUST U.S. ECONOMY PROMPTS DEFENSIVE POSITIONING

Economic activity in the fiscal year's first half was vigorous and widespread.
Consumer spending rose, unemployment fell, sales of new homes set records, and
manufacturing capacity became increasingly strained. Anticipating a potential
spike in inflation, the Federal Reserve Board raised short-term interest rates
by a quarter of a percentage point in late March, and the market reacted --
some say overreacted -- immediately. Bonds and bond funds most sensitive to
changing interest rates suffered the greatest price declines, but returns
among fixed-income investments in general were lackluster over the first half
of the fiscal year. By maintaining a defensive posture throughout this period,
we were able to gain a competitive advantage that carried over into the second
half of the year.

Specifically we shortened the portfolio's duration, keeping it as much as 10%
lower than that of other funds in the same competitive universe -- those that
invest most of their assets in bonds issued by the Government National
Mortgage Association (GNMA). As mentioned in previous reports, duration
measures a portfolio's sensitivity to changing interest rates. Rather than
invest in newer securities, which would have comparatively low coupons, we
shortened duration chiefly by emphasizing bonds that generally had three years
or less remaining before maturity. After being in the market for several
years, these older bonds possess diminished sensitivity to interest-rate
changes, but their stated coupons of between 6% and 8% still reflect their
longer original maturities.

The second half of your fund's fiscal year brought a calmer mood to the
market. Economic activity tapered off in a manner that convinced the Fed to
leave interest rates unchanged. Despite a continued strong employment picture,
retail sales declined and manufacturers slowed production. Whereas the
country's gross domestic product (GDP) registered more than 4% growth in the
first six months of the period (4.9% in the first quarter of 1997), growth in
the second half remained much closer to 3%. Evidence of inflationary growth
appeared to remain only in the imaginations of a decidedly nervous minority.
In fact, as reports of moderating economic growth mounted, many market
watchers had ruled out by June any further rate increases in 1997.

This new landscape proved a welcome change for fixed-income investors; bond
prices rose throughout the spring and summer and bond yields fell. Although
encouraged, we were cautious about increasing portfolio duration. Consequently
we reduced the fund's interest-rate exposure during this period, suspecting
that market participants were overly exuberant and that the rally would most
likely reverse itself to some extent. Instead, we chose to alter the fund's
mix of investments, applying greater resources to the mortgage-backed segment
of the fixed-income market.

[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND DURATION]

AVERAGE EFFECTIVE MATURITY AND DURATION

                 Average 
                effective
                maturity     Duration

9/30/96           9.3%         8.7%

3/31/97           8.7%         4.6%

9/30/97           7.1%         3.0%

Footnote reads:
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.

* GNMA FOCUS PREVAILS FOR MOST OF PERIOD

To achieve its objective of providing current income consistent with capital
preservation, your fund has the flexibility to invest in both the GNMA and
Treasury segments of the U.S. government market -- both being securities
backed by the full faith and credit of the government. The size of the
investment in each area varies according to our assessment of relative value
and the tradeoff between potential risk and reward. In recent years, the fund
has committed the majority of its assets to GNMAs.

Throughout most of the fiscal year, GNMAs provided a distinct advantage over
Treasuries of comparable maturity and were therefore heavily weighted in the
portfolio. Starting the fiscal year at 75% of net assets, the fund's stake in
these securities climbed to nearly 84% by the end of September. GNMAs and
other mortgage-backed securities generally offer higher yields than Treasuries
in order to compensate investors for the risk of prepayment. Because many
homeowners opt to refinance or prepay their mortgages when interest rates fall
- -- and lower mortgage rates become available -- this prepayment risk can
dampen performance of mortgage-backed securities in a falling-rate
environment. However, prepayment risk was not an issue for a large part of the
year, since economic growth was generally strong and interest rates appeared
more likely to rise than fall.

In addition, mortgage-backed securities are less sensitive than Treasuries to
changes in interest rates. In a year when investor sentiment seemed to shift
on a daily basis, this meant that your fund's GNMA position contributed to a
greater degree of price stability than would have been provided by a portfolio
of Treasuries alone. Only during the summer did Treasuries gain the upper
hand. Their sensitivity to changing interest rates translated into relatively
greater price appreciation as the market rallied and rates moved lower.
Mortgage-backed securities were doubly hurt during this period, as the
prospect of lower rates rekindled fears of homeowner prepayments.


[GRAPHIC OMITTED: pie chart PORTFOLIO ALLOCATIONS (9/30/97)]

PORTFOLIO ALLOCATIONS (9/30/97)*

Cash and short-term investments        4.1%

Mortgage-backed securities            83.8%

U.S. Treasury securities              12.1%

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. Allocations will vary over time.

* CAUTION DICTATES MORE OF SAME

Whether the Fed will raise rates in the coming year remains an important
question for fixed-income investors. Unemployment remains low and industrial
capacity tight. Consumer spending, which had lagged income growth in the first
half of the year, posted sharp increases in the third quarter as measured by
rising retail sales. Stronger foreign economies, particularly in Europe, have
recently fueled U.S. export growth. The U.S. economy has registered four
successive calendar quarters of GDP growth above 3%, yet the Fed maintains
that noninflationary growth is something more on the order of 2.5%.

In light of these factors and considering the summer's bond market rally may
have been overdone, we intend to preserve the fund's slightly defensive
duration stance in the coming months. We also expect to maintain a substantial
position in GNMAs, given our belief that rates are more likely to move up than
down at this point.

That said, we expect to decrease the fund's mortgage weighting somewhat in
anticipation of the traditional supply surge at year's end, a time when
dealers attempt to clear their inventories before the new year.

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 9/30/97, 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

This section provides information about your fund's performance, which
should always be considered in light of its 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 U.S. government and
in repurchase agreements and forward commitments with respect to these
securities.

TOTAL RETURN FOR PERIODS ENDED 9/30/97
                              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                     9.75%   4.53%   8.95%   3.95%   9.39%   5.86%
- ------------------------------------------------------------------------------
5 years                   32.88   26.54   28.05   26.18   31.19   26.95
Annual average             5.85    4.82    5.07    4.76    5.58    4.89
- ------------------------------------------------------------------------------
10 years                 120.72  110.22  103.49  103.49  113.92  106.94
Annual average             8.24    7.71    7.36    7.36    7.90    7.54
- ------------------------------------------------------------------------------
Life of fund             211.55  196.80  176.81  176.81  196.42  186.81
Annual average             8.69    8.30    7.75    7.75    8.29    8.03
- ------------------------------------------------------------------------------

COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/97
                                           Lehman Bros.
                                         Mortgage-Backed      Consumer
                                         Securities Index    Price Index
- ------------------------------------------------------------------------------
1 year                                      10.04%              2.16%
- ------------------------------------------------------------------------------
5 years                                     39.36              14.08
Annual average                               6.86               2.67
- ------------------------------------------------------------------------------
10 years                                    151.2              40.17
Annual average                               9.65               3.43
- ------------------------------------------------------------------------------
Life of fund                               298.28              58.19
Annual average                              10.64               3.41
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% for class A shares and 3.25% for class M shares.
One-, five-, and ten-year (when available) and life- of-fund returns for
class B shares reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declines each year to 1% in the
sixth year, and is eliminated thereafter. Returns shown for class B and
class M shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and, in the case of class B and class M shares, the higher operating costs
applicable to such shares. All returns assume reinvestment of
distributions at NAV and represent past performance; they do not guarantee
future results. Investment return and principal value will fluctuate so
that an investor's shares when redeemed may be worth more or less than
their original cost.


[GRAPHIC OMITTED: GROWTH OF A $10,000 INVESTMENT]

GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/30/87

                                  Lehman Bros.
                                Mortgage-backed       Consumer Price
Date/Year     Fund at POP       Securities Index          Index

9/30/87           9525               10000                10000

9/30/88          10693               11463                10417

9/30/89          11725               12737                10869

9/30/90          12725               13971                11539

9/30/91          14392               16251                11930

9/30/92          15820               18020                12285

9/30/93          16698               19221                12616

9/30/94          16306               19001                12990

9/30/95          18363               21574                13322

9/30/96          19156               22823                13721

9/30/97          21022               25120                14017

Footnote reads:
Past performance is no assurance of future results. At the end of the 
same time period, a $10,000 investment in the fund's class B shares 
would have been valued at $20,349 and no contingent deferred sales 
charges would apply; a $10,000 investment in the fund's class M 
shares would have been valued at $21,392 ($20,694 at public 
offering price). See first page of performance section for 
performance calculation method.

PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/97

                              Class A    Class B     Class M
- ------------------------------------------------------------------------------
Distributions (number)          12          12          12
- ------------------------------------------------------------------------------
Income                        $0.812     $0.715      $0.779
- ------------------------------------------------------------------------------
Capital gains                     --         --          --
- ------------------------------------------------------------------------------
  Total                       $0.812     $0.715      $0.779
- ------------------------------------------------------------------------------
Share value:                 NAV     POP     NAV     NAV     POP
- ------------------------------------------------------------------------------
9/30/96                    $12.63  $13.26  $12.59  $12.63  $13.05
- ------------------------------------------------------------------------------
9/30/97                     13.01   13.66   12.97   13.00   13.44
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1       6.24%   5.94%   5.51%   5.99%   5.80%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2    6.30    6.00    5.51    6.09    5.89
- ------------------------------------------------------------------------------
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.



TERMS AND DEFINITIONS

Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.

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 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. 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.



Report of independent accountants
For the fiscal year ended September 30, 1997

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, 1997, and the related statement of operations for the year
then ended and the statements 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, 1997, 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, 1997, the results of
its operations for the year then ended and 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 10, 1997



Portfolio of investments owned
September 30, 1997 

<TABLE>
<CAPTION>

U.S. GOVERNMENT AND AGENCY OBLIGATIONS (95.6%) *
PRINCIPAL AMOUNT                                                                                       VALUE

U.S. Government Agency Mortgage Obligations (83.5%)
<S>              <C>                                                                           <C>
- ------------------------------------------------------------------------------------------------------------
                 Government National Mortgage Association
$        89,831    16s, with due dates from October 15, 2011 to
                   November 15, 2011                                                           $     111,109
        246,864    15s, with due dates from July 15, 2011 to
                   March 15, 2013                                                                    302,646
        179,500    14s, with due dates from July 15, 2014 to
                   January 20, 2015                                                                  216,997
      1,171,904    13 1/2s, with due dates from May 15, 2011 to
                   June 20, 2015                                                                   1,411,775
      1,066,269    13s, with due dates from October 20, 2013 to
                   October 20, 2015                                                                1,272,527
        508,112    12 1/2s, with due dates from May 15, 2010 to
                   November 20, 2015                                                                 599,257
        551,449    12s, with due dates from April 20, 2014 to
                   March 20, 2016                                                                    647,957
      3,249,291    11 1/2s, with due dates from April 15, 2010 to
                   November 15, 2019                                                               3,751,814
      2,931,043    11s, with due dates from November 20, 2013 to
                   June 20, 2019                                                                   3,356,064
         55,798    11s, Midgets, July 15, 2000                                                        59,025
        179,020    10 7/8s, February 15, 2010                                                        199,103
     26,838,233    10 1/2s, with due dates from April 15, 2010 to
                   November 15, 2021                                                              30,003,413
      1,144,921    10s, January 20, 2021                                                           1,263,341
    102,140,584    9 1/2s, with due dates from June 15, 2009 to
                   April 15, 2023                                                                110,716,399
    129,560,666    9s, with due dates from November 15, 2004 to
                   January 15, 2025                                                              139,406,888
    372,328,768    8 1/2s, with due dates from August 15, 2004 to
                   April 15, 2027                                                                391,693,671
     14,911,030    8 1/2s, Midgets, with due dates from May 15, 2001
                   to January 15, 2008                                                            15,642,648
    557,430,485    8s, with due dates from January 15, 2001 to
                   January 15, 2027                                                              580,374,629
         95,617    8s, May 15, 2017                                                                  100,129
     50,274,389    8s, Midgets, with due dates from November 15, 2001
                   to November 15, 2009                                                           52,222,588
    838,910,511    7 1/2s, with due dates from December 15, 2001 to
                   January 15, 2027                                                              856,224,289
    626,596,150    7s, with due dates from March 15, 2022 to
                   January 15, 2027                                                              627,980,612
         44,941    7s, Midgets, November 15, 2007                                                     45,096
     59,715,432    6 1/2s, with due dates from May 15, 2023 to
                   October 15, 2025                                                               58,585,983
                 Government National Mortgage Association
                 Graduated Payment Mortgages
         64,091    15s, with due dates from May 15, 2012 to
                   September 15, 2012                                                                 75,788
         48,796    13 3/4s, with due dates from September 20, 2014
                   to November 20, 2014                                                               55,993
        140,292    13 1/2s, with due dates from July 15, 2010 to
                   November 15, 2012                                                                 161,690
        176,882    13 1/4s, with due dates from October 15, 2014 to
                   January 20, 2015                                                                  202,231
         34,141    13s, with due dates from November 15, 2010 to
                   December 15, 2010                                                                  39,263
      1,036,151    12 3/4s, with due dates from October 15, 2013 to
                   July 20, 2015                                                                   1,187,800
        178,221    12 1/2s, with due dates from May 15, 2010 to
                   January 20, 2014                                                                  200,915
        898,719    12 1/4s, with due dates from August 15, 2013 to
                   July 15, 2015                                                                   1,019,266
      1,744,674    11 1/4s, with due dates from June 15, 2013 to
                   January 15, 2016                                                                1,923,523
        233,814    10 3/4s, with due dates from January 15, 2015 to
                   February 15, 2016                                                                 259,538
        506,339    10 1/4s, with due dates from March 15, 2016 to
                   December 15, 2020                                                                 553,649
      1,354,229    10s, with due dates from October 15, 2009 to
                   May 15, 2010                                                                    1,514,199
      1,597,067    9 1/4s, with due dates from April 15, 2016 to
                   November 15, 2019                                                               1,682,913
                                                                                              --------------
                                                                                               2,885,064,728

U.S. Treasury Obligations (12.1%)
- ------------------------------------------------------------------------------------------------------------
                 U.S. Treasury Notes
    100,000,000    7 1/2s, May 15, 2002                                                          105,984,000
    150,000,000    6 1/8s, August 15, 2007                                                       150,070,500
    100,000,000    6s, July 31, 2002                                                             100,000,000
     60,000,000    6s, September 30, 1998                                                         60,196,800
                                                                                              --------------
                                                                                                 416,251,300
                                                                                              --------------
                 Total U.S. Government and Agency Obligations
                   (cost $3,227,237,564)                                                      $3,301,316,028

SHORT-TERM INVESTMENTS (4.1%) * (cost $140,945,683)
PRINCIPAL AMOUNT                                                                                       VALUE
- ------------------------------------------------------------------------------------------------------------
$   140,922,000   Interest in $565,867,000 joint repurchase agreement
                   September 30, 1997 with UBS Securities due
                   October 1, 1997 with with respect to various
                   U.S. Treasury obligations -- maturity value of
                   $140,945,683 for an effective yield of 6.05%                               $  140,945,683
- ------------------------------------------------------------------------------------------------------------
                 Total Investments (cost $3,368,183,247) ***                                  $3,442,261,711
- ------------------------------------------------------------------------------------------------------------

  *  Percentages indicated are based on net assets of $3,453,136,458.

***  The aggregate identified cost on a tax basis is $3,379,686,966, resulting in gross unrealized
     appreciation and depreciation of $75,885,228 and $13,310,483, respectively, or net unrealized
     appreciation of $62,574,745. 

The accompanying notes are an integral part of these financial statements.

</TABLE>



<TABLE>
<CAPTION>

Statement of assets and liabilities
September 30, 1997

<S>                                                                                   <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,368,183,247) (Note 1)                                            $3,442,261,711
- ---------------------------------------------------------------------------------------------------
Cash                                                                                            986
- ---------------------------------------------------------------------------------------------------
Interest receivable                                                                      23,423,738
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold                                                    2,283,821
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold                                                            3,136,108
- ---------------------------------------------------------------------------------------------------
Total assets                                                                          3,471,106,364

Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased                                               10,737,468
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2)                                              3,681,332
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2)                                  825,480
- ---------------------------------------------------------------------------------------------------
Payable for compensation of  Trustees (Note 2)                                               66,911
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2)                                                  8,778
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2)                                                    2,438,262
- ---------------------------------------------------------------------------------------------------
Other accrued expenses                                                                      211,675
- ---------------------------------------------------------------------------------------------------
Total liabilities                                                                        17,969,906
- ---------------------------------------------------------------------------------------------------
Net assets                                                                           $3,453,136,458

Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4)                                                      $3,732,922,516
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1)                                              3,424,640
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment                                            (357,289,162)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments                                               74,078,464
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding                                                           $3,453,136,458

Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,147,325,620 divided by 165,097,478 shares)                                               $13.01
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $13.01)*                                      $13.66
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,291,900,797 divided by 99,643,681 shares)**                                              $12.97
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($7,849,541 divided by 603,732 shares)                                                       $13.00
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $13.00)*                                      $13.44
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($6,060,500 divided by 465,990 shares)                                                       $13.01
- ---------------------------------------------------------------------------------------------------
 * 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, 1997

<S>                                                                                   <C>
Interest income                                                                       $273,092,899
- --------------------------------------------------------------------------------------------------

Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2)                                                        15,502,934
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2)                                           6,884,036
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2)                                                          129,177
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2)                                                            35,594
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2)                                                    5,710,948
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2)                                                   13,744,900
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2)                                                       35,185
- --------------------------------------------------------------------------------------------------
Reports to shareholders                                                                    158,945
- --------------------------------------------------------------------------------------------------
Registration fees                                                                              175
- --------------------------------------------------------------------------------------------------
Auditing                                                                                   216,000
- --------------------------------------------------------------------------------------------------
Legal                                                                                       36,018
- --------------------------------------------------------------------------------------------------
Postage                                                                                    212,101
- --------------------------------------------------------------------------------------------------
Other                                                                                      204,491
- --------------------------------------------------------------------------------------------------
Total expenses                                                                          42,870,504
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2)                                                              (1,313,719)
- --------------------------------------------------------------------------------------------------
Net expenses                                                                            41,556,785
- --------------------------------------------------------------------------------------------------
Net investment income                                                                  231,536,114
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3)                                         8,446,279
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year                              90,992,659
- --------------------------------------------------------------------------------------------------
Net gain on investments                                                                 99,438,938
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations                                  $330,975,052
- --------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

</TABLE>



<TABLE>
<CAPTION>

Statement of changes in net assets

                                                                                          Year ended September 30
                                                                                     ---------------------------------
                                                                                               1997               1996
- ----------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                <C>
Decrease in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income                                                                $  231,536,114     $  270,152,118
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments                                                   8,446,279        (26,992,361)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments                                                            90,992,659        (72,048,992)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations                                    330,975,052        171,110,765
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
  From net investment income
    Class A                                                                            (145,145,530)      (172,223,146)
- ----------------------------------------------------------------------------------------------------------------------
    Class B                                                                             (77,035,760)       (89,029,511)
- ----------------------------------------------------------------------------------------------------------------------
    Class M                                                                                (430,429)          (281,755)
- ----------------------------------------------------------------------------------------------------------------------
    Class Y                                                                                (293,133)          (849,623)
- ----------------------------------------------------------------------------------------------------------------------
  Return of capital
    Class A                                                                                      --        (10,073,580)
- ----------------------------------------------------------------------------------------------------------------------
    Class B                                                                                      --         (5,207,464)
- ----------------------------------------------------------------------------------------------------------------------
    Class M                                                                                      --            (16,480)
- ----------------------------------------------------------------------------------------------------------------------
    Class Y                                                                                      --            (49,694)
- ----------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4)                                      (573,463,157)      (567,593,809)
- ----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets                                                           (465,392,957)      (674,214,297)

Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year                                                                     3,918,529,415      4,592,743,712
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed
net investment income of $3,424,640 and
$--, respectively)                                                                   $3,453,136,458     $3,918,529,415
- ----------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

</TABLE>



<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)

CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------


Per-share
operating performance                                                       Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     1997             1996             1995             1994             1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>              <C>              <C>              <C>
Net asset value,
beginning of period                                $12.63           $12.95           $12.37           $13.63           $13.96
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income                                 .85              .84 (c)          .88              .69             1.10
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments                            .34             (.30)             .61            (1.00)            (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations                                1.19              .54             1.49             (.31)             .74
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income                                    (.81)            (.81)            (.83)            (.74)           (1.07)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments                                         --               --               --               --               --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital                                 --             (.05)            (.08)            (.21)              --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions                                  (.81)            (.86)            (.91)            (.95)           (1.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period                                      $13.01           $12.63           $12.95           $12.37           $13.63
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a)                            9.75             4.32            12.62            (2.35)            5.55
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands)                                 $2,147,326       $2,450,376       $2,903,016       $3,213,428       $4,797,481
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)                             .89              .88              .90              .85              .88
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)                            6.58             6.55             7.09             7.31             7.92
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%)                             125.80           138.97           195.45           209.00           295.88
- ------------------------------------------------------------------------------------------------------------------------------------

  + Commencement of operations.

  * Not annualized.

(a) Total investment return assumes dividend reinvestment 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)

(c) Per share net investment income has been determined on the basis of the weighted average number
    of shares outstanding during the period.

</TABLE>


<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)

CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------


Per-share
operating performance                                                       Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     1997             1996             1995             1994             1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>              <C>              <C>              <C>
Net asset value,
beginning of period                                $12.59           $12.91           $12.33           $13.60           $13.93
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income                                 .75              .74 (c)          .79              .64             1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments                            .35             (.30)             .61            (1.05)            (.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations                                1.10              .44             1.40             (.41)             .65
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income                                    (.72)            (.72)            (.75)            (.67)            (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments                                         --               --               --               --               --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital                                 --             (.04)            (.07)            (.19)              --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions                                  (.72)            (.76)            (.82)            (.86)            (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period                                      $12.97           $12.59           $12.91           $12.33           $13.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a)                            8.95             3.52            11.82            (3.16)            4.85
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands)                                 $1,291,901       $1,458,848       $1,643,923       $1,752,887       $2,232,219
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)                            1.64             1.63             1.65             1.60             1.61
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)                            5.83             5.80             6.33             6.55             7.11
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%)                             125.80           138.97           195.45           209.00           295.88
- ------------------------------------------------------------------------------------------------------------------------------------

  + Commencement of operations.

  * Not annualized.

(a) Total investment return assumes dividend reinvestment 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)

(c) Per share net investment income has been determined on the basis of the weighted average number
    of shares outstanding during the period.

</TABLE>


<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)

CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------

                                                                                                               For the period
Per-share                                                                                   Year Ended           Feb. 6, 1995+
operating performance                                                                      September 30           to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                       1997             1996             1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>              <C>              <C>
Net asset value,
beginning of period                                                                  $12.63           $12.96           $12.29
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income                                                                   .80              .82 (c)          .61
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments                                                              .35             (.32)             .66
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations                                                                  1.15              .50             1.27
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income                                                                      (.78)            (.78)            (.55)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments                                                                           --               --               --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital                                                                   --             (.05)            (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions                                                                    (.78)            (.83)            (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period                                                                        $13.00           $12.63           $12.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a)                                                              9.39             3.99            10.54*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands)                                                                       $7,850           $6,116           $2,609
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)                                                              1.14             1.14              .79*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)                                                              6.32             6.37             4.14*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%)                                                               125.80           138.97           195.45
- ------------------------------------------------------------------------------------------------------------------------------------

  + Commencement of operations.

  * Not annualized.

(a) Total investment return assumes dividend reinvestment 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)

(c) Per share net investment income has been determined on the basis of the weighted average number
    of shares outstanding during the period.

</TABLE>


<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)

CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------

                                                                                                               For the period
Per-share                                                                                                       Apr. 11, 1994+
operating performance                                                        Year ended September 30              to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                      1997             1996             1995             1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>              <C>              <C>
Net asset value,
beginning of period                                                 $12.63           $12.98           $12.38           $12.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income                                                  .89 (c)          .88 (c)          .90              .39
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments                                             .34             (.34)             .64             (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations                                                 1.23              .54             1.54              .09
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income                                                     (.85)            (.84)            (.86)            (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments                                                          --               --               --               --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital                                                  --             (.05)            (.08)            (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions                                                   (.85)            (.89)            (.94)            (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period                                                       $13.01           $12.63           $12.98           $12.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a)                                            10.05             4.34           13 .07              .11*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands)                                                      $6,061           $3,190          $43,196          $19,337
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)                                              .64              .62              .65              .29*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)                                             6.83             6.51             7.16             3.63*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%)                                              125.80           138.97           195.45           209.00
- ------------------------------------------------------------------------------------------------------------------------------------

  + Commencement of operations.

  * Not annualized.

(a) Total investment return assumes dividend reinvestment 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)

(c) Per share net investment income has been determined on the basis of the weighted average number
    of shares outstanding during the period.

</TABLE>



Notes to financial statements
September 30, 1997

Note 1
Significant accounting policies

Putnam U.S. Government Income Trust (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
invest at least $250 million in a combination of Putnam Funds and other
accounts managed by affiliates of Putnam Investment Management, Inc. ("Putnam
Management"), the fund's manager, a wholly-owned subsidiary of Putnam
Investments, Inc.

Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if
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 consistently,
followed by the fund 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 other accounts managed by Putnam Management.
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 nor for excise tax
on income and capital gains.

At September 30, 1997, the fund had a capital loss carryover of approximately
$337,562,000 available to offset future capital gains, if any.

The amount of the carryover and the expiration dates are:

Loss Carryover                   Expiration
- ------------------------------------------------
$  1,685,000               September 30, 1999
   9,297,000               September 30, 2002
 266,054,000               September 30, 2003
  51,884,000               September 30, 2004
   8,642,000               September 30, 2005

F) Distributions to shareholders Distributions to shareholders from net
investment income 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, 1997, the fund reclassified $5,206,622 to decrease undistributed net
investment income and $16,435 to increase paid-in-capital, with a decrease to
accumulated net realized loss on investments of $5,190,187. 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.

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, 1997, fund expenses were reduced by
$1,313,719 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 $2,958 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 has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.

The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.

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%, and 1.00% of the average net
assets attributable to class A, class B, and class M shares, respectively. The
Trustees currently limit payment by the fund to 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $212,727 and $2,522 from the sale of
class A and class M shares, respectively and received $3,145,864 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $43,964 on class A redemptions.

Note 3
Purchases and sales of securities

During the year ended September 30, 1997, purchases and sales of U.S.
government and agency obligations other than short-term investments aggregated
$4,484,192,727 and $5,154,893,654, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:

                                            Year ended
                                        September 30, 1997
- ------------------------------------------------------------
Class A                              Shares           Amount
- ------------------------------------------------------------
Shares sold                      20,634,802     $264,582,822
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions                     7,097,769       90,680,551
- ------------------------------------------------------------
                                 27,732,571      355,263,373

Shares
repurchased                     (56,635,571)    (725,708,140)
- ------------------------------------------------------------
Net decrease                    (28,903,000)   $(370,444,767)
- ------------------------------------------------------------

                                            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, 1997
- ------------------------------------------------------------
Class B                              Shares           Amount
- ------------------------------------------------------------
Shares sold                       9,650,117     $123,220,626
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions                     3,950,482       50,333,817
- ------------------------------------------------------------
                                 13,600,599      173,554,443

Shares
repurchased                     (29,814,937)    (380,815,087)
- ------------------------------------------------------------
Net decrease                    (16,214,338)   $(207,260,644)
- ------------------------------------------------------------

                                            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, 1997
- ------------------------------------------------------------
Class M                              Shares           Amount
- ------------------------------------------------------------
Shares sold                         675,663       $8,653,771
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions                        27,221          347,797
- ------------------------------------------------------------
                                    702,884        9,001,568

Shares
repurchased                        (583,426)      (7,466,778)
- ------------------------------------------------------------
Net increase                        119,458       $1,534,790
- ------------------------------------------------------------

                                            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
- ------------------------------------------------------------

                                            Year ended
                                        September 30, 1997
- ------------------------------------------------------------
Class Y                              Shares           Amount
- ------------------------------------------------------------
Shares sold                         324,814       $4,141,239
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions                        22,938          293,133
- ------------------------------------------------------------
                                    347,752        4,434,372

Shares
repurchased                        (134,245)      (1,726,908)
- ------------------------------------------------------------
Net increase                        213,507       $2,707,464
- ------------------------------------------------------------

                                            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)
- ------------------------------------------------------------



Federal tax information

(Unaudited)

The Form 1099 you receive in January 1998 will show the tax 
status of all distributions paid to your account in 
calendar 1997.



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
A.J.C. Smith
W. Thomas Stephens
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

David Waldman
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. 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 the principal amount
invested.

[LOGO OMITTED]

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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AN068--36853--032/885/689/527   11/97



PUTNAM INVESTMENTS                                   [SCALE LOGO OMITTED]
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Putnam U.S. Government Income Trust
Supplement to Annual Report dated September 3, 1997

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 and 
B shares, which are discussed more extensively in the annual report.

FISCAL 1997 ANNUAL RESULTS AT A GLANCE
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4/11/94 to 9/30/97                 Annualized              Cumulative
Inception date to end of 
semiannual fiscal period             8.04%                  30.80%

9/30/96 to 9/30/97
Semiannual fiscal period            10.05%                  10.05%
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Share value                             NAV

4/11/94 (Inception date)              $12.68
9/30/96                               $12.63
9/30/97                               $13.01
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Distributions         No.        Income        Capital gains       Total

9/30/96 to 9/30/97    12         $0.847            $0.00           $0.847
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Please note that past performance does not indicate future results.  
Investment return and principal value will fluctuate so your shares, when 
redeemed, may be worth more or less than their original cost.  See full 
Annual 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.




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