<PAGE>
PUTNAM
FEDERAL
INCOME
TRUST
SEMIANNUAL REPORT
APRIL 30, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
For the 12 months ended April 30, 1995, Putnam Federal Income Trust's
class A share total return ranked in the top 39% of all general U.S.
government funds tracked by Lipper Analytical Services.*
CDA/Wiesenberger ranked the fund's class A share performance in the
top third of government mortgage-backed funds tracked for the 12-month
period ended April 30, 1995.+
SEMIANNUAL RESULTS AT A GLANCE
<TABLE><CAPTION
<S> <C> <C> <C> <C> <C>
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
- ----------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
6 months ended 4/30/95 6.40% 1.39% 5.94% 0.94%
- ----------------------------------------------------------------------
CLASS A CLASS B CLASS M(1)
SHARE VALUE: NAV POP NAV NAV POP
- ----------------------------------------------------------------------
10/31/94 $9.32 $9.78 $9.30 -- --
4/12/95(1) -- -- -- $9.57 $9.89
4/30/95 9.61 10.09 9.58 9.61 9.93
- ----------------------------------------------------------------------
CURRENT RETURN: NAV POP NAV
- ----------------------------------------------------------------------
End of period
Current dividend rate(2) 6.12% 5.83% 5.51%
Current 30-day SEC yield(3)5.78 5.50 5.03
- ----------------------------------------------------------------------
CAPITAL
DISTRIBUTIONS: NO. INCOME GAINS TOTAL
- ----------------------------------------------------------------------
Class A 6 $0.294 -- $0.294
Class B 6 0.262 -- 0.262
- ----------------------------------------------------------------------
<FN>
Performance data represent past results and will differ for each
share class. For performance over longer periods, see pages 8 and
9. POP assumes 4.75% maximum sales charge for class A shares and
3.25% for class M shares. CDSC assumes 5% maximum contingent
deferred sales charge. (1) Class M shares commenced operations on
4/12/95; share performance is not shown because of the brevity of
the reporting period. (2) Income portion of most recent
distribution, annualized and divided by NAV or POP at end of
period. (3) Based only on investment income, calculated using SEC
guidelines. Past performance is not indicative of future results.
* Lipper Analytical Services, an independent research organization,
ranks funds according to total- return performance. Their
rankings vary over time, and do not reflect the effects of sales
charges. For periods ended 4/30/95, the fund's class A shares
ranked 59 out of 153 and 58 out of 80 general U.S. government
funds for 1- and 5-year performance, respectively. The fund's
class B shares were initially offered on 6/6/94, and were not
ranked.
+ CDA/Wiesenberger rankings are updated monthly, based entirely on
total return, and do not reflect sales charges or fees. Of the
government mortgage-backed funds rated for the period ended
4/30/95, class A shares ranked 57 out of 174 funds for 1-year
performance. Class B shares became available on 6/6/94, and were
not ranked.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
A STRONG BOND MARKET AND CONTINUED ECONOMIC GROWTH PROVIDED A
GENERALLY HOSPITABLE INVESTMENT ENVIRONMENT FOR PUTNAM FEDERAL INCOME
TRUST DURING THE SIX MONTHS ENDED APRIL 30, 1995. BUSINESS CONTINUED
TO MARCH AT A BRISK STRIDE, THOUGH THE PACE SINCE JANUARY HAS SLOWED
CONSIDERABLY FROM CALENDAR 1994 LEVELS.
INVESTORS TOOK THIS MODERATION AS A SIGN THAT THE ECONOMY WAS
RESPONDING FAVORABLY TO THE FEDERAL RESERVE BOARD'S ATTEMPTS TO REIN
IN GROWTH TO A SUSTAINABLE RATE. THE CONSENSUS IN THE MARKETS SEEMS TO
BE THAT THE FED'S SERIES OF INTEREST-RATE INCREASES MAY BE NEAR AN
END.
IN THE REPORT THAT FOLLOWS, FUND MANAGERS KENNETH TAUBES AND MAX
SENTER RELATE YOUR FUND'S PERFORMANCE DURING THE FIRST HALF OF FISCAL
1995 TO THIS MARKET AND ECONOMIC SETTING. THEN THEY PROVIDE A GLIMPSE
OF WHAT THEY BELIEVE MAY LIE IN STORE FOR THE REMAINING MONTHS.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JUNE 21, 1995
<PAGE>
REPORT FROM THE FUND MANAGERS
KENNETH J. TAUBES
MAX S. SENTER
Bolstered by a bond-market rally that began in November 1994 -- the
start of Putnam Federal Income Trust's fiscal year -- your fund
generated impressive performance for the six months ended April 30,
1995. The reasons behind the rebound of the fixed-income market are
clear. The U.S. economy's growth rate has slowed toward the
noninflationary pace targeted by the Federal Reserve Board -- as
indicated by declines in sales of autos, housing, and durable goods --
and inflation has remained under control. As a result, investors'
fears of rampant inflation have dissipated, driving down the yield on
the benchmark 30-year Treasury bond to 7.33% on April 30, 1995.
For the semiannual period, the fund's class A and class B shares
returned 6.40% and 5.94%, respectively, at net asset value. To achieve
this impressive performance, we lengthened the portfolio's duration --
moving from a defensive strategy to a constructive approach -- as the
economy's growth rate slowed and interest rates declined. At the same
time, we kept the portfolio diversified, capitalizing on opportunities
in several fixed-income sectors.
LONGER DURATION TO CAPITALIZE ON FALLING INTEREST RATES
Long-term Treasury yields dropped during the past six months as bond
prices advanced, and we lengthened the portfolio's duration to take
advantage of this trend. Duration is a measure of the price
sensitivity of a portfolio of bonds to changes in interest rates; the
shorter the duration, the less volatility you can expect from the
portfolio.
Extending duration in an environment of falling interest rates is an
appropriate strategy that often entails purchasing bonds with longer-
term maturities. Typically, when interest rates shift these bonds
fluctuate in value more than shorter-term bonds, and they usually
appreciate as long-term rates decline. While
<PAGE>
such an approach can work against the fund if interest rates begin to
rise again, the shift proved a rewarding decision for your fund over
the period.
FOREIGN BONDS BOLSTER PERFORMANCE
While the fund remains primarily a U.S. government bond portfolio --
with allocations to this sector consistently in the area of 70% -- our
investment strategy enables us to diversify the balance of the
portfolio across other bond sectors that offer attractive
opportunities. One sector that enhanced performance significantly over
the past six months was the international bond sector.
In local currency terms, U.S. fixed-income markets generally performed
better than European markets. However, the depreciation of the dollar
relative to major foreign currencies more than offset this superior
performance. As a result of the weaker performance in European bond
markets and the slow pace of economic growth in much of Europe,
certain international markets offered inexpensive investment
opportunities. Specifically, we concentrated our overseas investments
in the core markets of Germany, France, and the United Kingdom.
Furthermore, we avoided currency exposure by hedging into the dollar
because of the depressed value of the dollar relative to several major
foreign currencies. Overall, this
[BAR CHART]
PORTFOLIO COMPOSITION
- ----------------------------------------------------------------------
10/31/94 4/30/95
Mortgage backed securities 35.6% 36.5%
U.S. Treasury 26.2% 31.5%
Foreign bonds and notes 21.4% 11.4%
Corporate bonds 10.2% 8.5%
Collateralized mortgage obligations 6.2% 11.6%
Short-term investments 0.4% 0.5%
* Based on percentage of total assets. Holdings will vary over time.
<PAGE>
strategy significantly improved the portfolio's total return relative
to investment risk.
CORPORATE BONDS EXCEL DESPITE SLOWING ECONOMIC GROWTH
As with international securities, high-quality U.S. corporate bonds
also offered favorable investment opportunities. Corporate bonds were
among the best-performing investment- grade securities during the past
six months, and the fund benefited from its steady allocation to these
securities. Although the pace of economic growth slowed during the
period, corporations continued to report above-average earnings,
reduced debt levels, and substantial cash flows.
In addition to corporate bonds, we began purchasing nonagency
collateralized mortgage obligations (CMOs) in mid-1994. These
securities not only provide outstanding yield advantages relative to
Treasuries, but also perform well during bond-market rallies. While
they are less liquid than other mortgage-backed securities, we expect
them to continue their solid performance in a low interest-rate
environment.
OUTLOOK: DOMESTIC STABILIZATION AND OPPORTUNITIES OVERSEAS
As the fund enters the second half of its fiscal year, reduced
spending by U.S. consumers suggests that the economy is slowing, and
lower long-term interest rates seem to indicate that investors' fears
of inflation have subsided. Although there can be no assurances, if
these trends continue the Fed may conclude that additional near-term
increases in short-term interest rates are unnecessary.
In our opinion, if the U.S. economy continues to weaken, domestic bond
markets will remain stable or strengthen further through the remainder
of the fund's fiscal year, and bonds will continue to be attractive
investments. In this environment, we would likely maintain the
portfolio's extended duration to capitalize on the potential benefits
of lower rates.
<PAGE>
[BAR CHART]
LONG-TERM U.S. TREASURIES VERSUS MORTGAGE-BACKED SECURITIES*
- ----------------------------------------------------------------------
Lehman Long-Term Lehman Mortgage-Backed
Date Treasury Index Securities Index
5/94 -0.66 0.4
6/94 -0.95 -0.22
7/94 3.39 2
8/94 -0.73 0.32
9/94 -3.15 -1.42
10/94 -0.35 -0.06
11/94 0.59 -0.31
12/94 1.54 0.8
1/95 2.57 2.14
2/95 2.83 2.55
3/95 0.86 0.47
4/95 1.78 1.42
* Based on monthly total returns of unmanaged indexes, whose
performance and holdings will differ from those of the fund. This
chart illustrates the benefits offered by mortgage-backed
securities (lower relative volatility for the year ended 4/30/95)
and long-term Treasuries (better performance over the semiannual
fiscal period that began on 11/1/94).
We still foresee value opportunities in core European bond markets.
France recently raised short-term interest rates dramatically to
defend the franc against the German deutschemark, curbing economic
growth and making France's bond markets more attractive. Germany's
economic growth has also abated, owing largely to a reduction in
exports as appreciation of the deutschemark has made German products
more expensive in international markets. In light of these
developments, we may moderately increase the portfolio's allocation to
France and Germany in anticipation of reduced inflation and rallying
bond markets. Of course, there can be no guarantees that current
trends will continue.
We will continue to monitor changing conditions in both domestic and
foreign bond markets, and will adjust the fund's asset allocation
according to where we see the greatest opportunities for competitive
current income and long-term total returns.
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 4/30/95, there is no guarantee
the fund will continue to hold these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. 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 back into the fund. We show
total return in two ways: on a cumulative long-term basis and on
average how the fund might have grown each year over varying periods.
Performance should always be considered in light of a fund's
investment strategy. Putnam Federal Income Trust is designed for
investors seeking high current income consistent with preservation of
capital primarily through U.S. government securities.
TOTAL RETURN FOR PERIODS ENDED 4/30/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
NAV POP NAV CDSC
- ----------------------------------------------------------------------
6 months 6.40% 1.39% 5.94% 0.94%
- ----------------------------------------------------------------------
1 year 6.01 1.00 -- --
- ----------------------------------------------------------------------
5 years 45.41 38.52 -- --
Annual average 7.77 6.73 -- --
- ----------------------------------------------------------------------
Life of class A 78.83 70.37 -- --
Annual average 6.74 6.16 -- --
- ----------------------------------------------------------------------
Life of class B -- -- 4.44 -0.51
- ----------------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 3/31/95
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
NAV POP NAV CDSC
- ----------------------------------------------------------------------
1 year 3.79% -1.15% -- --
- ----------------------------------------------------------------------
5 years 41.10 34.45 -- --
Annual average 7.13 6.10 -- --
- ----------------------------------------------------------------------
Life of class A 76.81 68.44 -- --
Annual average 6.67 6.08 -- --
- ----------------------------------------------------------------------
Life of class B -- -- 3.31% -1.61%
- ----------------------------------------------------------------------
<FN>
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions. The fund began operations
on 6/2/86, offering shares now known as class A. Class B shares
commenced operations on 6/6/94 and class M shares on 4/12/95. Class M
share performance is not shown because of the brevity of the reporting
period. Performance data represent past results and will differ for
each share class. Investment returns and principal value will
fluctuate so an investor's shares, when sold, may be worth more or
less than their original cost.
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1
fee than class A shares and no sales charge on redemption.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus
the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 4.75% sales charge
for class A shares and 3.25% for class M shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at the
end of the period. Your fund's CDSC declines from a 5% maximum during
the first year to 1% during the sixth year. After the sixth year, the
CDSC no longer applies.
COMPARATIVE INDEX RETURNS FOR PERIOD ENDED 4/30/95
<TABLE><CAPTION>
<S> <C> <C>
LEHMAN BROS. CONSUMER
GOVERNMENT PRICE
BOND INDEX INDEX
- ----------------------------------------------------------------------
6 months 6.53% 1.61%
- ----------------------------------------------------------------------
1 year 6.51 3.05
- ----------------------------------------------------------------------
5 years 55.76 17.84
Annual average 9.27 3.34
- ----------------------------------------------------------------------
Life of class A 106.01 39.49
Annual average 8.44 3.81
- ----------------------------------------------------------------------
Life of class B 6.65 2.98
- ----------------------------------------------------------------------
</TABLE>
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS GOVERNMENT BOND INDEX is an unmanaged list of publicly
issued U.S. Treasury obligations and debt obligations of U.S.
government agencies (excluding mortgage-backed securities). The
average quality of bonds included in the index may be higher than the
average quality of those bonds in which the fund customarily invests.
The fund's securities will not match those of the index. The index
does not take into account brokerage commissions or other costs.
LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is composed of all bonds
covered by the Lehman Brothers Treasury Bond Index with maturities of
10 years or greater.
LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX reflects performance
of 15- and 30-year fixed-rate securities backed by mortgage pools of
the Government National Mortgage Association, Federal Home Loan
Mortgage Corporation, and Federal National Mortgage Association.
CONSUMER PRICE INDEX is a commonly used measure of inflation. It does
not represent an investment return.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
April 30, 1995 (Unaudited)
<TABLE><CAPTION>
<C> <S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (77.8%)*
PRINCIPAL AMOUNT VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (1.8%)
- ----------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
$3,697,957 Ser. 40E, 10s, June 15, 2019 $ 3,815,828
1,406,735 Ser. 43C, 10s, June 15, 2019 1,462,124
2,500,000 Federal National Mortgage Association
(Ser. 89-23D), 10.2s, due date
September 25, 2018 2,642,188
------------
7,920,140
U.S. AGENCY MORTGAGE PASS-THROUGHS (45.1%)
- ----------------------------------------------------------------------
Federal National Mortgage Association
29,360,000 8 1/2s, TBA, May 14, 2025+++ 29,818,750
25,074,000 7 1/2s, TBA, June 14, 2025+++ 24,486,328
30,000,000 7 1/2s, TBA, May 14, 2025+++ 29,296,875
25,074,254 7 1/2s, with various due dates to
October 1, 2024 24,486,576
Government National Mortgage Association
650,374 11 1/2s, with various due dates to February 15, 2019723,541
2,093,204 10s, with various due dates to October 15, 20202,257,775
9,310,763 9s, with various due dates to February 15, 20109,793,759
7,681,073 8 1/2s, with various due dates
to October 15, 2009 7,993,117
22,330,765 8s, with various due dates to April 15, 2008 22,805,294
29,303,810 7 1/2s, with various due dates to
September 15, 2024 28,703,340
13,415,598 7s, with various due dates to July 15, 2024 12,698,702
------------
193,064,057
U.S. TREASURY OBLIGATIONS (30.9%)
- ----------------------------------------------------------------------
15,800,000 U.S. Treasury Bonds 11 5/8s, November 15, 200420,678,250
22,240,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017 25,582,950
28,200,000 U.S. Treasury Bonds 8 1/8s, August 15, 2019 30,191,625
21,255,000 U.S. Treasury Bonds 7 1/2s, November 15, 2024 21,540,614
9,900,000 U.S. Treasury Notes 11 1/4s, May 15, 1995 9,918,562
15,700,000 U.S. Treasury Notes 8s, October 15, 1996 16,023,812
7,920,000 U.S. Treasury Notes 7 1/2s, February 15, 2005 8,162,550
------------
132,098,363
- ----------------------------------------------------------------------
TOTAL U. S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $326,577,681) $333,082,560
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
<C> <S> <C>
NON- AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (9.7%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------
$ 981,329 Chase Manhattan Mortgage Finance Corp.
Sub. Mtge. Ser. 1993-3, CL B 6, 7.46s,
October 29, 2024 $ 874,610
4,210,191 Chase Manhattan Mortgage Finance Corp.
Sub. Mtge. Ser. 1993-3, CL B 7, 7.46s,
October 29, 2024 3,752,334
1,236,956 CMC Securities Corporation, Ser. 1994-F
CL B 2, 6 1/4s, May 25, 2014 1,066,101
3,069,991 Housing Securities, Inc., Mtge. Pass
Through Certificate, Ser. 1993 J, 6.66s,
January 25, 2009 2,784,098
10,000,000 Nationsbank of Texas, N.A. 144A secd.
notes, Ser. 1995- 1, 7.7s, August 25, 1999 9,993,750
1,875,574 Prudential Home Mortgage Securities,
Mtge. Pass Through Certificate, Ser.
1994-31, CL B 2, 8s, November 25, 2009 1,806,412
2,978,931 Prudential Home Mortgage Securities,
Ser. 1992-13, CL B 2, 7 1/2s, June 25, 2007 2,800,195
2,752,999 Prudential Home Mortgage Securities,
Ser. 1994-28, CL B 2, 6.803s,
September 25, 2001 2,463,934
5,197,749 Prudential Home Mortgage Securities
Sub. Mtge. Ser. 1994-D, CL 3 B, 6.3118s,
August 28, 2009 4,544,781
3,756,471 Prudential Home Mortgage Securities,
Ser.1993-31, CL B 2, 6s, August 25, 2000 3,331,521
1,090,541 Residential Funding Mortgage Securities,
Mtge. Pass Through Certificate,
Ser. 1993-S17, CL M 3, 7s, May 25, 2008 986,940
4,841,669 Residential Funding Mortgage Securities,
Ser. 1993-MZ3, CL A 1, 6.97s, August 28, 2023 4,514,856
848,708 Residential Funding Mortgage Securities,
Mtge. Pass Through Certificate, Ser. 1993-S23,
CL M 3, 6 1/2s, June 25, 2008 745,802
1,905,634 Securitized Asset Sales, Inc., Mtge. Pass
Through Certificate, Ser. 1994-3, CL B 1,
6.11s, February 25, 1999 1,742,464
- ----------------------------------------------------------------------
TOTAL NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (cost $40,801,921) $41,407,798
- ----------------------------------------------------------------------
</TABLE>
CORPORATE BONDS AND NOTES (8.4%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------
$4,600,000 Air Products & Chemicals deb., 11 1/2s, 1995$ 4,600,000
15,444,000 Citizens Utilities Co. deb., 7.68s, 2034 16,061,760
5,000,000 Hydro-Quebec med. term notes, 7.91s, 2024 5,231,250
2,620,000 Parker & Parsley Petro sr. notes, 8 7/8s, 2005 2,651,113
7,000,000 Procter & Gamble Co. deb., 8s, 2029 7,385,000
- ----------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(cost $34,961,561) $35,929,123
- ----------------------------------------------------------------------
[/TABLE]
FOREIGN BONDS AND NOTES (11.3%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------
FRF55,806,000 France (Government of) OATS deb. 8 1/2s, 2003$11,858,775
FRF 18,990,000 France (Government of) OATS deb. 8 1/2s, 2002 4,023,506
FRF 20,140,000 France Treasury Bills, 7s, 1999 4,028,000
DEM 16,400,000 Treuhandanstalt (German Government
Guarantee), 7 1/8s, 2003 11,910,500
GBP 11,022,000 United Kingdom Treasury, 7s, 2001 16,519,223
- ----------------------------------------------------------------------
TOTAL FOREIGN BONDS AND NOTES
(cost $47,894,698) $48,340,004
- ----------------------------------------------------------------------
<PAGE>
SHORT-TERM INVESTMENTS (11.5%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------
$10,000,000 Federal National Mortgage Association
Disc. Notes, 5.91s, May 30, 1995 $ 9,952,392
20,000,000 Federal National Mortgage Association
Disc. Notes, 5.86s, May 19, 1995 19,941,400
19,364,000 Interest in $393,303,000 joint repurchase
agreement dated April 30, 1995 with
Lehman Brothers, due May 1, 1995 with respect
to various U.S. Treasury obligations --
maturity value of $19,373,523 for an
effective yield of 5.92% 19,370,349
- ----------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(cost $49,264,141) $49,264,141
- ----------------------------------------------------------------------
TOTAL INVESTMENTS (cost $499,500,002)*** $508,023,626
- ----------------------------------------------------------------------
[FN]
* Percentages indicated are based on net assets of $428,237,875,
which correspond to a net asset value per class A share, class B
share, and class M share of $9.61, $9.58, and $9.61,
respectively.
+++ TBAs are mortgage-backed securities traded under delayed delivery
commitments settling after April 30, 1995. Although the unit
price for the trades has been established, the principal value
has not been finalized. However, the amount of the commitments
will not fluctuate more than 2.0% from the principal amount. The
cost of TBA purchases held at April 30, 1995 was $83,469,591.
*** The aggregate identified cost on a tax basis is $499,583,321,
resulting in gross unrealized appreciation and depreciation of
$9,810,962 and $1,370,657, respectively, or net unrealized
appreciation of $8,440,305.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
[/TABLE]
FORWARD CURRENCY CONTRACTS OUTSTANDING AT APRIL 30, 1995
(AGGREGATE FACE VALUE $48,983,037)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
UNREALIZED
AGGREGATE DELIVERY APPRECIAITON
MARKET VALUE FACE VALUE DATE (DEPRECIATION)
- ----------------------------------------------------------------------
British Pounds (Sell)$16,322,269$16,033,424 05/17/95 $(288,845)
French Francs (Sell) 12,654,653 12,923,877 06/13/95 269,224
French Francs (Sell) 8,287,218 8,364,236 06/13/95 77,018
Deutschemarks (Sell) 7,350,900 7,327,962 06/13/95 (22,938)
Deutschemarks (Sell) 4,257,993 4,302,955 06/14/95 44,962
Deutschemarks (Buy) 31,004 30,583 05/17/95 421
- ----------------------------------------------------------------------
$79,842
- ----------------------------------------------------------------------
</TABLE>
TBA SALE COMMITMENTS AT APRIL 30, 1995
(PROCEEDS RECEIVABLE $37,280,568)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
PRINCIPAL DELIVERY COUPON MARKET
AGENCY AMOUNT MONTH RATE VALUE
- ----------------------------------------------------------------------
FNMA $25,074,000 May 7.50% $24,486,328
GNMA 13,400,000 May 7.00% 12,683,938
- ----------------------------------------------------------------------
$37,170,266
- ----------------------------------------------------------------------
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
</TABLE>
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
Investments in securities, at value
(identified cost $499,500,002) (Note 1) $508,023,626
- ----------------------------------------------------------------------
Cash 573
- ----------------------------------------------------------------------
Interest receivable 5,542,621
- ----------------------------------------------------------------------
Receivable for shares of the fund sold 53,242
- ----------------------------------------------------------------------
Receivable for securities sold 37,157,832
- ----------------------------------------------------------------------
Receivable for open forward currency contracts 391,625
- ----------------------------------------------------------------------
Receivable for closed currency contracts 1,890,820
- ----------------------------------------------------------------------
TOTAL ASSETS $553,060,339
LIABILITIES
- ----------------------------------------------------------------------
Payable for securities purchased 83,648,511
- ----------------------------------------------------------------------
Payable for shares of the fund repurchased 738,100
- ----------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 650,730
- ----------------------------------------------------------------------
Payable for administrative services (Note 2) 871
- ----------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 178
- ----------------------------------------------------------------------
Payable for investor servicing (Note 2) 101,284
- ----------------------------------------------------------------------
Payable for distribution fees (Note 2) 88,759
- ----------------------------------------------------------------------
Other accrued expenses 117,819
- ----------------------------------------------------------------------
Payable for open forward currency contracts 311,783
- ----------------------------------------------------------------------
Payable for closed forward currency contracts 1,994,163
- ----------------------------------------------------------------------
TBA sale commitments at value
(proceeds receivable $37,280,568) 37,170,266
- ----------------------------------------------------------------------
TOTAL LIABILITIES 124,822,464
- ----------------------------------------------------------------------
NET ASSETS $428,237,875
- ----------------------------------------------------------------------
REPRESENTED BY
- ----------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $671,861,181
- ----------------------------------------------------------------------
Distributions in excess of net investment income (503,349)
- ----------------------------------------------------------------------
Accumulated net realized loss on investment transactions (251,829,205)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments, forward
currency contracts and TBA sale commitments 8,709,248
- ----------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $428,237,875
- ----------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
Net asset value and redemption price of class A shares
($427,380,872 divided by 44,473,652 shares) $9.61
- ----------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.61)* $10.09
- ----------------------------------------------------------------------
Net asset value and offering price of class B shares
($834,922 divided by 87,118 shares)+ $9.58
- ----------------------------------------------------------------------
Net asset value and redemption price of class M shares
($22,081 divided by 2,297 shares) $9.61
- ----------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.61)* $9.93
- ----------------------------------------------------------------------
<FN>
* 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.
<PAGE>
STATEMENT OF OPERATIONS
Six months ended April 30, 1995 (Unaudited)
</TABLE>
<TABLE>
<S> <C>
INTEREST INCOME $16,092,061
- ----------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------
Compensation of Manager (Note 2) 1,330,692
- ----------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 390,577
- ----------------------------------------------------------------------
Reports to shareholders 45,900
- ----------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,726
- ----------------------------------------------------------------------
Auditing 21,889
- ----------------------------------------------------------------------
Legal 7,568
- ----------------------------------------------------------------------
Postage 38,222
- ----------------------------------------------------------------------
Administrative services (Note 2) 3,292
- ----------------------------------------------------------------------
Distribution fees -- class A (Note 2) 536,182
- ----------------------------------------------------------------------
Distribution fees -- class B (Note 2) 3,970
- ----------------------------------------------------------------------
Distribution fees -- class M (Note 2) 3
- ----------------------------------------------------------------------
Other 14,034
- ----------------------------------------------------------------------
TOTAL EXPENSES 2,401,055
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 13,691,006
- ----------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,729,375)
- ----------------------------------------------------------------------
Net realized gain on forward currency contracts (Note 1) 1,890,820
- ----------------------------------------------------------------------
Net unrealized appreciation of forward currency contracts 1,467,657
- ----------------------------------------------------------------------
Net unrealized appreciation of investments and TBA sale
commitments during the period 12,452,115
- ----------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 13,081,217
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 26,772,223
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<S> <C> <C>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30 OCTOBER 31
1995* 1994
- ----------------------------------------------------------------------
DECREASE IN NET ASSETS
- ----------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------
Net investment income $13,691,006 $35,547,108
- ----------------------------------------------------------------------
Net realized loss on investments and forward
currency contracts (838,555) (57,345,780)
- ----------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments, forward currency contracts and
TBA sale commitments 13,919,772 (3,636,389)
- ----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 26,772,223 (25,435,061)
- ----------------------------------------------------------------------
Distributions to shareholders from:
- ----------------------------------------------------------------------
Net investment income
- ----------------------------------------------------------------------
Class A (13,544,587) (35,082,377)
- ----------------------------------------------------------------------
Class B (23,797) (4,735)
- ----------------------------------------------------------------------
Tax return of capital
- ----------------------------------------------------------------------
Class A -- (1,704,645)
- ----------------------------------------------------------------------
Class B -- (170)
- ----------------------------------------------------------------------
Decrease from capital share transactions (Note 4)(34,944,431)(87,976,030)
- ----------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (21,740,592) (150,203,018)
NET ASSETS
- ----------------------------------------------------------------------
Beginning of period 449,978,467 600,181,485
- ----------------------------------------------------------------------
END OF PERIOD (including distributions in
excess of net investment income of $503,349
and $625,970, respectively) $428,237,875 $449,978,467
- ----------------------------------------------------------------------
<FN>
* Unaudited.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
</TABLE>
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD FOR THE PERIOD
APRIL 12, 1995 JUNE 6, 1995
(COMMENCEMENT OF SIX MONTHS(COMMENCEMENT OF SIX MONTHS
OPERATIONS) TO ENDED OPERATIONS) TO ENDED
APRIL 30 APRIL 30 OCTOBER 31 APRIL30
- ------------------------------------------------------------------------------
1995+* 1995+ 1994 1995+ 1994 1993
- ------------------------------------------------------------------------------
CLASS M CLASS B CLASS A
- ------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD$9.57 $9.30 $9.68 $9.32 $10.47 $10.47
- ------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income.03 .24 .18 .30 .61 .83
Net realized and
unrealized gain (loss)
on investments .01 .30 (.32) .28 (1.07) --
- ------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS .04 .54 (.14) .58 (.46) .83
- ------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM: (a)
Net investment income -- (.26) (.23) (.29) (.66) (.83)
Net realized gain on
investments -- -- -- -- -- --
Paid-in capital -- -- -- -- -- --
Tax return of
capital (b) -- -- (.01) -- (.03) --
- ------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (.26) (.24) (.29) (.69) (.83)
- ------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $9.61 $9.58 $9.30 $9.61 $9.32 $10.47
- ------------------------------------------------------------------------------
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE (%)(c) .42(d) 5.94(d) (1.42)(d) 6.40(d) (4.54) 8.17
- ------------------------------------------------------------------------------
NET ASSETS,
END OF PERIOD
(in thousands) $22 $835 $498 $427,381$449,480$600,181
- ------------------------------------------------------------------------------
Ratio of expenses
to average net
assets (%) .10(d) .92(d) 0.72(d) .55(d) 1.06 1.05
- ------------------------------------------------------------------------------
Ratio of net
investment income
to average net
assets (%) .45(d) 2.81(d) 2.34(d) 3.16(d) 6.91 7.81
- ------------------------------------------------------------------------------
Portfolio
turnover (%) 127.79(d) 127.79(d) 317.91 127.79(d) 317.91 150.05
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
ELEVEN JUNE 2, 1986
MONTHS (COMMENCEMENT OF
YEAR ENDED ENDED OPERATIONS) TO
OCTOBER 31 OCTOBER 31 NOVEMBER 30
- ------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------
$10.52 $9.90 $10.21 $10.07 $10.04 $11.46 $11.45
- ------------------------------------------------------------------------------
.84 .80 .82 .84 .83 .76 .41
(.05)
.62 (.29) .14 .10 (1.05) .23
- ------------------------------------------------------------------------------
.79 1.42 .53 .98 .93 (.29) .64
- ------------------------------------------------------------------------------
(.72) (.80) (.82) (.84) (.81) (.77) (.42)
(.12) -- -- -- -- (.17) (.19)
-- -- (.02) -- (.09) (.19) (.02)
-- -- -- -- -- -- --
- ------------------------------------------------------------------------------
(.84) (.80) (.84) (.84) (.90) (1.13) (.63)
- ------------------------------------------------------------------------------
$10.47 $10.52 $9.90 $10.21 $10.07 $10.04 $11.46
- ------------------------------------------------------------------------------
7.75 14.90 5.44 10.37 9.66 (2.53)(d) 5.72(d)
- ------------------------------------------------------------------------------
$655,656 $730,319 $807,890$1,002,508$1,345,223 $2,087,744 $997,390
- ------------------------------------------------------------------------------
1.11 1.17 1.13 1.09 1.01 .92(d) .55(d)
- ------------------------------------------------------------------------------
6.83 7.90 8.17 8.55 8.46 6.94(d) 3.33(d)
- ------------------------------------------------------------------------------
248.37 215.17 269.04 241.99 24.71 130.14(d) 149.84(d)
- ------------------------------------------------------------------------------
<FN>
+ Unaudited.
* Per share net investment income for the period ended April 30, 1995 for
class M has been determined on the basis of the weighted average number
of shares outstanding during the period.
(a) See Note 1 to the financial statements. Under the fund's prior policy,
distributions were based on projections of its estimated net investment
income and net realized short-term gain. This distribution policy may at
times have resulted in a return of capital to shareholders.
(b) Distributions from return of capital for the year ended 10/31/94 has been
calculated in accordance with Statement of Position 93-2 "Determination,
Disclosure and Financial Statement Presentation, Capital Gain and Return
of Capital Distributions by Investment Companies." (See Note 1).
(c) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(d) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATMENTS
April 30, 1995 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
fund seeks high current income, consistent with preservation of
capital, through investments primarily in U.S. government securities.
The fund offers class A, class B and class M shares. The fund
commenced its public offering of class M shares on April 12, 1995.
Class A shares are sold with a maximum front-end sales charge of
4.75%. Class B shares do not pay a front-end sales charge, but pay a
higher ongoing distribution fee than class A shares, and may be
subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a
maximum front end sales charge of 3.25% and an ongoing distribution
fee that is higher than class A shares and lower than class B shares.
Expenses of the fund are borne pro rata by the shareholders 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 the 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 policies are in conformity with generally accepted
accounting principles.
A SECURITY VALUATION Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are reported -- as
in the case of some securities traded over-the-counter -- the last
reported bid price, except that certain U.S. government obligations
are stated at the mean between the bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are stated
at amortized cost, which approximates market value, and other
investments are stated at fair value following procedures approved by
the Trustees. (See Section F of Note 1 with respect to valuation of
options and futures.)
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 managed by Putnam Investment
Management, Inc. (Putnam Management), the fund's Manager, a wholly-
owned subsidiary of Putnam Investments, Inc., and certain accounts.
These balances may be invested in one or more repurchase agreements
and/or short-term money market instruments.
C FORWARD CURRENCY CONTRACTS A forward currency contract is an
agreement between two parties to buy and sell a currency at a set
price on a future date. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
"marked-to-market" daily and the
<PAGE>
change in market value is recorded by the fund as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain
or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed. The
maximum potential loss from forward currency contracts is the
aggregate face value in U.S. dollars at the time the contract was
opened; however management believes the likelihood of such loss to be
remote.
D REPURCHASE AGREEMENTS The fund, 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. The fund's Manager 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.
E SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual
basis. Discount on zero coupon bonds is amortized according to the
effective yield method.
F FUTURES The fund may purchase and sell financial futures contracts
to hedge against changes in the values of tax-exempt municipal
securities the fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell
units of a particular index or a certain amount of a U.S. Government
security at a set price on a future date.
Upon entering into such a contract the fund is required to pledge to
the broker an amount of cash or securities equal to the minimum
"initial margin" requirements of the futures. Pursuant to the
contract, the fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as "variation margin"
and are recorded by the fund as unrealized gains or losses. When the
contract is closed, the fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
The potential risk to the fund is that the change in value of futures
contracts primarily corresponds with the value of underlying
instruments which may not correspond to the change in value of the
hedged instruments. In addition, there is a risk that the fund may not
be able to close out its futures positions due to an illiquid
secondary market.
G FEDERAL TAXES It is the policy of the fund to distribute all of
its income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Internal Revenue Code of 1986. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation of securities held and excise tax on income
and capital gains.
At October 31, 1994, the fund had a capital loss carryover of
approximately $250,990,000. Of this amount, $63,617,000, $118,265,000,
$15,005,000 and $54,103,000 will expire October 31, 1996, 1997,1998
and 2002, respectively. In order to provide more level monthly
distributions, the fund may at times pay taxable distributions from
net realized short- term and long-term gains that could have been
retained by the fund and
<PAGE>
offset by the capital loss carryover. In such circumstances, the fund
would lose the benefit of the carryover.
H DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are
recorded by the fund on the ex- dividend date. At certain times, the
fund may continue to pay monthly distributions at a level rate even
though, as a result of market conditions or investment decisions, the
fund may not achieve projected investment results for a given period.
The amount and character of income and gains to be distributed is
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences
include treatment of certain gains and losses on foreign currency
transactions which are considered capital gains and losses for book
accounting purposes, but ordinary income for tax purposes. Losses on
these transactions result in a reduction of net investment income
available for distribution. These losses can occur unpredictably at a
point in the year after monthly or quarterly distributions have
already been made, necessitating a redesignation. 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.
I FOREIGN CURRENCY TRANSLATION The accounting records of the fund
are maintained in U.S. dollars. The market values of foreign
securities, currency holdings, other assets and liabilities are
recorded in the books and records of the fund after translation to
U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when
accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the
foreign exchange rate on investments from fluctuations arising from
changes in the market price of the securities. Such fluctuations are
included with the net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains or losses on closed forward
currency contracts, disposition of foreign currencies and the
difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid.
J 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 commitment will not fluctuate
more than 2.0% from the principal amount. The fund holds, and
maintains until the settlement date, cash or high-grade debt
obligations in an amount sufficient to meet the purchase price, or the
fund enters into offsetting contracts for the forward sale of other
securities it owns. 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, generally 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 its portfolio or for
delivery pursuant to options contracts it has entered into,
<PAGE>
the fund may dispose of a commitment prior to settlement if the fund
Manager deems it appropriate to do so.
TBA SALE COMMITMENTS The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sales
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value
of the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is "marked-to
market" daily and the change in market value is recorded by the fund
as an unrealized gain or loss. If the TBA sale commitment is closed
through the acquisition of an offsetting purchase commitment, the fund
realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the fund
delivers securities under the commitment, the fund realizes a gain or
loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
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 for the quarter. Such fee is based on the following annual
rates: 0.75% of the first $100 million of average net assets, 0.65% of
the next $100 million, 0.55% of the next $300 million, 0.45% of the
next $500 million, and 0.4% of any amount over $1 billion, subject,
under current law, to reduction in any year to the extent that
expenses (exclusive of distribution fees, brokerage, interest and
taxes) of the fund exceed 2.5% of the first $30 million of average net
assets, 2% of the next $70 million, and 1.5% of any excess over $100
million and by the amount of certain brokerage commissions and fees
(less expenses) received by affiliates of the Manager on the fund's
portfolio transactions.
The fund also reimburses the Manager 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.
Trustees of the fund receive an annual Trustee's fee of $980, and an
additional fee for each Trustees' meeting attended. Trustees who are
not interested persons of the Manager and who serve on committees of
the Trustees receive additional fees for attendance at certain
committee meetings.
Custodial functions for the fund 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.
Investor servicing and custodian fees reported in the Statement of
operations for the six months ended April 30, 1995 have been reduced
by credits allowed by PFTC.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred
by it
<PAGE>
in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A,
class B and class M shares, respectively. The Trustees have approved
payments by the fund at an annual rate of 0.25%, 1.00% and 0.50% of
the average net assets attributable to class A, class B and class M
shares, respectively.
For the six months ended April 30, 1995 Putnam Mutual Funds Corp.,
acting as the underwriter, received net commissions of $8,861 from the
sale of class A shares, $1,199 in contingent deferred sales charges
from redemptions of class B shares, and net commissions of $58 from
the sale of class M shares. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares purchased as part of
an investment of $1 million or more. For the six months ended April
30, 1995, Putnam Mutual Funds Corp., acting as the underwriter,
received no monies on class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended April 30, 1995, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $106,323,855 and $174,422,228,
respectively. Purchases and sales of U.S. government obligations
aggregated $383,012,040 and $346,651,051, respectively. In determining
the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
NOTE 4
CAPITAL SHARES
At April 30, 1995, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 579,874 $5,440,300
Shares issued in connection with
reinvestment of distributions 736,347 6,879,544
- ----------------------------------------------------------------------
1,316,221 12,319,844
- ----------------------------------------------------------------------
Shares repurchased (5,082,376) (47,595,075)
- ----------------------------------------------------------------------
NET DECREASE (3,766,155) $(35,275,231)
- ----------------------------------------------------------------------
YEAR ENDED OCTOBER 31
- ----------------------------------------------------------------------
1994
- ----------------------------------------------------------------------
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 2,036,223 $20,180,628
Shares issued in connection with
reinvestment of distributions 1,818,844 17,818,233
- ----------------------------------------------------------------------
3,855,067 37,998,861
- ----------------------------------------------------------------------
Shares repurchased (12,947,301) (126,479,041)
- ----------------------------------------------------------------------
NET DECREASE (9,092,234) $(88,480,180)
- ----------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 110,637 $1,033,049
Shares issued in connection with
reinvestment of distributions 1,803 16,772
- ----------------------------------------------------------------------
112,440 1,049,821
- ----------------------------------------------------------------------
Shares repurchased (78,910) (741,085)
- ----------------------------------------------------------------------
NET INCREASE 33,530 $308,736
- ----------------------------------------------------------------------
YEAR ENDED OCTOBER 31
- ----------------------------------------------------------------------
1994
- ----------------------------------------------------------------------
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 55,736 $524,009
Shares issued in connection with
reinvestment of distributions 223 2,077
- ----------------------------------------------------------------------
55,959 526,086
- ----------------------------------------------------------------------
Shares repurchased (2,371) (21,936)
- ----------------------------------------------------------------------
NET INCREASE 53,588 $504,150
- ----------------------------------------------------------------------
APRIL 12, 1995
(COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 1995
- ----------------------------------------------------------------------
CLASS M SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 2,296 $22,054
Shares issued in connection with
reinvestment of distributions 1 10
- ----------------------------------------------------------------------
2,297 22,064
- ----------------------------------------------------------------------
Shares repurchased -- --
- ----------------------------------------------------------------------
NET INCREASE 2,297 $22,064
- ----------------------------------------------------------------------
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Blake Anderson
Vice President
Kenneth J. Taubes
Vice President and Fund Manager
Max S. Senter
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Federal
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.
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 PRINCIPAL AMOUNT INVESTED.
<PAGE>
PUTNAM INVESTMENTS
THE PUTNAM FUNDS
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
18340-039/334
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of these
financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
</TABLE>
