Putnam
U.S. Government
Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-99
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "[Fund Manager] Michael Martino. . .sticks to a conservative strategy
with this fund. For one thing, in keeping with a Putnam-wide policy, he
doesn't tend to make big duration bets. Additionally, he says that
investors don't like to see complicated securities in their
government-bond funds. Thus, he avoids both potentially risky mortgage
derivatives and even tamer CMOs. Instead he stocks this mortgage-heavy
portfolio with plain-vanilla GNMA passthroughs and Treasuries."
-- Morningstar Mutual Funds, December 7, 1998
* "Mortgage-backed securities. . .which represent an ownership interest in
mortgage loans made by financial institutions, have held their own lately,
as rising interest rates reduced the mortgage prepayments that can hurt
these securities. The average fund that invests in mortgage-backed
securities rose 0.62% in the first quarter (of 1999)."
-- The Wall Street Journal, April 5, 1999
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
15 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam U.S. Government Income Trust continued to benefit from risk-averse
global investors' focus on quality during the first half of its current
fiscal year, the six months ended March 31, 1999.
During the period, however, the improvement in many of the world's other
markets encouraged investors to start moving assets from the safe haven of
U.S. Treasury bonds. As a result, we have begun to see a return of prices
and yields of Treasuries to more typical levels. Nevertheless, Fund
Managers Michael Martino and Kevin Cronin remain optimistic about
prospects for the market and your fund during the second half of fiscal
1999.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 19, 1999
Report from the Fund Managers
Michael Martino
Kevin M. Cronin
U.S. government securities performed well early in the fourth quarter of
1998, before the value offered by other sectors of the bond market pulled
investors away. Demand for U.S. Treasuries waned. As a result, while these
securities offered steady returns, their performance moderated over the
first half of Putnam U.S. Government Income Trust's fiscal year.
Mortgage-backed securities, on the other hand, held their own as a slight
rise in interest rates reduced prepayment activity.
Within this environment, a neutral positioning strategy enabled the fund
to post a total return generally in line with the GNMA mortgage-backed
security market during the six months ended March 31, 1999. The fund's
class A shares returned 0.61% at net asset value (-4.15% at public
offering price) for the period, while its benchmark index, the Lehman
Brothers Mortgage-Backed Securities Index, returned 1.79% over the same
six-month time frame. Please see page 9 for more performance information,
including the results for class B and class M shares.
* STABILITY RETURNS TO FIXED-INCOME MARKETS
During the fourth quarter of 1998 and the first quarter of 1999, the
fixed-income markets rebounded from the dramatic flight to quality they
experienced in response to global economic turmoil in the third quarter of
1998. Motivated by problems in emerging markets such as Russia and those
in Southeast Asia -- as well as concern over possible currency
devaluations in Latin America -- investors flocked to the safe haven of
U.S. Treasuries. All other segments of the fixed-income markets suffered.
The Federal Reserve Board responded to a lack of liquidity in the bond
markets by implementing a series of three 0.25 percentage point cuts in
the federal funds rate from late September through mid November. These
moves encouraged investors to return to non-Treasury sectors, bringing
their prices and yields relative to Treasuries back to more typical
levels. Overall, interest rates reached their nadir in the fourth quarter,
remained relatively flat until the end of 1998, and rose modestly during
the first three months of 1999.
In the meantime, the U.S. economy remained strong, but no significant
inflationary pressures surfaced. Observing that global economic problems
did not seem to be impeding the progress of U.S. economic growth, the Fed
pulled away from its bias toward lower rates and signaled a shift to a
more neutral stance.
* FUND DURATION ADJUSTED TO NEUTRAL STANCE
During the first two months of the semiannual period ended March 31, 1999,
your fund benefited from a slightly long duration relative to others in
its category as well as an increased focus on GNMA mortgage-backed
securities. Duration is a measure of the portfolio's interest-rate
sensitivity; the longer the duration, the more sensitive the fund will
likely be to a change in interest rates. The fund also was positioned to
take advantage of a modest flattening of the yield curve -- a
representation of the difference between short-term and long-term interest
rates. Having benefited from these positions during the tail end of the
market turmoil in the latter stages of 1998, we shifted the fund's
structure in November, and its positioning over the period's remaining
four months reflected a more neutral outlook toward the markets.
[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND DURATION]
AVERAGE EFFECTIVE MATURITY AND DURATION
3/31/98 9/30/98 3/31/99
Average effective maturity 5.0 7.0 7.1
Duration 1.8 3.1 3.2
Footnote reads:
This chart depicts the fund's average effective maturity and duration at
6-month intervals over the 12 months ended 3/31/99. Average effective
maturity and duration stated in years are derived from calculations that
incorporate assumptions about prepayment rates and cash flow of
mortgage-backed securities. Measures of effective maturity duration and
the assumptions on which they are based will vary over time.
With no strong indication of the future direction of interest rates, we
have brought the fund's duration back to its neutral target of about 3.2
years. Similarly, with neither mortgages nor Treasuries offering
compelling values, your fund's allocation to those two sectors reflected a
neutral stance. GNMA mortgage-backed securities comprised nearly 83% of
the portfolio at the end of the period, with most of the remainder
invested in U.S. Treasury securities.
The stated interest rates, or coupons, of your fund's GNMA investments
generally were clustered in the 6.5% to 7.5% range. While there was ample
supply in this area, most higher-coupon securities in the 9% to 9.5% range
were removed from the market as mortgage holders took advantage of
declining interest rates to refinance their home loans at more attractive
levels. We believe that your fund's investments in 6.5% to 7.5% coupons
expose the portfolio to little prepayment risk, which is the chance that
mortgage holders will pay off the principal on their loans before
maturity, leaving the fund to invest that principal in securities that
offer potentially lower yields.
At the end of the semiannual period, "neutral" was the word to describe
your fund's U.S. Treasury positions as well. Since we did not anticipate
any significant moves along the Treasury yield curve, the fund's
investments were equally weighted among Treasury securities with varying
maturities. We will watch the markets closely for opportunities to shift
duration, increase exposure to bonds with particular maturities, or
re-allocate assets from Treasuries to GNMAs. At this point, however, we
find no compelling reason to do so.
[GRAPHIC OMITTED: pie chart PORTFOLIO ALLOCATIONS (3/31/99)]
PORTFOLIO ALLOCATIONS (3/31/99)*
Cash and short-term
investments -- 2.0
U.S. Treasury
securities -- 15.3%
Mortgage-backed
securities -- 82.7%
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 (GNMA). Allocations will vary over time.
* OUTLOOK FOR GENERALLY TAME ENVIRONMENT
Concerns linger about the effect potential problems in the emerging
markets might have on the U.S. economy. In addition, events in Kosovo may
trigger another flight to quality, although investors have shrugged off
that situation so far. In addition, emerging markets have rebounded about
three quarters of the way back to where they were before the global
economic downturn started in late 1997. The U.S. government securities
market experienced some redemptions from Japanese investors as they
prepared for the end of their fiscal year on March 31. With that date
past, we may see an influx of Japanese capital back into the U.S. bond
market.
Looking more closely at domestic issues, the economy may strengthen over
the next few months to the point at which inflation concerns emerge. If
that situation develops, increases in interest rates -- and concurrent
decreases in bond prices -- could present buying opportunities. From mid
1999 on, however, we expect the economy to slow somewhat, with inflation
remaining in check. One statistic that bears watching is the price of oil.
If the price of crude oil rises from its current level of $13 to $14 per
barrel to $16.50 or more, we could see an increase in the producer price
index. At the same time, we believe this kind of increase would have
little effect on the consumer price index. Overall, we expect a tame
investment environment with inflation in check and a slightly slower
economy. As a result, we believe the Fed will keep the fed funds rate
unchanged throughout 1999. We intend to continue to maintain a neutral
stance with your fund until developments call for a shift in strategy.
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 3/31/99, 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 invests exclusively
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 3/31/99
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 0.61% -4.15% 0.24% -4.64% 0.47% -2.83%
- ------------------------------------------------------------------------------
1 year 5.68 0.66 4.92 -0.04 5.39 1.95
- ------------------------------------------------------------------------------
5 years 40.92 34.24 35.65 33.65 38.99 34.50
Annual average 7.10 6.07 6.29 5.97 6.81 6.11
- ------------------------------------------------------------------------------
10 years 111.45 101.37 95.51 95.51 105.45 98.72
Annual average 7.78 7.25 6.93 6.93 7.47 7.11
- ------------------------------------------------------------------------------
Life of fund 240.88 224.73 199.15 199.15 222.75 212.28
Annual average 8.44 8.09 7.51 7.51 8.05 7.81
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25% respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods 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. 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.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/99
Lehman Bros.
Mortgage-Backed Consumer
Securities Index price index
- ------------------------------------------------------------------------------
6 months 1.79% 0.98%
- ------------------------------------------------------------------------------
1 year 6.28 1.73
- ------------------------------------------------------------------------------
5 years 46.59 12.09
Annual average 7.95 2.31
- ------------------------------------------------------------------------------
10 years 138.84 34.91
Annual average 9.10 3.04
- ------------------------------------------------------------------------------
Life of fund 340.37 61.92
Annual average 10.27 3.23
- ------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/99
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.408 $0.360 $0.390
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.408 $0.360 $0.390
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/98 $13.28 $13.94 $13.22 $13.25 $13.70
- ------------------------------------------------------------------------------
3/31/99 12.95 13.60 12.89 12.92 13.35
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 6.12% 5.83% 5.49% 5.85% 5.66%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 5.82 5.54 5.06 5.56 5.45
- ------------------------------------------------------------------------------
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 4.75% maximum 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
March 31, 1999 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (97.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C>
U.S. Government Agency Mortgage Obligations (82.4%)
- --------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
Pass-Through Certificates
$ 86,969 16s, with due dates from October 15, 2011 to
November 15, 2011 $104,010
155,794 15s, with due dates from July 15, 2011 to
March 15, 2013 186,222
115,427 14s, with due dates from July 15, 2014 to
January 20, 2015 135,632
802,809 13 1/2s, with due dates from March 15, 2011 to
June 20, 2015 937,803
662,397 13s, with due dates from December 15, 2010 to
September 20, 2015 763,796
10,989 12 3/4s, October 15, 2013 12,500
367,537 12 1/2s, with due dates from June 15, 2010 to
November 20, 2015 417,913
27,797 12 1/4s, January 15, 2014 31,272
369,522 12s, with due dates from April 20, 2014 to
March 20, 2016 418,136
1,907,326 11 1/2s, with due dates from April 15, 2010 to
November 15, 2019 2,146,555
1,954,742 11s, with due dates from November 20, 2013 to
June 20, 2019 2,161,807
23,514 11s, Midget, with due dates from July 15, 2000 to
July 15, 2000 25,711
137,756 10 7/8s, February 15, 2010 150,827
16,510,555 10 1/2s, with due dates from April 15, 2010 to
November 15, 2021 18,079,718
624,436 10s, with due dates from October 15, 2009 to
January 20, 2021 675,558
64,074,678 9 1/2s, with due dates from June 15, 2009 to
March 15, 2029 69,110,076
74,203,804 9s, with due dates from November 15, 2004 to
January 15, 2025 79,442,066
105,500,141 8 1/2s, with due dates from August 15, 2004 to
March 15, 2027 111,812,240
8,459,228 8 1/2s, Midget, with due dates from May 15, 2001 to
January 15, 2008 8,924,476
360,402,955 8s, with due dates from January 15, 2001 to
January 15, 2028 376,323,832
30,044,751 8s, Midget, with due dates from January 15, 2008 to
November 15, 2009 31,058,759
436,210,835 7 1/2s, with due dates from March 15, 2001 to
October 15, 2027 449,966,445
896,106,224 7s, with due dates from March 15, 2022 to
December 15, 2028 910,570,820
114,760,430 7s, Midget, with due dates from October 15, 2007 to
November 15, 2022 117,700,259
661,525,401 6 1/2s, with due dates from May 15, 2023 to
April 15, 2028 658,861,728
50,327,097 6s, with due dates from November 15, 2028 to
December 15, 2028 48,895,794
63,867 5 1/2s, May 15, 2017 66,980
Government National Mortgage Association
Graduated Payment Mortgages
6,266 15s, September, 2012 7,347
29,217 13 3/4s, with due dates from September 20, 2014 to
November 20, 2014 33,234
94,556 13 1/2s, with due dates from March 15, 2011 to
June 15, 2012 108,030
118,987 13 1/4s, with due dates from October 15, 2014 to
December 20, 2014 134,888
18,370 13s, December 15, 2010 20,853
540,067 12 3/4s, with due dates from October 15, 2013 to
July 20, 2015 613,176
572,855 12 1/4s, with due dates from August 15, 2013 to
May 15, 2015 643,685
1,075,656 11 1/4s, with due dates from June 15, 2013 to
January 15, 2016 1,173,808
154,217 10 3/4s, with due dates from January 15, 2016 to
February 15, 2016 169,253
367,711 10 1/4s, with due dates from March 15, 2016 to
December 15, 2020 395,749
862,462 10s, with due dates from November 15, 2009 to
January 20, 2010 937,927
954,908 9 1/4s, with due dates from April 15, 2016 to
November 15, 2019 995,787
--------------
2,894,214,672
U.S. Treasury Obligations (15.2%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
87,940,000 5 1/4s, February 15, 2029 83,130,561
50,000,000 5 1/4s, November 15, 2028 46,633,000
U.S. Treasury Notes
50,000,000 6 1/8s, August 15, 2007 52,343,500
51,500,000 5 5/8s, May 15, 2008 52,425,455
100,000,000 5 1/2s, January 31, 2003 101,047,000
200,000,000 5s, February 28, 2001 200,031,949
--------------
535,611,465
--------------
Total U.S. Government and Agency Obligations
(cost $3,388,163,157) $3,429,826,137
SHORT-TERM INVESTMENTS (1.9%) (a) (cost $67,754,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$67,754,000 Interest in $500,000,000 joint tri-party repurchase
agreement dated March 31, 1999 with Goldman Sachs
due April 1, 1999 with respect to various U. S. Treasury
obligations -- maturity value of $67,763,222 for an
effective yield of 4.90% $ 67,754,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,455,917,157) (b) $3,497,580,137
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,514,010,086.
(b) The aggregate identified cost on a tax basis is $3,458,337,752, resulting in gross unrealized appreciation and
depreciation of $55,111,075, and $15,868,690, respectively, or net unrealized appreciation of $39,242,385.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,455,917,157) (Note 1) $3,497,580,137
- -----------------------------------------------------------------------------------------------
Cash 757
- -----------------------------------------------------------------------------------------------
Interest receivable 22,289,364
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 8,471,835
- -----------------------------------------------------------------------------------------------
Total assets 3,528,342,093
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 7,350,348
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,703,565
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 518,648
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 81,665
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,551
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,542,485
- -----------------------------------------------------------------------------------------------
Other accrued expenses 127,745
- -----------------------------------------------------------------------------------------------
Total liabilities 14,332,007
- -----------------------------------------------------------------------------------------------
Net assets $3,514,010,086
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,805,934,660
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (7,205,820)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (326,381,734)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 41,662,980
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,514,010,086
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,064,841,087 divided by 159,467,151 shares) $12.95
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.95)* $13.60
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,277,802,137 divided by 99,127,034 shares)** $12.89
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($150,030,817 divided by 11,607,803 shares) $12.92
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.92)* $13.35
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($21,336,045 divided by 1,648,255 shares) $12.94
- -----------------------------------------------------------------------------------------------
* 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, 1999 (Unaudited)
<S> <C>
Interest income $118,480,971
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,559,171
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,670,022
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 17,000
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 15,213
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,601,822
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,457,299
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 392,195
- -----------------------------------------------------------------------------------------------
Reports to shareholders 49,153
- -----------------------------------------------------------------------------------------------
Auditing 45,810
- -----------------------------------------------------------------------------------------------
Legal 27,053
- -----------------------------------------------------------------------------------------------
Postage 198,865
- -----------------------------------------------------------------------------------------------
Other 151,497
- -----------------------------------------------------------------------------------------------
Total expenses 20,185,100
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (263,488)
- -----------------------------------------------------------------------------------------------
Net expenses 19,921,612
- -----------------------------------------------------------------------------------------------
Net investment income 98,559,359
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (4,474,181)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (78,593,819)
- -----------------------------------------------------------------------------------------------
Net loss on investments (83,068,000)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 15,491,359
- -----------------------------------------------------------------------------------------------
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
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 98,559,359 $ 207,562,768
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (4,474,181) 30,743,304
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (78,593,819) 46,178,335
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,491,359 284,484,407
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (65,030,329) (129,683,505)
- ---------------------------------------------------------------------------------------------------------------
Class B (35,626,780) (68,119,252)
- ---------------------------------------------------------------------------------------------------------------
Class M (4,704,258) (8,147,157)
- ---------------------------------------------------------------------------------------------------------------
Class Y (403,812) (399,595)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (4,562,519)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (2,396,568)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (286,633)
- ---------------------------------------------------------------------------------------------------------------
Class Y -- (14,059)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from
capital share transactions (Note 4) (31,240,813) 111,513,142
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (121,514,633) 182,388,261
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 3,635,524,719 3,453,136,458
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $7,205,820 and
$--, respectively) $3,514,010,086 $3,635,524,719
- ---------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.28 $13.01 $12.63 $12.95 $12.37 $13.63
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .38(c) .81(c) .85 .84(c) .88 .69
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.30) .29 .34 (.30) .61 (1.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .08 1.10 1.19 .54 1.49 (.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.80) (.81) (.81) (.83) (.74)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.05) (.08) (.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.83) (.81) (.86) (.91) (.95)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.95 $13.28 $13.01 $12.63 $12.95 $12.37
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.61* 8.75 9.75 4.32 12.62 (2.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,064,841 $2,130,980 $2,147,326 $2,450,376 $2,903,016 $3,213,428
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .43* .87 .89 .88 .90 .85
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.92* 6.15 6.58 6.55 7.09 7.31
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 64.26* 294.74 125.80 138.97 195.45 209.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.22 $12.97 $12.59 $12.91 $12.33 $13.60
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .33(c) .70(c) .75 .74(c) .79 .64
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.30) .28 .35 (.30) .61 (1.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .03 .98 1.10 .44 1.40 (.41)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.36) (.71) (.72) (.72) (.75) (.67)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.04) (.07) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.73) (.72) (.76) (.82) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.89 $13.22 $12.97 $12.59 $12.91 $12.33
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.24* 7.82 8.95 3.52 11.82 (3.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,277,802 $1,334,041 $1,291,901 $1,458,848 $1,643,923 $1,752,887
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80* 1.62 1.64 1.63 1.65 1.60
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.54* 5.42 5.83 5.80 6.33 6.55
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 64.26* 294.74 125.80 138.97 195.45 209.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.25 $13.00 $12.63 $12.96 $12.29
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .37(c) .80(c) .80 .82(c) .61
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.31) .25 .35 (.32) .66
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 1.05 1.15 .50 1.27
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.39) (.77) (.78) (.78) (.55)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.05) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.80) (.78) (.83) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.92 $13.25 $13.00 $12.63 $12.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.47* 8.38 9.39 3.99 10.54*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $150,031 $163,076 $7,850 $6,116 $2,609
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .55* 1.12 1.14 1.14 .79*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.79* 5.91 6.32 6.37 4.14*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 64.26* 294.74 125.80 138.97 195.45
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.27 $13.01 $12.63 $12.98 $12.38 $12.68
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41(c) .83(c) .89(c) .88(c) .90 .39
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.31) .29 .34 (.34) .64 (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 1.12 1.23 .54 1.54 .09
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.83) (.85) (.84) (.86) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.05) (.08) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.43) (.86) (.85) (.89) (.94) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period 12.94 $13.27 $13.01 $12.63 $12.98 $12.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.74* 8.98 10.05 4.34 13.07 .11*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $21,336 $7,428 $6,061 $3,190 $43,196 $19,337
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .30* .62 .64 .62 .65 .29*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.05* 6.42 6.83 6.51 7.16 3.63*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 64.26* 294.74 125.80 138.97 195.45 209.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, 1999 (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 are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class M
shares are sold with a maximum front end sales charge of 3.25% and pay 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, 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 $150 million in a
combination of Putnam Funds and other accounts managed by affiliates of
Putnam 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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.
Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the trade date; interest income is
accrued based on the terms of the security. Losses may arise due to
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
E) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
F) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. 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, 1998, the fund had a capital loss carryover of
approximately $319,487,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- --------------------- -------------------------
$258,710,000 September 30, 2003
51,884,000 September 30, 2004
8,893,000 September 30, 2005
G) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. The amount and character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. 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, 1999, fund expenses were reduced by
$263,488 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 $2,130
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 have approved 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, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $210,698 and $42,679 from the
sale of class A and class M shares, respectively and $798,330 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, 1999, Putnam Mutual
Funds Corp., acting as underwriter received $32,221 on class A
redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1999, purchases and sales of U.S.
government and agency obligations other than short-term investments
aggregated $2,187,072,164 and $2,229,578,128, 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, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 71,722,332 $ 936,504,240
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,313,236 43,185,167
- -----------------------------------------------------------------------------
75,035,568 979,689,407
Shares
repurchased (76,062,008) (992,999,272)
- -----------------------------------------------------------------------------
Net decrease (1,026,440) $ (13,309,865)
- -----------------------------------------------------------------------------
Year ended
September 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 59,973,385 $ 785,402,534
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,642,555 86,591,930
- -----------------------------------------------------------------------------
66,615,940 871,994,464
Shares
repurchased (71,219,827) (931,308,277)
- -----------------------------------------------------------------------------
Net decrease (4,603,887) $(59,313,813)
- -----------------------------------------------------------------------------
Six months ended
March 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 17,907,115 $ 233,337,737
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,889,153 24,526,385
- -----------------------------------------------------------------------------
19,796,268 257,864,122
Shares
repurchased (21,571,957) (280,955,699)
- -----------------------------------------------------------------------------
Net decrease (1,775,689) $ (23,091,577)
- -----------------------------------------------------------------------------
Year ended
September 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 29,712,925 $ 387,310,922
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,653,269 47,450,098
- -----------------------------------------------------------------------------
33,366,194 434,761,020
Shares
repurchased (32,107,152) (418,121,195)
- -----------------------------------------------------------------------------
Net increase 1,259,042 $ 16,639,825
- -----------------------------------------------------------------------------
Six months ended
March 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,795,853 $ 23,503,860
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 34,680 451,253
- -----------------------------------------------------------------------------
1,830,533 23,955,113
Shares
repurchased (2,527,744) (33,022,530)
- -----------------------------------------------------------------------------
Net decrease (697,211) $ (9,067,417)
- -----------------------------------------------------------------------------
Year ended
September 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 19,378,067 $253,347,903
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 43,951 572,328
- -----------------------------------------------------------------------------
19,422,018 253,920,231
Shares
repurchased (7,720,736) (100,941,489)
- -----------------------------------------------------------------------------
Net increase 11,701,282 $152,978,742
- -----------------------------------------------------------------------------
Six months ended
March 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,439,880 $18,808,538
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 31,139 403,812
- -----------------------------------------------------------------------------
1,471,019 19,212,350
Shares
repurchased (382,427) (4,984,304)
- -----------------------------------------------------------------------------
Net increase 1,088,592 $14,228,046
- -----------------------------------------------------------------------------
Year ended
September 30, 1998
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 682,330 $ 8,902,590
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 31,752 413,654
- -----------------------------------------------------------------------------
714,082 9,316,244
Shares
repurchased (620,409) (8,107,856)
- -----------------------------------------------------------------------------
Net increase 93,673 $ 1,208,388
- -----------------------------------------------------------------------------
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Michael Martino
Vice President and Fund Manager
Kevin M. Cronin
Vice President and Fund Manager
Richard A. Monaghan
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' Web site:
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
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
SA038-51849 032/885/689/527 5/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ---------------------------------------------------------------------------
Putnam U.S. Government Income Trust
Supplement to Report dated March 31, 1999
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 report.
RESULTS AT A GLANCE
- ---------------------------------------------------------------------------
Total return
for periods ended 3/31/99 NAV
6 months 0.74%
1 year 5.88
Five years 42.65
Annual average 7.36
10 years 114.03
Annual average 7.91
Life of fund (since class A inception, 2/8/84) 245.04
Annual average 8.52
Share value: NAV
9/30/98 $13.27
3/31/99 $12.94
- ---------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 0.425 -- 0.425
- ---------------------------------------------------------------------------
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.
