Putnam
U.S. Government
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The U.S. economy's continued strength and historically low unemployment
rate, combined with dramatic recovery elsewhere in the world, hastened the
flow of assets from the safe haven of U.S. government securities and back
into more adventuresome investments during the 12 months ended September
30, 1999.
While it is disconcerting to cope with a market experiencing such a trying
period, Putnam U.S. Government Income Trust's managers handled the
challenge well by taking a distinctly neutral approach.
In a market environment practically devoid of opportunities, the managers
focused on yield curve positioning, duration, and sector rotation. In
other words, they built the portfolio around securities they believed had
the most attractive yields, the least sensitivity to interest-rate shifts,
and the most promising prospects for improvement.
In the following report, the managers discuss the market environment
during fiscal 1999, their response to it, and their expectations for
fiscal 2000.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 17, 1999
Report from the Fund Managers
Michael Martino
Kevin M. Cronin
Rising interest rates dampened returns on all fixed-income securities,
including those issued by the U.S. government, during Putnam U.S.
Government Income Trust's 1999 fiscal year. Rates rose in response to
fears that continued vibrant economic growth in the United States would
lead to a build-up in inflationary pressures. Since rates and bond prices
move in opposite directions, the interest-rate increases caused a drop in
the value of U.S. Treasuries and other government securities. While
mortgage-backed securities enjoyed a short rally in early 1999, softened
demand caused them to underperform Treasuries over the course of the year.
Although our pursuit of a neutral strategy softened the blow of this
rising rate environment to some extent, the fund was not entirely immune
to this difficult market backdrop. Please see page 6 for more performance
information.
Total return for 12 months ended 9/30/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
0.76% -4.01% 0.01% -4.72% -0.08% -1.02% 0.56% -2.75%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* PENDULUM SWINGS THE OTHER WAY
Interest rates plunged during the first half of the fund's fiscal year,
with the onset of emerging-market crises and a credit crunch in the latter
half of 1998. The Federal Reserve Board helped propel rates lower by
cutting the federal funds rate three times, taking it from 5.50% in
September to 4.75% in mid November. Investors fled to the quality offered
by Treasury bonds, but non-Treasury sectors, including mortgage-backed
securities whose value had dropped during the flight to quality, rebounded
during the first quarter of 1999 as the global economy showed signs of
stabilizing.
When investors turned their attention back to the U.S. economy, they were
confronted by data that showed historically low unemployment and
exceptionally robust economic growth, two potential precursors of the
inflation that can eat into the value of a bond's fixed payments. Interest
rates started to rise, and the Fed tried to stem growth and, as a
consequence, inflation by raising the federal funds rate by 0.25
percentage points at the end of June and again in August. As a result of
these adjustments, both mortgages and Treasuries -- the two sectors in
which your fund invests -- experienced drops in value, although Treasury
securities outperformed all other sectors of the market during the last
six months of your fund's fiscal year.
"Some say Treasuries and other top-quality bonds will see increased popularity
in the coming months, at least relative to other bond funds, as investors
shift into the most dependable class of bonds they can find."
- -- The Wall Street Journal, October 4, 1999
Since the beginning of calendar 1999 and as of September 30, 1999, the
yield on the benchmark 30-year Treasury rose from 5.10% to 6.06%. For
their part, non-Treasury yields increased even more.
* DISTINCTLY NEUTRAL APPROACH
For most of the fiscal year, the fund remained neutral in the three areas
in which we seek to add value: focusing investments on a particular part
or parts of the yield curve (a representation of the difference between
short- and long-term interest rates), duration (a measure of the fund's
sensitivity to changes in interest rates), and sector rotation between
mortgages and Treasuries. In this, one of the worst-performing bond market
environments in recent memory, there was a distinct absence of opportunity
for us to pursue.
Your fund did benefit from an underweighting in mortgages earlier in the
fiscal year when Treasuries rallied, but since then the mortgage
allocation has generally remained around a neutral 90% of assets. As the
fiscal year progressed, prices of mortgage-backed securities became quite
cheap as demand for them slackened.
[GRAPHIC OMITTED: pie chart PORTFOLIO ALLOCATIONS (9/30/99)]
PORTFOLIO ALLOCATIONS (9/30/99)*
U.S. Treasury
securities -- 9.0%
Cash and short-term
investments -- 2.7%
Mortgage-backed
securities -- 88.3%
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.
There were several reasons for this decline. First, investors tried to
sell off these securities as rates rose because their average life extends
- -- and their sensitivity to changes in interest rate increases -- as
interest rates rise. Second, in the first nine months of calendar 1999,
corporations issued new bonds at an extraordinary rate in order to raise
capital well in advance of any problems that might occur closer to the
turn to the year 2000. That glut of new supply caused issuers to increase
yields to attract buyers and pulled assets away from the mortgage market
and into corporates. Finally, Y2K concerns have prompted securities
dealers to overweight their portfolios with Treasuries because these
securities offer the most liquidity.
We have not altered the strategy of your fund in preparation for Y2K. The
main concern for portfolio managers managing securities other than
high-quality government bonds is providing liquidity in case there are
redemptions near year's end. That is much less of an issue with this fund
because of its high quality and liquidity. Furthermore, as we make our way
to 2000 and interest rates and corporate issuance stabilize, we anticipate
that the yield differential between mortgage-backed securities and
Treasuries will diminish, signifying a rebound in the mortgage sector.
[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND DURATION]
AVERAGE EFFECTIVE MATURITY AND DURATION
9/30/98 3/31/99 9/30/99
Average effective maturity 5.1 7.1 8.8
Duration 1.8 3.2 4.8
Footnote reads:
This chart depicts the fund's average effective maturity and duration at
6-month intervals over the 12 months ended 9/30/99. 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.
* OUTLOOK FOR SLOWER GROWTH, MODERATELY HIGHER INFLATION
Going forward, we are most concerned about the outlook for inflation. Over
the next few months, we anticipate short-term jumps in the consumer and
producer price indexes. However, we believe that longer-term we will see a
slowdown in the economy -- not a slow economy, mind you, but a slower pace
of growth with modest inflation. As such, we believe that interest rates
will move within a narrow range over the next year. Shortly after the end
of the fiscal year, the Fed opted not to raise rates a third time but
indicated an inclination to increase rates further. We consider it
possible that this will happen before the end of the year.
Looking more closely at the portfolio, we believe we can add value by
adding slightly to the fund's mortgage-backed security holdings, moving
them closer to about 95% of the portfolio. Mortgages should remain cheap
over the near term, and once held, would benefit the fund when they
eventually rebound. We may nudge the fund's duration upward to help it
take advantage of interest-rate declines that could occur once the market
stabilizes through the end of the year. And we will aim to take advantage
of any yield curve opportunities that arise. Thus far, the fund has
succeeded by pursuing the status quo. As 1999 winds down and we enter a
new year, we will be looking for developments that dictate a shift to an
alternate course.
"As we make our way through to the year 2000 and interest rates and corporate
issuance stabilize, we anticipate that the yield differential between
Treasuries and mortgage-backed securities will diminish, signifying a rebound
in the mortgage sector."
- -- Michael Martino, fund manager
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 9/30/99, 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 primarily invests in securities
backed by the full faith and credit of the U.S. government and in repurchase
agreements and forward commitments with respect to these securities.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99
Class A Class B Class C Class M
(inception dates) (2/8/84) (4/27/92) (7/26/99) (2/6/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 0.76% -4.01% 0.01% -4.72% -0.08% -1.02% 0.56% -2.75%
- ----------------------------------------------------------------------------------------------
5 years 41.28 34.53 35.98 33.98 35.95 35.95 39.48 34.89
Annual average 7.16 6.11 6.34 6.02 6.33 6.33 6.88 6.17
- ----------------------------------------------------------------------------------------------
10 years 96.47 87.20 81.81 81.81 82.08 82.08 91.24 85.02
Annual average 6.99 6.47 6.16 6.16 6.18 6.18 6.70 6.35
- ----------------------------------------------------------------------------------------------
Life of fund 241.39 225.22 198.46 198.46 203.16 203.16 223.02 212.56
Annual average 8.17 7.83 7.24 7.24 7.35 7.35 7.79 7.56
- ----------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/99
Lehman Bros.
Mortgage-Backed Consumer
Securities Index price index
- --------------------------------------------------------------------------
1 year 2.27% 2.75%
- --------------------------------------------------------------------------
5 years 46.83 12.38
Annual average 7.99 2.36
- --------------------------------------------------------------------------
10 years 119.06 34.32
Annual average 8.16 2.99
- --------------------------------------------------------------------------
Life of fund 342.45 64.77
Annual average 9.96 3.24
- --------------------------------------------------------------------------
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. For class C shares,
returns for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
CDSC currently applicable to class C shares, which is 1% for the first
year and is eliminated thereafter, and the higher operating expenses
applicable to class C 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/30/89
Lehman Bros.
Fund's class A Mortgage-Backed Consumer price
Date shares at POP Securities Index index
9/30/89 9,525 10,000 10,000
9/30/90 10,341 10,969 10,616
9/30/91 11,696 12,757 10,976
9/30/92 12,856 14,150 11,304
9/30/93 13,569 15,092 11,608
9/30/94 13,250 14,919 11,952
9/30/95 14,922 16,938 12,256
9/30/96 15,566 17,921 12,624
9/30/97 17,083 19,719 12,896
9/30/98 18,579 21,420 13,072
9/30/99 $18,720 $21,906 $13,432
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $18,181 and $18,208, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $19,124 ($18,502 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/99
Class A Class B Class C Class M
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 2 12
- ----------------------------------------------------------------------------------
Income $0.7578 $0.6673 $0.1206 $0.7239
- ----------------------------------------------------------------------------------
Return of capital3 0.0462 0.0407 0.0074 0.0441
- ----------------------------------------------------------------------------------
Total $0.804 $0.708 $0.128 $0.768
- ----------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ----------------------------------------------------------------------------------
9/30/98 $13.28 $13.94 $13.22 $ -- $13.25 $13.70
- ----------------------------------------------------------------------------------
7/26/994 -- -- -- 12.54 -- --
- ----------------------------------------------------------------------------------
9/30/99 12.57 13.20 12.51 12.55 12.55 12.97
- ----------------------------------------------------------------------------------
Current return (end of period)
- ----------------------------------------------------------------------------------
Current dividend rate1 6.30% 6.00% 5.56% 6.02% 6.02% 5.83%
- ----------------------------------------------------------------------------------
Current 30-day SEC yield2 6.12 5.82 5.37 5.39 5.87 5.75
- ----------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV or
POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
3 For information on return of capital, please see page 27.
4 Class C shares inception date.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
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. Securities indexes assume reinvestment
of all distributions and interest payments, and the performance of the
fund will differ. 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended September 30, 1999
To the Trustees and Shareholders of
Putnam U.S. Government Income Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam U.S. Government
Income Trust (the "fund") at September 30, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at September 30, 1999 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 10, 1999
<TABLE>
<CAPTION>
The fund's portfolio
September 30, 1999
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (97.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
U.S. Government Agency Mortgage Obligations (88.0%)
- --------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
Graduated Payment Mortgages
$ 28,833 13 3/4s, with due dates from September 20, 2014
to November 20, 2014 $ 32,950
81,532 13 1/4s, December 20, 2014 92,768
112,173 12 3/4s, with due dates from June 20, 2014
to June 20, 2015 127,350
102,323 12 1/4s, with due dates from December 20, 2013
to January 20, 2014 114,888
Government National Mortgage Association
Pass-Through Certificates
71,400 16s, with due dates from October 15, 2011
to November 15, 2011 85,121
145,841 15s, with due dates from July 15, 2011
to March 15, 2013 172,691
114,124 14s, with due dates from July 15, 2014
to January 20, 2015 131,840
752,517 13 1/2s, with due dates from March 15, 2011
to June 20, 2015 860,547
1,221 13 1/4s, October 15, 2014 1,398
598,168 13s, with due dates from October 20, 2013
to September 20, 2015 677,792
328,910 12 3/4s, with due dates from October 15, 2013
to July 15, 2014 375,882
315,452 12 1/2s, with due dates from June 15, 2010
to November 20, 2015 352,867
448,861 12 1/4s, with due dates from August 15, 2013
to May 15, 2015 507,356
314,896 12s, with due dates from April 20, 2014
to March 20, 2016 349,633
1,524,646 11 1/2s, with due dates from May 15, 2010
to September 15, 2018 1,701,519
747,286 11 1/4s, with due dates from June 15, 2013
to January 15, 2016 823,641
1,557,436 11s, with due dates from November 20, 2013
to June 20, 2019 1,693,214
10,979 11s, with due date July 15, 2000 11,964
115,901 10 7/8s, February 15, 2010 126,600
115,733 10 3/4s, with due dates from January 15, 2016
to February 15, 2016 127,704
13,229,385 10 1/2s, with due dates from April 15, 2010
to September 15, 2021 14,555,057
344,877 10 1/4s, with due dates from March 15, 2016
to December 15, 2020 373,868
1,146,324 10s, with due dates from October 15, 2009
to January 20, 2021 1,233,077
8,199,098 9 1/2s, with due date March 15, 2029 8,701,293
43,502,604 9 1/2s, with due dates from June 15, 2009
to April 15, 2023 46,443,148
697,802 9 1/4s, with due dates from April 15, 2016
to November 15, 2019 736,181
57,495,975 9s, with due dates from September 15, 2013
to January 15, 2025 60,402,769
1,855,722 9s, with due dates from November 15, 2004
to June 15, 2011 1,956,617
78,991,630 8 1/2s, with due dates from June 15, 2015
to March 15, 2027 82,355,985
16,631,004 8 1/2s, with due dates from May 15, 2001
to January 15, 2010 17,400,135
301,580,711 8s, with due dates from May 15, 2016
to January 15, 2028 308,650,495
26,033,688 8s, with due dates from January 15, 2001
to November 15, 2009 26,749,793
379,419,480 7 1/2s, with due dates from March 15, 2017
to October 15, 2027 381,717,319
599 7 1/2s, with due date March 15, 2001 605
898,393,233 7s, with due dates from March 15, 2022
to June 15, 2029 882,888,763
103,651,727 7s, with due dates from October 15, 2007
to February 15, 2013 104,072,418
796,242,858 6 1/2s, with due dates from May 15, 2023
to June 15, 2029 761,950,579
148,381,365 6s, with due dates from July 15, 2028 to May 15, 2029 137,669,719
56,223 5 1/2s, May 15, 2017 57,803
--------------
2,846,283,349
U.S. Treasury Obligations (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
125,000,000 6 1/8s, August 15, 2029 126,230,000
6,610,000 5 1/4s, February 15, 2029 5,784,808
U.S. Treasury Notes
50,000,000 6 1/8s, August 15, 2007 50,054,500
51,500,000 5 5/8s, May 15, 2008 49,986,930
60,000,000 5 1/2s, January 31, 2003 59,484,600
--------------
291,540,838
--------------
Total U.S. Government and Agency Obligations
(cost $3,185,483,540) $3,137,824,187
SHORT-TERM INVESTMENTS (2.7%) (a) (cost $87,434,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$87,434,000 Interest in $750,000,000 joint repurchase agreement
dated September 30, 1999 with Goldman Sachs & Co.
due October 1, 1999 with respect to various
U.S. Treasury obligations -- maturity value of $87,446,848
for an effective yield of 5.29% $ 87,434,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,272,917,540) (b) $3,225,258,187
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,233,054,233.
(b) The aggregate identified cost on a tax basis is $3,273,140,196, resulting in gross unrealized appreciation and
depreciation of $25,858,772 and $73,740,781, respectively, or net unrealized depreciation of $47,882,009.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,272,917,540) (Note 1) $3,225,258,187
- -----------------------------------------------------------------------------------------------
Cash 461
- -----------------------------------------------------------------------------------------------
Interest and other receivables 20,311,963
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 6,106,221
- -----------------------------------------------------------------------------------------------
Total assets 3,251,676,832
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 12,096,711
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,550,289
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 426,105
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 108,989
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,759
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,317,093
- -----------------------------------------------------------------------------------------------
Other accrued expenses 115,653
- -----------------------------------------------------------------------------------------------
Total liabilities 18,622,599
- -----------------------------------------------------------------------------------------------
Net assets $3,233,054,233
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,614,103,436
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (333,389,850)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (47,659,353)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,233,054,233
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,986,980,085 divided by 158,101,260 shares) $12.57
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.57)* $13.20
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,082,047,715 divided by 86,488,811 shares)** $12.51
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($2,577,488 divided by 205,332 shares)** $12.55
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($133,361,638 divided by 10,629,298 shares) $12.55
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.55)* $12.97
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($28,087,307 divided by 2,235,902 shares) $12.56
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1999
<S> <C>
Interest income $233,651,689
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 14,775,580
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,088,335
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 51,879
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 31,216
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 5,101,098
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 12,425,024
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 2,259
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 743,248
- -----------------------------------------------------------------------------------------------
Reports to shareholders 88,784
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 66,779
- -----------------------------------------------------------------------------------------------
Legal 45,490
- -----------------------------------------------------------------------------------------------
Postage 365,136
- -----------------------------------------------------------------------------------------------
Other 299,583
- -----------------------------------------------------------------------------------------------
Total expenses 39,084,486
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (586,916)
- -----------------------------------------------------------------------------------------------
Net expenses 38,497,570
- -----------------------------------------------------------------------------------------------
Net investment income 195,154,119
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (12,871,100)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (167,916,152)
- -----------------------------------------------------------------------------------------------
Net loss on investments (180,787,252)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 14,366,867
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 195,154,119 $ 207,562,768
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (12,871,100) 30,743,304
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (167,916,152) 46,178,335
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 14,366,867 284,484,407
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (119,942,751) (129,683,505)
- ---------------------------------------------------------------------------------------------------------------
Class B (64,865,717) (68,119,252)
- ---------------------------------------------------------------------------------------------------------------
Class C (8,889) --
- ---------------------------------------------------------------------------------------------------------------
Class M (8,401,246) (8,147,157)
- ---------------------------------------------------------------------------------------------------------------
Class Y (1,171,979) (399,595)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (4,562,519)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (2,396,568)
- ---------------------------------------------------------------------------------------------------------------
Class C -- --
- ---------------------------------------------------------------------------------------------------------------
Class M -- (286,633)
- ---------------------------------------------------------------------------------------------------------------
Class Y -- (14,059)
- ---------------------------------------------------------------------------------------------------------------
From return of capital
Class A (7,313,013) --
- ---------------------------------------------------------------------------------------------------------------
Class B (3,954,919) --
- ---------------------------------------------------------------------------------------------------------------
Class C (542) --
- ---------------------------------------------------------------------------------------------------------------
Class M (512,231) --
- ---------------------------------------------------------------------------------------------------------------
Class Y (71,457) --
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital
share transactions (Note 4) (210,594,609) 111,513,142
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (402,470,486) 182,388,261
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 3,635,524,719 3,453,136,458
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed
net investment income
of $-- and $--, respectively.) $3,233,054,233 $3,635,524,719
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.28 $13.01 $12.63 $12.95 $12.37
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .76(c) .81(c) .85 .84(c) .88
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.66) .29 .34 (.30) .61
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 1.10 1.19 .54 1.49
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.76) (.80) (.81) (.81) (.83)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.05) -- -- (.05) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.81) (.83) (.81) (.86) (.91)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.57 $13.28 $13.01 $12.63 $12.95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.76 8.75 9.75 4.32 12.62
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,986,980 $2,130,980 $2,147,326 $2,450,376 $2,903,016
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85 .87 .89 .88 .90
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.94 6.15 6.58 6.55 7.09
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.04 294.74 125.80 138.97 195.45
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.22 $12.97 $12.59 $12.91 $12.33
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .67(c) .70(c) .75 .74(c) .79
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.67) .28 .35 (.30) .61
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations -- .98 1.10 .44 1.40
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.67) (.71) (.72) (.72) (.75)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.04) -- -- (.04) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.71) (.73) (.72) (.76) (.82)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.51 $13.22 $12.97 $12.59 $12.91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.01 7.82 8.95 3.52 11.82
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,082,048 $1,334,041 $1,291,901 $1,458,848 $1,643,923
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.60 1.62 1.64 1.63 1.65
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.18 5.42 5.83 5.80 6.33
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.04 294.74 125.80 138.97 195.45
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (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 C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $12.54
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .14
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.55
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,577
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .29*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .99*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.04
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 6, 1995+
operating performance 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 .72(c) .80(c) .80 .82(c) .61
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.66) .25 .35 (.32) .66
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 1.05 1.15 .50 1.27
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.72) (.77) (.78) (.78) (.55)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.04) -- -- (.05) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.76) (.80) (.78) (.83) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.55 $13.25 $13.00 $12.63 $12.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.56 8.38 9.39 3.99 10.54*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $133,362 $163,076 $7,850 $6,116 $2,609
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.10 1.12 1.14 1.14 .79*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.68 5.91 6.32 6.37 4.14*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.04 294.74 125.80 138.97 195.45
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.27 $13.01 $12.63 $12.98 $12.38
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .79(c) .83(c) .89(c) .88(c) .90
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.66) .29 .34 (.34) .64
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .13 1.12 1.23 .54 1.54
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.79) (.83) (.85) (.84) (.86)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.05) -- -- (.05) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.84) (.86) (.85) (.89) (.94)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period 12.56 $13.27 $13.01 $12.63 $12.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.04 8.98 10.05 4.34 13 .07
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $28,087 $7,428 $6,061 $3,190 $43,196
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .60 .62 .64 .62 .65
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.19 6.42 6.83 6.51 7.16
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 123.04 294.74 125.80 138.97 195.45
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
Notes to financial statements
September 30, 1999
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 C, class M and class Y shares. The
fund began offering class C shares on July 26, 1999. 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 C shares are
subject to the same fees and expenses as class B shares, except that class
C shares have a one-year 1.00% contingent deferred sales charge and do not
convert to class A shares. 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 and class C shares.
Class Y shares, which are sold at net asset value, are generally subject
to the same expenses as class A, class B, class C 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 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
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. 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). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis.
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, 1999, the fund had a capital loss carryover of
approximately $318,732,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ------------------
$257,955,000 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. These differences include temporary and permanent differences
of losses on wash sale transactions and post-October loss deferrals.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended September 30,
1999, the fund reclassified $763,537 to increase distributions in excess
of net investment income and $625,266 to decrease paid-in-capital, with a
decrease to accumulated net realized losses of $1,388,803. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.57% of the first $500
million, 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 year ended September 30, 1999, fund expenses were reduced by
$586,916 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 $2,819
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
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, class C and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments Inc., for services provided and expenses incurred by it in
distributing shares of the fund. The Plans provide for payments by the
fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the year ended September 30, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $421,297 and $64,266 from the
sale of class A and class M shares, respectively, and received $1,687,618
and no monies in contingent deferred sales charges from redemptions of
class B and class C shares, respectively. A deferred sales charge of up to
1% is assessed on certain redemptions of class A shares. For the year
ended September 30, 1999, Putnam Mutual Funds Corp., acting as underwriter
received $73,635 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended September 30, 1999, cost of purchases and proceeds
from sales of U.S. government and agency obligations other than short-term
investments aggregated $4,100,912,415 and $4,339,469,439, respectively.
Note 4
Capital shares
At September 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 124,382,231 $1,607,237,236
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,596,261 84,621,722
- -----------------------------------------------------------------------------
130,978,492 1,691,858,958
Shares
repurchased (133,370,823) (1,723,451,565)
- -----------------------------------------------------------------------------
Net decrease (2,392,331) $ (31,592,607)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 28,314,302 $ 364,737,287
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,719,545 47,544,292
- -----------------------------------------------------------------------------
32,033,847 412,281,579
Shares
repurchased (46,447,759) (594,138,600)
- -----------------------------------------------------------------------------
Net decrease (14,413,912) $(181,857,021)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to September 30, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 262,305 $ 3,277,862
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 725 9,044
- -----------------------------------------------------------------------------
263,030 3,286,906
Shares
repurchased (57,698) (724,717)
- -----------------------------------------------------------------------------
Net increase 205,332 $ 2,562,189
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,762,950 $ 35,720,161
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 70,599 903,774
- -----------------------------------------------------------------------------
2,833,549 36,623,935
Shares
repurchased (4,509,265) (58,080,146)
- -----------------------------------------------------------------------------
Net decrease (1,675,716) $(21,456,211)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,505,436 $ 32,394,071
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 97,645 1,243,436
- -----------------------------------------------------------------------------
2,603,081 33,637,507
Shares
repurchased (926,842) (11,888,466)
- -----------------------------------------------------------------------------
Net increase 1,676,239 $ 21,749,041
- -----------------------------------------------------------------------------
Year ended September 30, 1998
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Class Y Shares Amount
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Shares sold 682,330 $ 8,902,590
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Shares issued in
connection with
reinvestment of
distributions 31,752 413,654
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714,082 9,316,244
Shares
repurchased (620,409) (8,107,856)
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Net increase 93,673 $ 1,208,388
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Federal tax information
(Unaudited)
For the year ended September 30, 1999, a portion of the Fund's
distribution represents a return of capital and is therefore not taxable
to shareholders.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
*DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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
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
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: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN038-56139 032/885/689/527 11/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam U.S. Government Income Trust
Supplement to Annual Report dated 9/30/99
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 annual report.
ANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return: NAV
Six months ended 9/30/99 0.29%
One year ended 9/30/99 1.04
Life of class (since 4/11/94) 44.00
Annual average 6.89
- ---------------------------------------------------------------------------
Share value: NAV
9/30/98 $13.27
9/30/99 12.56
- ----------------------------------------------------------------------------
Distributions: No. Income Return of Capital Total
12 $0.791 $0.048 $0.839
- ----------------------------------------------------------------------------
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.
