Putnam
U.S. Government
Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
year 2000. In the following report, the fund's managers discuss
performance for the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam U.S.
Government Income Trust that I will be signing. After more than 30 years
as Chairman of the Trustees and President of the Putnam Funds, the time
has come for me to step aside. In June, John Hill will become Chairman.
John is currently an independent Trustee and has served on the board for
the past 14 years. In addition, my son, George Putnam, III, will take on
the role of President. I am confident that the leadership of the funds
will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/ GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 17, 2000
Report from the Fund Managers
Michael Martino
Kevin M. Cronin
During the first half of its fiscal year, Putnam U.S. Government Income
Trust outperformed its peer group average, benefiting from an overweight
position in mortgage-backed securities in the final quarter of 1999 and
declining interest rates in the first quarter of 2000. The bond market
was characterized by a marked split in the two quarters of the
semiannual period as interest rates climbed steadily from October 1999
through the new year only to turn downward after mid January 2000.
Total return for 6 months ended 3/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------
1.69% -3.16% 1.31% -3.61% 1.33% 0.34% 1.49% -1.80%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* STRONG ECONOMY, RISING RATES CHARACTERIZED FOURTH QUARTER OF 1999
The U.S. economy continued its expansion to a record 10th consecutive
year, growing at a torrid 7.3% annualized rate in the fourth quarter of
1999. First-quarter 2000 growth is expected to be in the 4.5% to 5%
range, which is strong compared with the historical average of 2% to 3%.
The economy's strength has fueled the stock market, drawing investment
assets away from bonds. Concurrently the growth has spooked many bond
investors who have been wary of the effects that a hot economy can have
on inflation. The Federal Reserve Board has shared this concern, raising
interest rates five times since June 1999 in an attempt to slow the rate
of growth.
During the fourth quarter of last year, concerns about the U.S.
economy's growth helped propel interest rates upward. The yield on the
10-year Treasury bond, which has become a benchmark for the bond market,
rose from 5.88% on September 30, 1999, to 6.79% on January 20, 2000 --
nearly a full percentage point. On average, interest rates for Treasury
bonds of all maturities rose about half a percentage point during this
period.
[GRAPHIC OMITTED: pie chart PORTFOLIO ALLOCATION (3/31/00)]
PORTFOLIO ALLOCATION (3/31/00)*
U.S. Treasury securities -- 0.5%
Cash and short-term investments -- 0.1%
Mortgage-backed securities -- 7.3%
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.
The Treasury portion of your fund's portfolio, which had a longer
average duration than those of its peers, was negatively affected by the
sharp rise in interest rates. Duration is a measure of interest-rate
sensitivity that factors in a bond's coupon and its maturity. When
interest rates rise, a bond with a longer duration will experience a
greater price decline than a bond with a shorter duration.
* FUND'S HOLDINGS OF MORTGAGE-BACKED SECURITIES HELPED PERFORMANCE AS
RATES ROSE
A positive counterweight came from the portfolio's mortgage-backed
securities (MBSs), which are Government National Mortgage Association
(GNMA) certificates. The fund's GNMA holdings, accounting for 99.4% of
the market value of the fund's total assets at period's end, are
mortgage pass-through securities. These securities provide investors
with access to the interest and principal payments of a portfolio of
housing loans.
GNMAs typically provide higher yields than Treasuries of similar
maturities and are backed by the full faith and credit of the U.S.
government. This backing assures the timely payment of interest and
principal but does not protect the fund's principal, which will
fluctuate. Compared to its peers, the fund was overweight in MBS
holdings, which were relatively unaffected by the rate increases. This
positioning helped the fund outperform during the final calendar quarter
of last year.
[GRAPHIC OMITTED: worm chart YIELD CURVES AT 9/30/99 AND 3/31/00]
YIELD CURVES AT 9/30/99 AND 3/31/00
Date 9/30/99 3/31/2000
3 mo. 4.846% 5.886%
6 mo. 4.958% 6.140%
1 yr. 5.178% 6.239%
2 yr. 5.600% 6.483%
5 yr. 5.756% 6.320%
10 yr. 5.877% 6.015%
30 yr. 6.053% 5.873%
Source: Bloomberg, Inc.
* INVERSION OF YIELD CURVE SIGNIFICANT FIRST QUARTER EVENT
An important event in the first quarter of 2000 was an inversion in the
yield curve, caused by rising short-term interest rates and a sharp
decline in the yield on the 30-year Treasury bond. The Fed, in an
attempt to slow economic growth, raised short-term interest rates three
times during the period -- in November, early February, and March. Each
increase amounted to 25 basis points, bringing the federal funds rate to
6.00% by March 31.
During this period, long-term interest rates declined primarily because
of the federal government's buyback of 30-year Treasury bonds, the
result of a decision to use the budget surplus to pay down federal debt.
The increase in demand caused by these purchases pushed long-term prices
up, bringing yields down. Intermediate-maturity bonds also benefited
from this trend.
If this debt buyback had not occurred, we believe the yield curve would
still be somewhat inverted but not as dramatically so. Historically an
inverted yield curve has been viewed as a predictor of a slowing
economy. Under such a scenario, investors buy longer-term bonds (pushing
their yields down) under the assumption that the economy will slow, an
event that could push yields lower still. In addition, an inverted yield
curve has been viewed as a precursor to a stock market decline.
[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND DURATION]
AVERAGE EFFECTIVE MATURITY AND DURATION
3/31/99 9/30/99 3/31/00
Average effective maturity 7.1 8.8 8.2
Duration 3.2 4.8 4.6
Footnote reads:
This chart depicts the fund's average effective maturity and duration
at 6-month intervals over the 12 months ended 3/31/00. 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: MORE RATE INCREASES, SLOWER ECONOMY
Going into the second quarter, we will likely be more inclined to add to
the fund's MBS weightings, since the recent widening of spreads has
resulted in more attractive price levels. In fact, the spread between
MBSs and Treasuries is near an all-time high, going back to the mid
1980s, when this market first became popular for investors. As the fund
begins the second half of fiscal 2000, we are keeping the portfolio's
overall duration neutral relative to its peers, since the immediate
direction of interest rates at this point remains unclear.
"It was no surprise that this fund held up well in the face of rising
interest rates in 1999. It also outperformed its intermediate-government
peers in 1994 and 1996 -- both difficult markets for bonds. In each of
those years, the fund benefited from its mortgage focus."
- -- Morningstar, Inc., 3/1/00
We anticipate that the Fed will probably raise short-term interest rates
at least two more times by the end of June 2000, which should help slow
the growth of the economy and ease inflation fears. We believe it is
possible for the economy to attain a soft landing from the blistering
pace it has set in the past few quarters. In the near term, we may see
interest rates rise a little, particularly if first-quarter growth is
strong. However, we believe that the Fed tightening should start to have
a slowing effect on the economy over the next six months and that toward
the latter part of the year, rates may drop back down.
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 3/31/00, 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. The fund may invest in securities other than those issued or
backed by the full faith and credit of the U.S. government.
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 3/31/00
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
- ----------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S> <S> <S>
6 months 1.69% -3.16% 1.31% -3.61% 1.33% 0.34% 1.49% -1.80%
- ----------------------------------------------------------------------------------------
1 year 1.85 -3.02 1.08 -3.70 1.03 0.08 1.58 -1.69
- ----------------------------------------------------------------------------------------
5 years 36.97 30.49 31.71 29.74 31.82 31.82 35.08 30.69
Annual average 6.49 5.47 5.66 5.34 5.68 5.68 6.20 5.50
- ----------------------------------------------------------------------------------------
10 years 92.89 83.80 78.61 78.61 78.84 78.84 87.72 81.63
Annual average 6.79 6.28 5.97 5.97 5.99 5.99 6.50 6.15
- ----------------------------------------------------------------------------------------
Life of fund 247.17 230.73 202.38 202.38 207.17 207.17 227.84 217.21
Annual average 8.02 7.69 7.10 7.10 7.20 7.20 7.63 7.41
- ----------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/00
Lehman Bros.
Mortgage-Backed Consumer
Securities Index price index
- ---------------------------------------------------------------------
6 months 1.77% 2.03%
- ---------------------------------------------------------------------
1 year 2.25 3.69
- ---------------------------------------------------------------------
5 years 41.39 13.15
Annual average 7.17 2.50
- ---------------------------------------------------------------------
10 years 114.08 33.02
Annual average 7.91 2.89
- ---------------------------------------------------------------------
Life of fund 350.27 68.01
Annual average 9.76 3.26
- ---------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/00
Class A Class B Class C Class M
- ---------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S>
Distributions (number) 6 6 6 6
- ---------------------------------------------------------------------------------------
Income $0.396 $0.349 $0.351 $0.381
- ---------------------------------------------------------------------------------------
Capital gains -- -- -- --
- ---------------------------------------------------------------------------------------
Total $0.396 $0.349 $0.351 $0.381
- ---------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ---------------------------------------------------------------------------------------
9/30/99 $12.57 $13.20 $12.51 $12.55 $12.55 $12.97
- ---------------------------------------------------------------------------------------
3/31/00 12.38 13.00 12.32 12.36 12.35 12.76
- ---------------------------------------------------------------------------------------
Current return (end of period)
- ---------------------------------------------------------------------------------------
Current dividend rate1 6.40% 6.09% 5.65% 5.73% 6.22% 6.02%
- ---------------------------------------------------------------------------------------
Current 30-day SEC yield2 6.42 6.11 5.66 5.68 6.17 6.04
- ---------------------------------------------------------------------------------------
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.
</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 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 noninvestment 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-end funds, a
separate table is provided for each share class.
The fund's portfolio
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (99.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
U.S. Government Agency Mortgage Obligations (99.1%)
- ----------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
Graduated Payment Mortgages
$ 15,023 13 3/4s, November 20, 2014 $ 16,878
80,684 13 1/4s, December 20, 2014 90,240
108,799 12 3/4s, with due dates from June 20, 2014 to
June 20, 2015 121,412
101,013 12 1/4s, with due dates from December 20, 2013 to
January 20, 2014 111,461
Government National Mortgage Association
Pass-Through Certificates
37,755 16s, with due dates from October 15, 2011 to
November 15, 2011 45,506
141,858 15s, with due dates from July 15, 2011 to
March 15, 2013 168,489
93,037 14s, with due dates from July 15, 2014 to
December 20, 2014 107,154
680,334 13 1/2s, with due dates from March 15, 2011 to
June 20, 2015 776,362
1,207 13 1/4s, October 15, 2014 1,359
528,033 13s, with due dates from October 20, 2013 to
September 20, 2015 598,893
257,393 12 3/4s, with due dates from October 15, 2013 to
July 15, 2014 289,163
299,809 12 1/2s, with due dates from June 15, 2010 to
November 20, 2015 334,717
380,696 12 1/4s, with due dates from August 15, 2013 to
May 15, 2015 422,925
301,287 12s, with due dates from April 20, 2014 to
March 20, 2016 334,145
1,352,806 11 1/2s, with due dates from May 15, 2010 to
September 15, 2018 1,499,450
568,329 11 1/4s, with due dates from July 15, 2013 to
January 15, 2016 615,392
1,390,089 11s, with due dates from July 15, 2000 to
June 20, 2019 1,509,962
102,785 10 7/8s, February 15, 2010 111,063
114,001 10 3/4s, with due dates from January 15, 2016 to
February 15, 2016 124,153
11,671,803 10 1/2s, with due dates from April 15, 2010 to
September 15, 2021 12,726,109
216,652 10 1/4s, with due dates from April 15, 2016 to
December 15, 2020 234,998
1,013,412 10s, with due dates from October 15, 2009 to
January 20, 2021 1,090,966
11,700,768 9 1/2s, with due dates from June 15, 2009 to
March 15, 2029 12,381,249
517,588 9 1/4s, with due dates from April 15, 2016 to
November 15, 2019 536,998
20,360,349 9s, with due dates from November 15, 2004 to
January 15, 2025 21,059,809
86,408,763 8 1/2s, with due dates from May 15, 2001 to
March 15, 2027 88,985,092
498,962 8s, December 15, 2029 504,576
499,213,602 8s, with due dates from January 15, 2001 to
March 15, 2030 504,977,512
339,921,848 7 1/2s, with due dates from March 15, 2001 to
October 15, 2027 338,112,728
876,635,402 7s, with due dates from October 15, 2007 to
June 15, 2029 851,295,239
769,860,631 6 1/2s, with due dates from May 15, 2024 to
July 15, 2029 726,506,421
161,465,249 6s, with due dates from July 15, 2028 to
May 15, 2029 147,740,708
29,465,744 5 1/2s, with due dates from November 15, 2013 to
May 15, 2017 27,094,581
----------------
2,740,525,710
U.S. Treasury Obligations (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
8,520,000 6 1/8s, August 15, 2029 8,683,754
6,610,000 5 1/4s, February 15, 2029 5,927,319
----------------
14,611,073
----------------
Total U.S. Government and Agency Obligations
(cost $2,824,277,849) $ 2,755,136,783
SHORT-TERM INVESTMENTS (0.1%) (a) (cost $3,492,000)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$3,492,000 Interest in $754,202,000 joint repurchase agreement
dated March 31, 2000, with Morgan (JP) Co. Inc.,
due April 3, 2000 with respect to various U.S.
Treasury obligations -- maturity value of $3,493,772
for an effective yield of 6.09% $ 3,492,000
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,827,769,849) (b) $ 2,758,628,783
- ----------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,766,949,173.
(b) The aggregate identified cost on a tax basis is $2,827,992,505, resulting in gross unrealized appreciation and
depreciation of $20,698,806 and $90,062,528, respectively, or net unrealized depreciation of $69,363,722.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 2000 (Unaudited)
Assets
- ----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $2,827,769,849) (Note 1) $2,758,628,783
- ----------------------------------------------------------------------------------------------
Cash 3,784,284
- ----------------------------------------------------------------------------------------------
Interest and other receivables 16,924,152
- ----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,705,385
- ----------------------------------------------------------------------------------------------
Receivable for securities sold 48,433,910
- ----------------------------------------------------------------------------------------------
Total assets 2,831,476,514
Liabilities
- ----------------------------------------------------------------------------------------------
Payable for securities purchased 50,241,063
- ----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 8,682,191
- ----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,105,265
- ----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 389,909
- ----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 129,350
- ----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,120
- ----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,875,387
- ----------------------------------------------------------------------------------------------
Other accrued expenses 97,056
- ----------------------------------------------------------------------------------------------
Total liabilities 64,527,341
- ----------------------------------------------------------------------------------------------
Net assets $2,766,949,173
Represented by
- ----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,198,888,908
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,626,669)
- ----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (361,172,000)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (69,141,066)
- ----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,766,949,173
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,855,264,146 divided by 149,906,620 shares) $12.38
- ----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.38)* $13.00
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($776,009,380 divided by 62,999,210 shares)** $12.32
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($4,134,673 divided by 334,440 shares)** $12.36
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($104,729,132 divided by 8,478,076 shares) $12.35
- ----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.35)* $12.76
- ----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($26,811,842 divided by 2,167,710 shares) $12.37
- ----------------------------------------------------------------------------------------------
* 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, 2000 (Unaudited)
<S> <C>
Interest income $106,699,754
- ----------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,505,664
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,144,653
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 49,211
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 14,453
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,285,018
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,652,890
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 18,665
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 297,284
- ----------------------------------------------------------------------------------------------
Reports to shareholders 129,120
- ----------------------------------------------------------------------------------------------
Auditing 30,565
- ----------------------------------------------------------------------------------------------
Legal 23,260
- ----------------------------------------------------------------------------------------------
Postage 131,391
- ----------------------------------------------------------------------------------------------
Other 160,766
- ----------------------------------------------------------------------------------------------
Total expenses 16,442,940
- ----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (259,002)
- ----------------------------------------------------------------------------------------------
Net expenses 16,183,938
- ----------------------------------------------------------------------------------------------
Net investment income 90,515,816
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (27,782,150)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (21,481,713)
- ----------------------------------------------------------------------------------------------
Net loss on investments (49,263,863)
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 41,251,953
- ----------------------------------------------------------------------------------------------
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
2000* 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 90,515,816 $ 195,154,119
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (27,782,150) (12,871,100)
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (21,481,713) (167,916,152)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 41,251,953 14,366,867
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (60,866,941) (119,942,751)
- -------------------------------------------------------------------------------------------------------
Class B (26,583,240) (64,865,717)
- -------------------------------------------------------------------------------------------------------
Class C (103,986) (8,889)
- -------------------------------------------------------------------------------------------------------
Class M (3,682,414) (8,401,246)
- -------------------------------------------------------------------------------------------------------
Class Y (905,904) (1,171,979)
- -------------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (415,214,528) (210,594,609)
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (466,105,060) (402,470,486)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 3,233,054,233 3,635,524,719
- -------------------------------------------------------------------------------------------------------
End of period (including distribution in excess of
$1,626,669 and $--, respectively) $2,766,949,173 $3,233,054,233
- -------------------------------------------------------------------------------------------------------
* 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
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.57 $13.28 $13.01 $12.63 $12.95 $12.37
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .39(c) .76(c) .81(c) .85 .84(c) .88
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) (.66) .29 .34 (.30) .61
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .21 .10 1.10 1.19 .54 1.49
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.76) (.80) (.81) (.81) (.83)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.05) -- -- (.05) (.08)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.40) (.81) (.83) (.81) (.86) (.91)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.38 $12.57 $13.28 $13.01 $12.63 $12.95
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.69* 0.76 8.75 9.75 4.32 12.62
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,855,264 $1,986,980 $2,130,980 $2,147,326 $2,450,376 $2,903,016
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .43* .85 .87 .89 .88 .90
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.14* 5.94 6.15 6.58 6.55 7.09
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 96.13* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.51 $13.22 $12.97 $12.59 $12.91 $12.33
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .35(c) .67(c) .70(c) .75 .74(c) .79
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.19) (.67) .28 .35 (.30) .61
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 -- .98 1.10 .44 1.40
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.67) (.71) (.72) (.72) (.75)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.04) -- -- (.04) (.07)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.71) (.73) (.72) (.76) (.82)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.32 $12.51 $13.22 $12.97 $12.59 $12.91
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.31* 0.01 7.82 8.95 3.52 11.82
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $776,009 $1,082,048 $1,334,041 $1,291,901 $1,458,848 $1,643,923
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81* 1.60 1.62 1.64 1.63 1.65
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.80* 5.18 5.42 5.83 5.80 6.33
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 96.13* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months For the
ended period
Per-share March 31 July 26, 1999+
operating performance (Unaudited) to Sept. 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $12.55 $12.54
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .35 .12
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.19) .02
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 .14
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.12)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- --
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.13)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.36 $12.55
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.33* 1.12*
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,135 $2,577
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81* .29*
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.76* .99*
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 96.13* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Feb. 6, 1995+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.55 $13.25 $13.00 $12.63 $12.96 $12.29
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .37(c) .72(c) .80(c) .80 .82(c) .61
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.19) (.66) .25 .35 (.32) .66
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .18 .06 1.05 1.15 .50 1.27
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.72) (.77) (.78) (.78) (.55)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.04) -- -- (.05) (.05)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.76) (.80) (.78) (.83) (.60)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.35 $12.55 $13.25 $13.00 $12.63 $12.96
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.49* 0.56 8.38 9.39 3.99 10.54*
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $104,729 $133,362 $163,076 $7,850 $6,116 $2,609
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .56* 1.10 1.12 1.14 1.14 .79*
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.04* 5.68 5.91 6.32 6.37 4.14*
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 96.13* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.56 $13.27 $13.01 $12.63 $12.98 $12.38
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .40(c) .79(c) .83(c) .89(c) .88(c) .90
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) (.66) .29 .34 (.34) .64
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .22 .13 1.12 1.23 .54 1.54
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.79) (.83) (.85) (.84) (.86)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.05) -- -- (.05) (.08)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.84) (.86) (.85) (.89) (.94)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.37 $12.56 $13.27 $13.01 $12.63 $12.98
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.83* 1.04 8.98 10.05 4.34 13.07
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $26,812 $28,087 $7,428 $6,061 $3,190 $43,196
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .31* .60 .62 .64 .62 .65
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.28* 6.19 6.42 6.83 6.51 7.16
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 96.13* 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
March 31, 2000 (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 C, 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 8
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 6 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 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 sales price on its principal exchange, 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 value. 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 1.00% 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. Capital gains distributions, if
any, are recorded on the ex-dividend date and paid at least annually.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations, which may differ
from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.57% of the
first $500 million, 0.475% of the next $500 million, 0.4275% of the next
$500 million, and 0.38% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the six months ended March 31, 2000, fund expenses were reduced by
$259,002 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 $2,765
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 six months ended March 31, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $114,377 and $10,511
from the sale of class A and class M shares, respectively, and received
$782,709 and $6,909 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 six months ended March 31, 2000, Putnam Mutual Funds
Corp., acting as underwriter received $9,810 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2000, cost of purchases and
proceeds from sales of U.S. government and agency obligations other than
short-term investments aggregated $2,836,269,139 and $3,169,386,
respectively.
Note 4
Capital shares
At March 31, 2000, there were an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended March 31, 2000
- -----------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------
Shares sold 35,351,230 $435,626,194
- -----------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,304,928 40,768,098
- -----------------------------------------------------------------------
38,656,158 476,394,292
Shares
repurchased (46,850,798) (577,621,322)
- -----------------------------------------------------------------------
Net decrease (8,194,640) $(101,227,030)
- -----------------------------------------------------------------------
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)
- -----------------------------------------------------------------------
Six months ended March 31, 2000
- -----------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------
Shares sold 6,102,888 $75,094,410
- -----------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,543,936 18,982,647
- -----------------------------------------------------------------------
7,646,824 94,077,057
Shares
repurchased (31,136,425) (382,311,647)
- -----------------------------------------------------------------------
Net decrease (23,489,601) $(288,234,590)
- -----------------------------------------------------------------------
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)
- -----------------------------------------------------------------------
Six months ended March 31, 2000
- -----------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------
Shares sold 649,622 $8,059,657
- -----------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,742 95,372
- -----------------------------------------------------------------------
657,364 8,155,029
Shares
repurchased (528,256) (6,531,517)
- -----------------------------------------------------------------------
Net increase 129,108 $1,623,512
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
Six months ended March 31, 2000
- -----------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------
Shares sold 778,317 $9,605,785
- -----------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 36,198 445,922
- -----------------------------------------------------------------------
814,515 10,051,707
Shares
repurchased (2,965,737) (36,593,856)
- -----------------------------------------------------------------------
Net decrease (2,151,222) $(26,542,149)
- -----------------------------------------------------------------------
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)
- -----------------------------------------------------------------------
Six months ended March 31, 2000
- -----------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------
Shares sold 760,352 $9,361,296
- -----------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 73,333 903,997
- -----------------------------------------------------------------------
833,685 10,265,293
Shares
repurchased (901,877) (11,099,564)
- -----------------------------------------------------------------------
Net decrease (68,192) $(834,271)
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
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
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.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA038-60365 032/885/689/527 5/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
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Putnam U.S. Government Income Trust
Supplement to Semiannual Report dated March 31, 2000
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 $150 million or more in one or more of Putnam's funds or private
accounts. Performance of class Y shares, which incur neither a front-end
load, distribution fee, nor contingent deferred sales charge, will differ
from performance of class A and B shares, which are discussed more
extensively in the Semiannual Report.
FISCAL 2000 SEMIANNUAL RESULTS AT A GLANCE
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2/8/84 to 3/31/00
Inception date to end of
annual fiscal period 8.12%
9/30/99 to 3/31/00
Annual fiscal period 1.83%
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Share value NAV
2/8/84 (Inception date) $14.29
9/30/99 $12.56
3/31/00 $12.37
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Distributions No. Income Capital gains Total
Short Long
9/30/99 to 3/31/00 6 $0.412 $0.000 $0.000 $0.412
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Please note that past performance does not indicate future results.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. See full
Semiannual 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.
