Putnam
U.S. Government
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 15, 2000
REPORT FROM FUND MANAGEMENT
Kevin M. Cronin
and the Mortgage Team
The bond market witnessed some fairly dramatic shifts during Putnam U.S.
Government Income Trust's fiscal year, the 12 months ended September 30,
2000. In turn, your fund's management team altered sector allocations
accordingly as we sought to take advantage of the relative value offered
by Treasury and mortgage-backed securities (MBSs) backed by the
Government National Mortgage Association (GNMA) at different points
during the period. When all was said and done, your fund was able to
post a performance that was generally in line with the market and its
peers.
Total return for 12 months ended 9/30/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-----------------------------------------------------------------------
6.43% 1.36% 5.65% 0.66% 5.67% 4.67% 6.09% 2.65%
-----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* YIELD CURVE INVERTS, THEN RESUMES MORE NORMAL SHAPE
During the first half of your fund's fiscal year, interest rates rose
for three months and then fell sharply over the following quarter. The
initial rise, which took place during the fourth quarter of 1999,
resulted from concerns that the U.S. economy was growing too fast and
that inflation was imminent. The Federal Reserve Board continued to
implement a program of short-term rate increases in an effort to slow
growth and head off inflation.
In the first quarter of 2000, the yield curve inverted as a result of
rising short-term interest rates that coincided with a sharp decline in
the yield on the 30-year Treasury bond. The Fed continued to raise
rates, bringing the federal funds rate to 6.00% by March 31. At the same
time, interest rates declined on the long end primarily because of the
federal government's decision to use the budget surplus to pay down
federal debt by buying back 30-year Treasury bonds. The increase in
demand caused by these purchases pushed long-term bond prices up,
bringing yields down.
[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND DURATION]
AVERAGE EFFECTIVE MATURITY AND DURATION
9/30/99 3/31/00 9/30/00
Average effective maturity 8.8 8.2 9.0
Duration 4.8 4.6 4.4
Footnote reads:
This chart depicts the fund's average effective maturity and duration at
6-month intervals over the 12 months ended 9/30/00. 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.
The inverted yield curve was sustained through much of the second
quarter as well, since the Fed added another, more substantial, rate
increase in May. However, this trend started to reverse in June. An
unexpected increase in unemployment caused the market to breathe a sigh
of relief; many market observers started to believe that the Fed's rate
policy was starting to have the desired effect. As we progressed from
July through the end of the fiscal year, it became even clearer that the
Fed would hold off implementing further rate increases for a while. In
response, interest rates declined in the third quarter of 2000. While
daily activity appeared volatile as the quarter passed, in retrospect
the market remained relatively stable.
[GRAPHIC OMITTED: pie chart PORTFOLIO ALLOCATION (9/30/00)]
PORTFOLIO ALLOCATION (9/30/00)*
Cash and short-term
investments -- 1.0%
Mortgage-backed
securities -- 87.9%
U.S. Treasury
securities -- 11.1%
Footnote reads:
*Based on total market value of assets. The allocation to mortgage-backed
securities is primarily concentrated in bonds issued by the Government
National Mortgage Association. Allocations will vary over time.
* BACKDROP CALLS FOR MOVEMENTS INTO AND OUT OF SECTORS
During the course of the fiscal year, relative value and performance
potential shifted back and forth between Treasuries and MBSs. As
long-term rates declined during the beginning of 2000, Treasuries were
the place to be and your fund was positioned to benefit. Meanwhile, the
difference, or spread, between Treasury and MBS yields increased,
hurting the latter's performance. As MBSs' relative prices started to
become more attractive, we began to bulk up on them toward the end of
the first quarter while selling off Treasuries that had performed well.
As the summer progressed, we sold off some MBS holdings as the spread
narrowed and the yield curve reverted to a steep shape. More recently,
we have been adding back to the MBS stake once again.
"This year bond funds are actually beating many stock funds, while also
offering a much smoother ride . . . Bond funds have bounced on the
perception that the U.S. economy has slowed and that the Federal Reserve
is done raising interest rates for the rest of the year."
-- The Wall Street Journal, 10/9/00
During the past six months, we have altered the makeup of your fund's
MBS holdings. As you probably know, these securities are backed by pools
of home mortgages all having the same interest rate and maturity.
Interest and principal payments received each month from homeowners'
mortgage payments are passed through to owners of the mortgage-backed
security.
[GRAPHIC OMITTED: worm chart U.S. TREASURY YIELD CURVE AT 9/30/99 AND 9/30/00]
U.S. TREASURY YIELD CURVE AT 9/30/99 AND 9/30/00
9/30/99 9/30/00
3 mo. 4.85% 6.20%
6 mo. 4.96% 6.28%
1 yr. 5.18% 6.08%
2 yr. 5.60% 5.96%
5 yr. 5.76% 5.84%
10 yr. 5.88% 5.79%
30 yr. 6.05% 5.88%
Footnote reads:
Source: Bloomberg, Inc.
Earlier on, we favored discount mortgages offering a 6% coupon because
they were a particularly safe investment during a more uncertain time.
More recently we have invested to a large degree in higher-coupon (8% to
9%) GNMA mortgage-backed securities, which had underperformed earlier
in the year and were selling at attractive levels. These MBSs may
initially appear more susceptible to prepayment risk -- the risk that
the mortgage holders might pay off the mortgage early to take advantage
of lower rates, leaving the fund with assets to reinvest in
lower-yielding securities. However, these are seasoned mortgages,
meaning that the homeowners have not taken advantage of several
opportunities to refinance at lower levels over the first several years
that they have had their mortgages.
We also gradually increased your fund's duration during the period.
Duration is a measure of the fund's sensitivity to changes in interest
rates; a longer duration means the fund will benefit more if interest
rates continue to go down. A shorter duration is more likely to protect
the portfolio's value in periods of rising rates but can limit its
appreciation potential when rates decline. It should be noted, though,
that our current stance is a neutral one. Earlier in the year, we had
maintained a defensive, lower-duration posture.
* GENERALLY POSITIVE OUTLOOK FOR T-BONDS AND MBSs
Looking ahead, we have a generally positive outlook. We believe the Fed
is on hold, and we do not expect it will make any moves with the federal
funds rate or the discount rate until next year at the earliest. The Fed
maintains a bias toward raising rates to head off inflation, but we
would not be surprised if that outlook changes at the Fed's November
meeting.
Overall, the environment should be positive for both Treasury and MBSs.
We anticipate a period of relative stability. Under such conditions, the
incremental yield the fund earns from MBSs and agency securities should
help performance. We will continue our efforts to unearth value
opportunities in the mortgage market as the turmoil from the first
quarter gradually recedes. If we achieve a sustained period of calm, we
expect MBSs and other non-Treasury sectors to perform relatively well.
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 9/30/00, 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. Mortgage-backed securities may be subject to prepayment
risk.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
U.S. Government Income Trust is designed for investors seeking current
income consistent with capital preservation. The fund primarily invests
in securities backed by the full faith and credit of the U.S. government
and in repurchase agreements and forward commitments with respect to
these securities.
TOTAL RETURN FOR PERIODS ENDED 9/30/00
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
------------------------------------------------------------------------------
1 year 6.43% 1.36% 5.65% 0.66% 5.67% 4.67% 6.09% 2.65%
------------------------------------------------------------------------------
5 years 33.52 27.14 28.48 26.55 28.60 28.60 31.51 27.18
Annual average 5.95 4.92 5.14 4.82 5.16 5.16 5.63 4.93
------------------------------------------------------------------------------
10 years 92.66 83.57 78.48 78.48 78.60 78.60 87.55 81.44
Annual average 6.78 6.26 5.96 5.96 5.97 5.97 6.49 6.14
------------------------------------------------------------------------------
Life of fund 263.36 246.15 215.32 215.32 220.35 220.35 242.69 231.58
Annual average 8.06 7.75 7.15 7.15 7.25 7.25 7.68 7.47
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/00
Lehman Brothers Lehman Brothers
GNMA Mortgage-Backed Consumer
Index Securities Index price index
---------------------------------------------------------------------------
1 year 7.71% 7.43% 3.46%
---------------------------------------------------------------------------
5 years 39.55 38.95 13.32
Annual average 6.89 6.80 2.53
---------------------------------------------------------------------------
10 years 117.78 114.56 30.82
Annual average 8.09 7.93 2.72
---------------------------------------------------------------------------
Annual average
(life of fund) 9.48 9.81 3.25
---------------------------------------------------------------------------
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,
if 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 9/30/90
Lehman Bros.
Fund's class A Lehman Bros. Mortgate-Backed Consumer price
Date shares at POP GNMA Index Securities Index index
9/30/90 9,425 10,000 10,000 10,000
9/30/91 10,776 11,662 11,631 10,339
9/30/92 11,844 12,993 12,900 10,648
9/30/93 12,501 13,849 13,759 10,934
9/30/94 12,208 13,681 13,602 11,258
9/30/95 13,748 15,606 15,442 11,545
9/30/96 14,342 16,524 16,338 11,891
9/30/97 15,740 18,220 17,978 12,155
9/30/98 17,117 19,748 19,529 12,329
9/30/99 17,247 20,219 19,972 12,645
9/30/00 $18,357 $21,778 $21,456 $13,082
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 $17,848 and $17,860, 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 $18,755 ($18,144
at public offering price). See first page of performance section for
performance calculation method.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/00
Class A Class B Class C Class M
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 12 12
-------------------------------------------------------------------------------------------
Income $0.791 $0.696 $0.701 $0.759
-------------------------------------------------------------------------------------------
Capital gains -- -- -- --
-------------------------------------------------------------------------------------------
Return of capital 3 0.001 0.001 0.001 0.001
-------------------------------------------------------------------------------------------
Total $0.792 $0.697 $0.702 $0.760
-------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-------------------------------------------------------------------------------------------
9/30/99 $12.57 $13.20 $12.51 $12.55 $12.55 $12.97
-------------------------------------------------------------------------------------------
9/30/00 12.55 13.18 12.49 12.53 12.52 12.94
-------------------------------------------------------------------------------------------
Current return (end of period)
-------------------------------------------------------------------------------------------
Current dividend rate 1 6.31% 6.01% 5.57% 5.55% 6.04% 5.84%
-------------------------------------------------------------------------------------------
Current 30-day SEC yield 2 6.40 6.09 5.64 5.64 6.15 6.02
-------------------------------------------------------------------------------------------
1 Most recent distribution, annualized and divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
3 See page 27.
</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 GNMA Index* is an unmanaged list of mortgage-backed
pass-through securities of the Government National Mortgage Association
(GNMA). Fund management has determined that this index more closely
resembles the funds' investment strategy and therefore has selected it
as the benchmark index for the fund.
Lehman Brothers Mortgage-Backed Securities Index* is an unmanaged list
of fixed-rate securities backed by mortgage pools of the Government
National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), and Federal National Mortgage Association (FNMA).
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*The indexes do not take into account brokerage commissions or other costs,
may include bonds different from those in the fund, may pose different risks
than the fund, and the performance of the fund will differ. It is not
possible to invest directly in an index.
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 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.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Putnam U.S. Government Income Trust
We have audited the accompanying statement of assets and liabilities of
Putnam U.S. Government Income Trust, including the fund's portfolio, as
of September 30, 2000, and the related statement of operations,
statement of changes in net assets and financial highlights for the year
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audit. The statement of changes in net assets
for the year ended September 30, 1999 and the financial highlights for
each of the years or periods in the four-year period ended September 30,
1999 were audited by other auditors whose report dated November 10, 1999
expressed an unqualified opinion on that financial statement and those
financial highlights.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of September 30, 2000 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam U.S. Government Income Trust as of
September 30, 2000, and the results of its operations, changes in its
net assets and financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
Boston, Massachusetts
November 1, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
September 30, 2000
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (97.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
U.S. Government Agency Mortgage Obligations (86.6%)
-------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Graduated
Payment Mortgages
$ 14,656 13 3/4s, November 20, 2014 $ 15,750
79,777 13 1/4s, December 20, 2014 85,336
73,988 12 3/4s, with due dates from June 20, 2014 to
June 20, 2015 78,958
99,617 12 1/4s, with due dates from December 20, 2013
to January 20, 2014 105,064
Government National Mortgage Association
Pass-Through Certificates
15,670 16s, November 15, 2011 18,818
138,305 15s, with due dates from July 15, 2011 to March 15, 2013 163,353
87,321 14s, with due dates from July 15, 2014 to
November 20, 2014 100,133
660,282 13 1/2s, with due dates from March 15, 2011 to
June 20, 2015 746,613
1,192 13 1/4s, October 15, 2014 1,284
508,199 13s, with due dates from October 20, 2013 to
September 20, 2015 573,962
186,481 12 3/4s, with due dates from October 15, 2013
to July 15, 2014 200,407
287,092 12 1/2s, with due dates from June 15, 2010 to
November 20, 2015 316,153
322,776 12 1/4s, with due dates from August 15, 2013 to
March 15, 2015 342,847
283,039 12s, with due dates from April 20, 2014 to
March 20, 2016 312,312
1,217,381 11 1/2s, with due dates from May 15, 2010 to
September 15, 2018 1,339,974
542,325 11 1/4s, with due dates from July 15, 2013 to
January 15, 2016 570,287
1,174,467 11s, with due dates from November 20, 2013 to
June 20, 2019 1,270,618
85,239 10 7/8s, February 15, 2010 91,185
82,083 10 3/4s, with due dates from January 15, 2016 to
February 15, 2016 87,829
10,152,278 10 1/2s, with due dates from April 15, 2010 to
September 15, 2021 11,024,662
205,891 10 1/4s, with due dates from April 15, 2016 to
December 15, 2020 226,802
861,990 10s, with due dates from October 15, 2009 to
January 20, 2021 935,082
10,358,966 9 1/2s, with due dates from June 15, 2009 to
March 15, 2029 10,789,088
461,208 9 1/4s, with due dates from April 15, 2016 to
November 15, 2019 475,765
Government National Mortgage Association
Pass-Through Certificates
198,458,631 9s, with due dates from November 15, 2004 to
April 15, 2030 207,938,485
78,483,779 8 1/2s, with due dates from May 15, 2001 to
March 15, 2027 81,116,397
550,803,202 8s, with due dates from January 15, 2001 to
June 15, 2030 561,624,219
337,076,306 7 1/2s, with due dates from March 15, 2001 to
February 15, 2030 338,827,981
750,463,407 7s, with due dates from October 15, 2007 to
June 15, 2029 740,230,192
335,212,575 6 1/2s, with due dates from May 15, 2024 to
October 15, 2028 323,578,598
297,494 6s, February 15, 2029 279,085
45,579 5 1/2s, May 15, 2017 46,756
-------------
2,283,513,995
U.S. Treasury Obligations (11.0%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
21,600,000 10 5/8s, August 15, 2015 31,019,544
177,800,000 6 1/4s, May 15, 2030 186,857,132
70,000,000 U.S. Treasury Notes 6 3/4s, May 15, 2005 72,515,800
--------------
290,392,476
--------------
Total U.S. Government and Agency Obligations
(cost $2,578,377,679) $2,573,906,471
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS (0.8%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
$ 10,851,000 Ser. 2000-14, Class CE, 7 1/2s, 2030 $ 10,965,045
10,000,000 Ser. 2000-14, Class PD, 7s, 2030 9,737,000
--------------
Total Collateralized Mortgage Obligations
(cost $20,280,654) $ 20,702,045
<CAPTION>
SHORT-TERM INVESTMENTS (1.0%) (a) (cost $26,176,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 26,176,000 Interest in $843,280,000 joint repurchase agreement
dated September 29, 2000, with Morgan Stanley
Dean Witter, due October 2, 2000 with respect to
various U.S. Treasury obligations -- maturity value of
$26,190,462 for an effective yield of 6.63%. $ 26,176,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,624,834,333) (b) $2,620,784,516
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,638,030,048.
(b) The aggregate identified cost on a tax basis is $2,625,945,943,
resulting in gross unrealized appreciation and depreciation of
$26,241,165 and $31,402,592, respectively, or net unrealized
depreciation of $5,161,427.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,624,834,333) (Note 1) $2,620,784,516
-------------------------------------------------------------------------------------------
Cash 929
-------------------------------------------------------------------------------------------
Interest and other receivables 20,819,700
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 6,753,260
-------------------------------------------------------------------------------------------
Total assets 2,648,358,405
Liabilities
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,542,973
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,948,648
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 820,851
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 191,298
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,800
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,719,122
-------------------------------------------------------------------------------------------
Other accrued expenses 98,665
-------------------------------------------------------------------------------------------
Total liabilities 10,328,357
-------------------------------------------------------------------------------------------
Net assets $2,638,030,048
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,034,058,613
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 14,690
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (391,993,438)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (4,049,817)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,638,030,048
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,929,652,921 divided by 153,811,419 shares) $12.55
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.55)* $13.18
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($574,086,470 divided by 45,974,637 shares)** $12.49
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($7,329,366 divided by 584,916 shares)** $12.53
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($95,090,184 divided by 7,593,001 shares) $12.52
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.52)* $12.94
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($31,871,107 divided by 2,542,056 shares) $12.54
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Interest income $205,017,270
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 12,409,032
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 4,222,257
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 95,877
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 28,051
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 4,712,074
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,053,295
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 47,445
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 541,374
-------------------------------------------------------------------------------------------
Other 762,160
-------------------------------------------------------------------------------------------
Total expenses 30,871,565
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (602,759)
-------------------------------------------------------------------------------------------
Net expenses 30,268,806
-------------------------------------------------------------------------------------------
Net investment income 174,748,464
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (58,679,608)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 43,609,536
-------------------------------------------------------------------------------------------
Net loss on investments (15,070,072)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $159,678,392
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended September 30
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 174,748,464 $ 195,154,119
--------------------------------------------------------------------------------------------------
Net realized loss on investments (58,679,608) (12,871,100)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 43,609,536 (167,916,152)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 159,678,392 14,366,867
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (120,028,302) (119,942,751)
--------------------------------------------------------------------------------------------------
Class B (45,960,450) (64,865,717)
--------------------------------------------------------------------------------------------------
Class C (262,455) (8,889)
--------------------------------------------------------------------------------------------------
Class M (6,680,342) (8,401,246)
--------------------------------------------------------------------------------------------------
Class Y (1,856,069) (1,171,979)
--------------------------------------------------------------------------------------------------
From return of capital
Class A (168,282) (7,313,013)
--------------------------------------------------------------------------------------------------
Class B (64,437) (3,954,919)
--------------------------------------------------------------------------------------------------
Class C (368) (542)
--------------------------------------------------------------------------------------------------
Class M (9,366) (512,231)
--------------------------------------------------------------------------------------------------
Class Y (2,602) (71,457)
--------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (579,669,904) (210,594,609)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (595,024,185) (402,470,486)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 3,233,054,233 3,635,524,719
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income $14,690 and $--, respectively) $2,638,030,048 $3,233,054,233
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.57 $13.28 $13.01 $12.63 $12.95
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .79(c) .76(c) .81(c) .85 .84(c)
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) (.66) .29 .34 (.30)
-----------------------------------------------------------------------------------------------------
Total from
investment operations .77 .10 1.10 1.19 .54
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.79) (.76) (.80) (.81) (.81)
-----------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) -- --
-----------------------------------------------------------------------------------------------------
From return of capital --(d) (.05) -- -- (.05)
-----------------------------------------------------------------------------------------------------
Total distributions (.79) (.81) (.83) (.81) (.86)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.55 $12.57 $13.28 $13.01 $12.63
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.43 0.76 8.75 9.75 4.32
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,929,653 $1,986,980 $2,130,980 $2,147,326 $2,450,376
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .87 .85 .87 .89 .88
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.40 5.94 6.15 6.58 6.55
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 133.29 123.04 294.74 125.80 138.97
-----------------------------------------------------------------------------------------------------
+ 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.
(d) Distributions from return of capital amounted to less than $0.01
per share for each class.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.51 $13.22 $12.97 $12.59 $12.91
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .70(c) .67(c) .70(c) .75 .74(c)
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) (.67) .28 .35 (.30)
-----------------------------------------------------------------------------------------------------
Total from
investment operations .68 -- .98 1.10 .44
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.70) (.67) (.71) (.72) (.72)
-----------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) -- --
-----------------------------------------------------------------------------------------------------
From return of capital --(d) (.04) -- -- (.04)
-----------------------------------------------------------------------------------------------------
Total distributions (.70) (.71) (.73) (.72) (.76)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.49 $12.51 $13.22 $12.97 $12.59
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 5.65 0.01 7.82 8.95 3.52
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $574,087 $1,082,048 $1,334,041 $1,291,901 $1,458,848
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.62 1.60 1.62 1.64 1.63
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.64 5.18 5.42 5.83 5.80
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 133.29 123.04 294.74 125.80 138.97
-----------------------------------------------------------------------------------------------------
+ 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.
(d) Distributions from return of capital amounted to less than $0.01
per share for each class.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
--------------------------------------------------------------
For the period
Per-share Year ended July 26, 1999+
operating performance Sept. 30 to Sept. 30
--------------------------------------------------------------
2000 1999
--------------------------------------------------------------
Net asset value,
beginning of period $12.55 $12.54
--------------------------------------------------------------
Investment operations
--------------------------------------------------------------
Net investment income (c) .70 .12
--------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) .02
--------------------------------------------------------------
Total from
investment operations .68 .14
--------------------------------------------------------------
Less distributions:
--------------------------------------------------------------
From net
investment income (.70) (.12)
--------------------------------------------------------------
In excess of net
investment income -- --
--------------------------------------------------------------
From return of capital --(d) (.01)
--------------------------------------------------------------
Total distributions (.70) (.13)
--------------------------------------------------------------
Net asset value,
end of period $12.53 $12.55
--------------------------------------------------------------
Ratios and supplemental data
--------------------------------------------------------------
Total return at
net asset value (%)(a) 5.67 1.12*
--------------------------------------------------------------
Net assets, end of period
(in thousands) $7,329 $2,577
--------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.62 .29*
--------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.67 .99*
--------------------------------------------------------------
Portfolio turnover (%) 133.29 123.04
--------------------------------------------------------------
+ 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.
(d) Distributions from return of capital amounted to less than $0.01
per share for each class.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.55 $13.25 $13.00 $12.63 $12.96
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .76(c) .72(c) .80(c) .80 .82(c)
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.03) (.66) .25 .35 (.32)
-----------------------------------------------------------------------------------------------------
Total from
investment operations .73 .06 1.05 1.15 .50
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.76) (.72) (.77) (.78) (.78)
-----------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) -- --
-----------------------------------------------------------------------------------------------------
From return of capital --(d) (.04) -- -- (.05)
-----------------------------------------------------------------------------------------------------
Total distributions (.76) (.76) (.80) (.78) (.83)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.52 $12.55 $13.25 $13.00 $12.63
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.09 0.56 8.38 9.39 3.99
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $95,090 $133,362 $163,076 $7,850 $6,116
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.12 1.10 1.12 1.14 1.14
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.15 5.68 5.91 6.32 6.37
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 133.29 123.04 294.74 125.80 138.97
-----------------------------------------------------------------------------------------------------
+ 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.
(d) Distributions from return of capital amounted to less than $0.01
per share for each class.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.56 $13.27 $13.01 $12.63 $12.98
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .82(c) .79(c) .83(c) .89(c) .88(c)
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) (.66) .29 .34 (.34)
-----------------------------------------------------------------------------------------------------
Total from
investment operations .80 .13 1.12 1.23 .54
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.82) (.79) (.83) (.85) (.84)
-----------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) -- --
-----------------------------------------------------------------------------------------------------
From return of capital --(d) (.05) -- -- (.05)
-----------------------------------------------------------------------------------------------------
Total distributions (.82) (.84) (.86) (.85) (.89)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.54 12.56 $13.27 $13.01 $12.63
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.71 1.04 8.98 10.05 4.34
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $31,871 $28,087 $7,428 $6,061 $3,190
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .62 .60 .62 .64 .62
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.66 6.19 6.42 6.83 6.51
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 133.29 123.04 294.74 125.80 138.97
-----------------------------------------------------------------------------------------------------
+ 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.
(d) Distributions from return of capital amounted to less than $0.01
per share for each class.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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
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 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, including restricted securities, 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.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received.
E) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, 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, 2000, the fund had a capital loss carryover of
approximately $341,580,000 available to offset future net capital gain,
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
22,848,000 September 30, 2008
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. At
certain times, the fund may pay distributions at a level rate even
though, as a result of market conditions or investment decisions, the
fund may not achieve projected investment results for a given period.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent
differences of losses on wash sale transactions, post-October loss
deferrals, paydown gains and losses on mortgage-backed securities,
market discount and book accretion/amortization adjustment.
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, 2000, the fund reclassified $53,844 to increase undistributed net
investment income and $129,864 to decrease paid-in-capital, with a
decrease to accumulated net realized losses of $76,020. 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, 2000, fund expenses were reduced by
$602,759 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 $2,416
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 Retail Management, Inc., 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 Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $209,783 and $24,479
from the sale of class A and class M shares, respectively, and received
$1,283,767 and $7,632 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, 2000, Putnam Retail Management,
Inc., acting as underwriter received $18,940 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended September 30, 2000, cost of purchases and proceeds
from sales of U.S. government and agency obligations other than
short-term investments aggregated $3,733,122,235 and $4,261,338,920,
respectively.
Note 4
Capital shares
At September 30, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended September 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 63,868,931 $789,545,837
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,681,576 82,531,097
---------------------------------------------------------------------------
70,550,507 872,076,934
Shares
repurchased (74,840,348) (924,378,235)
---------------------------------------------------------------------------
Net decrease (4,289,841) $(52,301,301)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 10,511,534 $ 129,514,084
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,681,670 32,985,342
---------------------------------------------------------------------------
13,193,204 162,499,426
Shares
repurchased (53,707,378) (660,940,007)
---------------------------------------------------------------------------
Net decrease (40,514,174) $(498,440,581)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 1,069,703 $13,258,451
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,495 228,357
---------------------------------------------------------------------------
1,088,198 13,486,808
Shares
repurchased (708,614) (8,769,296)
---------------------------------------------------------------------------
Net increase 379,584 $ 4,717,512
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
Year ended September 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 1,516,278 $ 18,762,482
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 68,070 839,490
---------------------------------------------------------------------------
1,584,348 19,601,972
Shares
repurchased (4,620,645) (57,069,742)
---------------------------------------------------------------------------
Net decrease (3,036,297) $(37,467,770)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 1,602,469 $19,801,983
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 150,239 1,858,671
---------------------------------------------------------------------------
1,752,708 21,660,654
Shares
repurchased (1,446,554) (17,838,418)
---------------------------------------------------------------------------
Net increase 306,154 $ 3,822,236
---------------------------------------------------------------------------
Year ended September 30, 1999
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 2,505,436 $32,394,071
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Shares issued in
connection with
reinvestment of
distributions 97,645 1,243,436
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2,603,081 33,637,507
Shares
repurchased (926,842) (11,888,466)
---------------------------------------------------------------------------
Net increase 1,676,239 $21,749,041
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Note 5
Change in independent accountants
(unaudited)
Based on the recommendation of the Audit Committee of the fund, the
Board of Trustees has determined not to retain PricewaterhouseCoopers
LLP as this fund's independent accountant and voted to appoint KPMG LLP
for the fund's fiscal year ended September 30, 2000. During the two
previous fiscal years, PricewaterhouseCoopers LLP audit reports
contained no adverse opinion or disclaimer of opinion; nor were its
reports qualified or modified as to uncertainty, audit scope, or
accounting principle. Further, in connection with its audits for the two
previous fiscal years and through July 24, 2000, there were no
disagreements between the fund and PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused it to make
reference to the disagreements in its report on the financial statements
for such years.
FEDERAL TAX INFORMATION
(Unaudited)
For the year ended September 30, 2000, 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 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
THE PUTNAM FAMILY OF FUNDS
The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity Fund *
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Growth and Income Fund II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, 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, III
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
Kevin M. Cronin
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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
and Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN038 65471 032/885/689/527 11/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
----------------------------------------------------------------------------
Putnam U.S. Government Income Trust
Supplement to Annual Report dated 9/30/00
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,
class B, class C, and class M shares, which are discussed more extensively
in the annual report.
ANNUAL RESULTS AT A GLANCE
----------------------------------------------------------------------------
Total return
for periods ended 9/30/00 NAV
1 year 6.71%
5 years 34.92
Annual average 6.17
10 years 95.80
Annual average 6.95
Life of fund (since class A inception, 2/8/84)
Annual average 8.17
Share value: NAV
9/30/99 $12.56
9/30/00 $12.54
----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
12 $0.755 -- $0.755
----------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Performance data reflects an expense limitation previously in
effect. Without the expense limitation, total returns would have been lower.
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.
