Putnam
U.S.
Government
Income Trust
SEMIANNUAL REPORT
March 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "With a hand in both segments of the government bond market --
mortgage-backed securities and Treasuries -- and limited exposure to
changing interest rates, we believe Putnam U.S. Government Income
Trust is prepared to make the most of whatever uncertainty
lies ahead."
-- Michael Martino, manager
Putnam U.S. Government Income Trust
* "As the Dow Jones Industrial Average nears the 9000 mark, many
investors are examining alternatives, and an increasing number are
turning to bond funds."
-- The Wall Street Journal, April 6, 1998
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:
The financial troubles in Asia continued to dominate the capital markets
during the first half of Putnam U.S. Government Income Trust's fiscal year,
pushing aside worries that the continued strength in the U.S. economy would
have inflationary implications. The rush of funds to the safety of the U.S.
bond market did drive down yields on most bonds, especially the U.S. Treasury
issues that make up a significant portion of your fund's portfolio -- as the
brisk demand moved their prices higher.
The Federal Reserve Board kept close watch on these events as you might
expect. But in the end, the Fed remained on the sidelines, apparently content
that the economic engine was still sufficiently under control.
In this environment, Fund Manager Michael Martino continued to focus on the
fund's objective: maintaining a high level of current income. In the following
report, Mike discusses his strategy during the six months ended March 31,
1998, and looks at prospects for the fiscal year's second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 20, 1998
Report from the Fund Manager
Michael Martino
A slightly defensive investment strategy intended to protect the portfolio
from unwanted price volatility also kept Putnam U.S. Government Income Trust
from participating fully in the rise in mortgage security prices that took
place early this year. Although your fund's class A shares returned a
respectable 3.54% at net asset value for the six-month period ended March 31
(-1.39% at public offering price), these results lagged the fund's benchmark
index, the Lehman Brothers Mortgage-Backed Securities Index, which returned
4.03% for the period. For more performance information, including the results
for other share classes, please see pages 8 and 9.
* ASIAN TROUBLES BOOST U.S. RETURNS
A flight to quality from Asian markets, combined with a noninflationary growth
picture in the United States, fueled a dramatic rise in U.S. Treasury prices
during the six month period ended March 31, 1998. Beginning last summer, the
currencies of several Southeast Asian countries crumbled under competitive
pressures from China and Japan. Weak current-account balances were revealed,
and a number of fiscal-policy missteps sent investors seeking safer havens.
Local depositors also suffered an erosion of confidence, as years of
government-controlled lending practices and misguided investments culminated
in several high-profile bank closings.
Dollar-denominated assets, particularly U.S. Treasuries, have been the key
beneficiaries of this trend. At the start of the period, your fund's 12% stake
in this segment of the market at the start of the period contributed to its
positive overall performance as the prices of intermediate and long-maturity
Treasuries were bid ever higher. So great was the demand for
dollar-denominated bonds that by January, the yield of the 30-year U.S.
Treasury bond had declined to a three-decade low of 5.69%. (Generally a bond's
yield moves lower as its price rises.) This is especially remarkable given
that the federal funds rate -- the interest rate charged on overnight loans
from one member bank of the Federal Reserve System to another and the basis
for all short-term interest rates -- was 5.50% as of March 31, 1998.
* MORTGAGE MARKET OUTPERFORMS IN PERIOD'S SECOND HALF
Although Treasuries helped boost fund performance in the fourth quarter of
1997, mortgage-backed securities outperformed them by a slight margin in the
first three months of 1998. The Lehman Brothers Mortgage-Backed Securities
Index returned 1.63% for the three months ended March 31, 1998, versus 1.51%
for the Lehman Brothers Long Treasury Index.
Your fund was prepared for this shift. The dramatic run-up in Treasury prices
toward the end of 1997 had convinced us to concentrate new purchases in the
mortgage-backed securities market. Using a roughly 4% cash position available
at the start of the period, we increased the fund's mortgage holdings to
approximately 86% of portfolio assets at the end of March. With a strong U.S.
dollar and scant evidence of inflation, Treasury prices may continue to rise
in the short term. However, we believe the potential for a correction is now
greater than the prospects for additional gains. In our view, mortgage-backed
securities such as GNMAs offer distinct advantages in this environment.
Mortgages generally are less sensitive than Treasuries to changes in interest
rates, and they provide higher yields in order to compensate investors for the
risk of prepayment.
[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND DURATION]
AVERAGE EFFECTIVE MATURITY AND DURATION
3/31/97 9/30/97 3/31/97
Average effective maturity 8.7 7.1 7.0
Duration 4.6 3.0 3.1
Footnote reads:
This chart depicts the fund's average effective maturity and duration at
6-month intervals over the 12 months ended 3/31/98. 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.
Prepayment was a concern during the period. The fall in interest rates took
30-year mortgage rates below 7% for a time, sparking a wave of mortgage
refinancings. When homeowners opt to refinance or prepay their mortgages, the
principal from those mortgages is returned to investors, such as the fund, who
must then reinvest it at lower prevailing rates. To protect the portfolio
against the unwanted prepayment of mortgage principal, we concentrated assets
in lower-coupon bonds, such as 7% 30-year GNMAs. The idea is that homeowners
are less likely to refinance a mortgage for an interest savings of less than 1
percentage point. In addition, to take advantage of the higher coupons
available in the mortgage market, we focused our purchases on seasoned
mortgages, which carry little prepayment risk in the eyes of investors. These
bonds represent mortgages that could have been refinanced in the past but were
not for one reason or another and are now even less likely to be refinanced
given the little time remaining before the loans are paid off. With coupons in
the 9% to 10% range, these bonds contributed a high level of income to the
portfolio.
* DURATION STRATEGY REMAINS SLIGHTLY DEFENSIVE
Throughout the six month period ended March 31, 1998, we maintained the fund's
slightly defensive duration to protect against unexpected shifts in the
market. Duration measures a portfolio's sensitivity to changing interest rates
and can be altered by changing a fund's mix of bonds. Bonds with shorter
maturities generally are less sensitive to changes in interest rates, and so
holding cash or short-term securities will tend to reduce a portfolio's
average duration. While we invested the fund's roughly 4% cash position in
mortgage-backed securities during the period, the bonds we purchased have
relatively little interest-rate exposure. For example, a 7% coupon 30-year
GNMA has about as much interest-rate sensitivity as a 5-year Treasury note.
[GRAPHIC OMITTED: pie chart PORTFOLIO ALLOCATIONS (3/31/98)]
PORTFOLIO ALLOCATIONS (3/31/98)
U.S. Treasury securities 13.6%
Cash and short-term investments 0.6%
Mortage-backed securities 85.8%
Footnote reads:
*Based on total market value of assets. The allocation to mortgage-backed
securities is primarily concentrated in bonds issued by the Government
National Mortgage Association (Ginnie Mae). Allocations will vary over time.
Mixed signals now appear to be the rule rather than the exception in economic
data. Real incomes are surging but so are bankruptcies and bad credit-card
debt. Nonfarm payrolls waned in March, but manufacturing output and consumer
demand were on the rise. And while investors continue to ponder the question
of Asia's potential impact, the Fed's Open Market Committee unanimously agreed
to leave interest rates unchanged at its most recent meeting.
Until the U.S. economic outlook becomes more clear, we intend to keep the
fund's duration strategy relatively defensive. We also expect to maintain a
sizable position in mortgage-backed securities to take advantage of their
relatively higher yields and lower sensitivity to interest rates. With a hand
in both segments of the government market and limited exposure to changing
interest rates, we believe Putnam U.S. Government Income Trust is prepared to
make the most of whatever uncertainty lies ahead.
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 3/31/98, 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 United States
government and in repurchase agreements and forward commitments with
respect to these securities.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
Class A Class B Class M
(inception date) (2/8/84) (4/27/92) (2/6/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 3.54% -1.39% 3.00% -2.00% 3.31% -0.07%
- ------------------------------------------------------------------------------
1 year 10.30 5.05 9.33 4.33 9.83 6.29
- ------------------------------------------------------------------------------
5 years 33.37 27.04 28.24 26.36 31.52 27.23
Annual average 5.93 4.90 5.10 4.79 5.63 4.93
- ------------------------------------------------------------------------------
10 years 109.87 99.94 93.38 93.38 103.38 96.83
Annual average 7.69 7.17 6.82 6.82 7.36 7.01
- ------------------------------------------------------------------------------
Life of fund 222.57 207.30 185.12 185.12 206.23 196.31
Annual average 8.64 8.26 7.69 7.69 8.24 7.98
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/98
Lehman Bros.
Mortgage Consumer
Securities Price Index
- ------------------------------------------------------------------------------
6 months 4.03% 0.62%
- ------------------------------------------------------------------------------
1 year 11.13 1.38
- ------------------------------------------------------------------------------
5 years 39.81 12.95
Annual average 6.93 2.47
- ------------------------------------------------------------------------------
10 years 137.20 39.23
Annual average 9.02 3.37
- ------------------------------------------------------------------------------
Life of fund 314.34 59.18
Annual average 10.56 3.34
- ------------------------------------------------------------------------------
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 (where 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 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 expenses
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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.414 $0.365 $0.405
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.414 $0.365 $0.405
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/97 $13.01 $13.66 $12.97 $13.00 $13.44
- ------------------------------------------------------------------------------
3/31/98 13.05 13.70 12.99 13.02 13.46
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 6.34% 6.04% 5.72% 6.17% 5.97%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 5.46 5.2 4.66 5.15 4.99
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
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 charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Mortgage-backed Securities Index is an unmanaged list of
GNMA bonds. This index assumes reinvestment of all distributions and
interest payments, does not take into account brokerage commissions or
other costs, may include bonds different from those in the fund, and may
pose different risks than the fund. 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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
+ Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor guaranteed
by the U.S. government. These funds are managed to maintain a price of
$1.00 per share, although there is no assurance that this price will
be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to
obtain a prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Please read it carefully
before you invest or send money.
Portfolio of investments owned
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (99.9%)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (85.6%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
$ 11,225 12 3/4s, October 15, 2013 $ 12,870
28,618 12 1/4s, January 15, 2014 32,454
113,461 9 1/2s, March 15, 2020 123,636
34,299 9s, July 15, 2009 36,925
534,538 8 1/2s, with due dates from July 15, 2016 to
April 15, 2017 569,742
1,144,355 7 1/2s, May 15, 2026 1,173,319
65,660,968 6 1/2s, November 15, 2027 65,209,220
Government National Mortgage Association
Pass-Through Certificates
88,954 16s, with due dates from October 15, 2011 to
November 15, 2011 108,746
269,675 15s, with due dates from July 15, 2011 to
March 15, 2013 325,117
144,118 14s, with due dates from July 15, 2014 to
January 20, 2015 174,336
48,324 13 3/4s, with due dates from September 20, 2014 to
November 20, 2014 55,406
1,238,774 13 1/2s, with due dates from July 15, 2010 to
June 20, 2015 1,487,691
175,265 13 1/4s, with due dates from October 15, 2014 to
January 20, 2015 200,214
957,290 13s, with due dates from December 15, 2010 to
September 20, 2015 1,142,998
830,728 12 3/4s, with due dates from October 15, 2013 to
July 20, 2015 951,278
579,954 12 1/2s, with due dates from May 15, 2010 to
November 20, 2015 676,733
755,255 12 1/4s, with due dates from August 15, 2013 to
May 15, 2015 855,708
509,197 12s, with due dates from April 20, 2014 to
March 20, 2016 597,505
2,759,808 11 1/2s, with due dates from April 15, 2010 to
November 15, 2019 3,179,170
1,581,476 11 1/4s, with due dates from June 15, 2013 to
January 15, 2016 1,742,089
2,613,969 11s, with due dates from November 20, 2013 to
June 20, 2019 2,987,268
45,885 11s, Midget, with due dates from July 15, 2000 to
July 15, 2000 48,365
174,082 10 7/8s, February 15, 2010 193,282
215,188 10 3/4s, with due dates from January 15, 2015 to
February 15, 2016 238,789
23,579,526 10 1/2s, with due dates from April 15, 2010 to
November 15, 2021 26,294,231
Government National Mortgage Association
Pass-Through Certificates
417,796 10 1/4s, with due dates from March 15, 2016 to
December 15, 2020 456,572
2,175,605 10s, with due dates from October 15, 2009 to
January 20, 2021 2,440,818
88,406,444 9 1/2s, with due dates from June 15, 2009 to
April 15, 2023 96,318,395
1,365,690 9 1/4s, with due dates from April 15, 2016 to
November 15, 2019 1,438,658
112,922,781 9s, with due dates from November 15, 2004 to
January 15, 2025 121,625,190
150,875,228 8 1/2s, with due dates from August 15, 2004 to
January 15, 2028 160,743,889
12,925,192 8 1/2s, Midgets, with due dates from May 15, 2001 to
January 15, 2008 13,543,145
512,060,218 8s, with due dates from January 15, 2001 to
January 15, 2028 533,895,462
45,685,396 8s, Midget, with due dates from November 15, 2001 to
November 15, 2009 47,312,710
689,039,820 7 1/2s, with due dates from March 15, 2001 to
October 15, 2027 709,366,047
819,619,443 7s, with due dates from March 15, 2022 to
February 15, 2028 828,747,540
138,151,890 7s, Midget, with due dates from October 15, 2007 to
November 15, 2022 141,216,706
289,552,787 6 1/2s, with due dates from May 15, 2023 to
February 15, 2028 286,754,581
81,310 5 1/2s, May 15, 2017 85,045
--------------
3,052,361,850
U.S. Treasury Obligations (13.6%)
- ------------------------------------------------------------------------------------------------------------
80,000,000 U.S. Treasury Bonds 6 1/8s, November 15, 2027 82,037,600
U.S. Treasury Notes
125,000,000 6 1/8s, August 15, 2007 128,555,000
25,000,000 5 3/4s, October 31, 2002 25,070,250
150,000,000 5 5/8s, December 31, 2002 149,742,000
100,000,000 5 1/2s, January 31, 2003 99,359,000
--------------
484,763,850
--------------
Total U.S. Government and Agency Obligations
(cost $3,469,783,296) $3,537,125,700
SHORT-TERM INVESTMENTS (0.7%) (cost $23,087,783)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
23,084,000 Interest in $321,730,000 joint repurchase agreement
dated March 31, 1998 with Morgan (J.P.) & Co., Inc.
due April 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $23,087,783 for an
effective yield of 5.90% $ 23,087,783
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,492,867,296) *** $3,560,213,483
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,565,371,415.
*** The aggregate identified cost on a tax basis is $3,492,867,296, resulting in gross unrealized
appreciation and depreciation of $2,093,492,295 and $2,026,146,108, respectively, or net unrealized
appreciation of $67,346,187.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,492,867,296) (Note 1) $3,560,213,483
- ---------------------------------------------------------------------------------------------------
Cash 874,642
- ---------------------------------------------------------------------------------------------------
Interest receivable 25,093,872
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,971,357
- ---------------------------------------------------------------------------------------------------
Total assets 3,592,153,354
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 407,431
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 19,054,852
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,813,784
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 500,489
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 70,312
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8,122
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,624,451
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 302,498
- ---------------------------------------------------------------------------------------------------
Total liabilities 26,781,939
- ---------------------------------------------------------------------------------------------------
Net assets $3,565,371,415
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,836,435,538
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,457,882
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (339,868,192)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 67,346,187
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,565,371,415
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,117,993,484 divided by 162,316,355 shares) $13.05
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $13.05)* $13.70
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,248,581,124 divided by 96,081,786 shares)** $12.99
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($193,340,039 divided by 14,844,550 shares) $13.02
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $13.02)* $13.46
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($5,456,768 divided by 418,233 shares) $13.05
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales,
the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 1998 (Unaudited)
<S> <C>
Interest income $125,053,638
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,612,921
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,174,814
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 35,799
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 15,980
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,692,498
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,377,465
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 231,289
- --------------------------------------------------------------------------------------------------
Reports to shareholders 61,272
- --------------------------------------------------------------------------------------------------
Legal 16,670
- --------------------------------------------------------------------------------------------------
Postage 191,230
- --------------------------------------------------------------------------------------------------
Other 64,255
- --------------------------------------------------------------------------------------------------
Total expenses 20,474,193
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (631,473)
- --------------------------------------------------------------------------------------------------
Net expenses 19,842,720
- --------------------------------------------------------------------------------------------------
Net investment income 105,210,918
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 17,420,970
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (6,732,277)
- --------------------------------------------------------------------------------------------------
Net gain on investments 10,688,693
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $115,899,611
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 105,210,918 $ 231,536,114
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 17,420,970 8,446,279
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments (6,732,277) 90,992,659
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 115,899,611 330,975,052
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (68,433,220) (145,145,530)
- ----------------------------------------------------------------------------------------------------------------------
Class B (35,817,194) (77,035,760)
- ----------------------------------------------------------------------------------------------------------------------
Class M (2,731,473) (430,429)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (195,789) (293,133)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) from
capital share transactions (Note 4) 103,513,022 (573,463,157)
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 112,234,957 (465,392,957)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 3,453,136,458 3,918,529,415
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $1,457,882 and $3,424,640, respectively) $3,565,371,415 $3,453,136,458
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.01 $12.63 $12.95 $12.37 $13.63 $13.96
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41(c) .85 .84(c) .88 .69 1.10
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .34 (.30) .61 (1.00) (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .45 1.19 .54 1.49 (.31) .74
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.81) (.81) (.83) (.74) (1.07)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.05) (.08) (.21) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.81) (.86) (.91) (.95) (1.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.05 $13.01 $12.63 $12.95 $12.37 $13.63
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.54* 9.75 4.32 12.62 (2.35) 5.55
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,117,933 $2,147,326 $2,450,376 $2,903,016 $3,213,428 $4,797,481
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .44* .89 .88 .90 .85 .88
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.11* 6.58 6.55 7.09 7.31 7.92
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 232.35 125.80 138.97 195.45 209.00 295.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.97 $12.59 $12.91 $12.33 $13.60 $13.93
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .36(c) .75 .74(c) .79 .64 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .03 .35 (.30) .61 (1.05) (.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .39 1.10 .44 1.40 (.41) .65
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.37) (.72) (.72) (.75) (.67) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.04) (.07) (.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.37) (.72) (.76) (.82) (.86) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.99 $12.97 $12.59 $12.91 $12.33 $13.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.00* 8.95 3.52 11.82 (3.16) 4.85
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,248,581 $1,291,901 $1,458,848 $1,643,923 $1,752,887 $2,232,219
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .82* 1.64 1.63 1.65 1.60 1.61
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.75* 5.83 5.80 6.33 6.55 7.11
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 232.35 125.80 138.97 195.45 209.00 295.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Feb. 6, 1995+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $13.00 $12.63 $12.96 $12.29
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .39 (c) .80 .82(c) .61
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .35 (.32) .66
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .43 1.15 .50 1.27
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.78) (.78) (.55)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.05) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.78) (.83) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.02 $13.00 $12.63 $12.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.31* 9.39 3.99 10.54*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $193,340 $7,850 $6,116 $2,609
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .57* 1.14 1.14 .79*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.05* 6.32 6.37 4.14*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 232.35 125.80 138.97 195.45
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Apr. 11, 1994+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.01 $12.63 $12.98 $12.38 $12.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .43(c) .89(c) .88(c) .90 .39
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .34 (.34) .64 (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .47 1.23 .54 1.54 .09
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.85) (.84) (.86) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.05) (.08) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.43) (.85) (.89) (.94) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.05 $13.01 $12.63 $12.98 $12.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.68* 10.05 4.34 13 .07 .11*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,457 $6,061 $3,190 $43,196 $19,337
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .32* .64 .62 .65 .29*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.27* 6.83 6.51 7.16 3.63*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 232.35 125.80 138.97 195.45 209.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
March 31, 1998 (Unaudited)
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. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. 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. 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.
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,
0.475% of the next $500 million, 0.4275% of the next $500 million, and 0.38%
thereafter.
The fund reimburses Putnam Management an allocated amount 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 subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended March 31, 1998, fund expenses were reduced by
$631,473 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.
Each Trustee of the fund receives an annual Trustee fee, of which $2,320 has
been allocated to the fund, 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 six months ended March 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $106,914 and $500,310 from the sale of
class A and class M shares, respectively and received $1,041,053 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 six months ended March 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received $27,853 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1998, purchases and sales of U.S.
government and agency obligations other than short-term investments aggregated
$8,032,891,521 and $7,693,379,947, 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 March 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 25,329,748 $331,506,004
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,354,695 43,707,097
- ------------------------------------------------------------
28,684,443 375,213,101
Shares
repurchased (31,465,566) (410,889,650)
- ------------------------------------------------------------
Net decrease (2,781,123) $(35,676,549)
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 9,803,851 $127,581,052
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,837,233 23,852,938
- ------------------------------------------------------------
11,641,084 151,433,990
Shares
repurchased (15,202,979) (197,806,239)
- ------------------------------------------------------------
Net decrease (3,561,895) $(46,372,249)
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 14,776,557 $193,209,128
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,830 245,047
- ------------------------------------------------------------
14,795,387 193,454,175
Shares
repurchased (554,569) (7,250,327)
- ------------------------------------------------------------
Net increase 14,240,818 $186,203,848
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 273,577 $3,557,718
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 15,046 195,789
- ------------------------------------------------------------
288,623 3,753,507
Shares
repurchased (336,380) (4,395,535)
- ------------------------------------------------------------
Net decrease (47,757) $ (642,028)
- ------------------------------------------------------------
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
- ------------------------------------------------------------
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
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
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
David L. Waldman
Vice President
Michael Martino
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA038-42031 -- 032/885/689/527 5/98
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- -----------------------------------------------------------------------------
Putnam U.S. Government Income Trust
Supplement to Semiannual Report dated March 31, 1998
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $250 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A, B,
and M shares, which are discussed more extensively in the semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
- -----------------------------------------------------------------------------
Total return
for periods ended 3/31/98: NAV
6 months 3.68%
1 year 10.60
Five years 34.74
Annual average 6.14
10 years 112.03
Annual average 7.81
Life of fund (since class A inception, 2/8/84) 225.89
Annual average 8.71
Share value: NAV
9/30/97 $13.01
3/31/98 $13.05
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 .432 -- .432
- -----------------------------------------------------------------------------
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 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.
