Putnam
Federal
Income
Trust
SEMIANNUAL REPORT
April 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
*According to Lipper Analytical Services, Putnam Federal Income Trust's
class A share total return ranked 30 out of 172 general U.S. government
funds for the one-year period ended April 30, 1996, placing the fund in
the top 18% of funds in this category.*
* "...Government-general funds remain a decent choice for the risk
averse. Investors who seek broad diversification across the range of
U.S. government-grade debt should be able to find a comfortable fit
here."
-- Morningstar, March 1, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
15 Financial statements
*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 the periods
ended 4/30/96, the fund's class A shares ranked 45 out of 70 general
U.S. government funds for 5-year performance. Class B and class M shares
ranked 79 and 49, respectively, out of 172 funds for 1-year performance,
and were not ranked over longer periods. Past performance is not
indicative of future results.
[GRAPHIC OMITTED: photo of George Putnam]
* Karsh, Ottawa
From the Chairman
Dear Shareholder:
Much as nature abhors a vacuum, bond markets have an aversion to
inflation. The reason is simple: inflation generally means higher
interest rates, and higher rates mean lower bond prices. Rarely has the
principle been demonstrated more clearly than during the first half of
Putnam Federal Income Trust's current fiscal year, the six months ended
April 30, 1996.
The period opened in the midst of one of the U.S. bond market's
strongest advances in recent memory. It proved a fragile rally, derailed
in March by hints of a pickup in inflation caused by the economy's
persistence in growing. Anticipating such a possibility, your fund's
management team had taken some defensive measures that mitigated, but
did not entirely neutralize, the market's resulting decline.
All in all, the fund performed respectably within its universe, as its
managers explain in the report that follows. They also take a look at
prospects for the second half of fiscal 1996.
Respectfully yours,
/S/ George Putnam
George Putnam
Chairman of the Trustees
June 19, 1996
Report from the Fund Managers
Kenneth J Taubes
Max S. Senter
The bond-market rally that characterized 1995 began to show signs of
wear over the past six months as economic growth accelerated and
investors again became wary of inflation. In response, Putnam Federal
Income Trust took advantage of attractive investment opportunities in
corporate and international fixed-income securities to offset the
subdued performance of Treasury bonds. As a result, during the
semiannual period ended April 30, 1996, the fund posted total return
figures that nearly matched its benchmark index, the Lehman Brothers
Government Bond Index. For complete information about your fund's
performance, refer to pages 8 and 9.
* CORPORATE BONDS BOOST PERFORMANCE AS ECONOMY REBOUNDS
Over the past three months, the fund's asset-allocation flexibility
again proved its value, allowing us to capitalize on stable sectors of
the bond market as long-term interest rates generally rose amid a
strengthening U.S. economy. Investments in corporate bonds were
instrumental in bolstering the fund's value in a struggling bond market.
As the U.S. economy gained strength in recent months, so did corporate
profitability. This, in turn, helped to bolster the demand for corporate
bonds. We added to your fund's investments in corporate bonds materially
at the beginning of the period, at times allocating more than 10% of the
fund's assets to this sector. Among the bonds in this sector that
contributed to performance, one security in the oil and gas industry stands out.
Packer & Parsley Petroleum Co. underwent a change in management several years
ago after unsuccessfully attempting to expand its business outside the energy
sector through a series of aggressive acquisitions. At that time, we purchased
this security at a relatively low price, hoping to capitalize on the apparent
value opportunity. The new management subsequently pared the company back to
its core businesses -- oil and gas -- improving its profits and enabling the
value of its bonds to appreciate. More recently, a surge in oil prices has also
boosted the company's revenues.
* OPPORTUNITIES IN INTERNATIONAL BOND MARKETS
Outside the United States, generally slower economic growth enabled
international fixed-income markets to rally throughout the past six
months. Typically, bond markets respond favorably to slowing economic
growth because, in such an environment, investors' fears of inflation
are minimal.
Early in the fiscal period, a significant portion of the fund's
international allocation consisted of holdings in European countries
such as Germany, the Netherlands, Italy, and the United Kingdom. In
these countries, robust markets and generally improving quality
(particularly in Italy) caused the values of existing bonds to increase
early in the period. During the final two months of the period, these
prices approached a level at which we considered them unlikely to
appreciate much more. Consequently, we began to liquidate a portion of
these European holdings to lock in the profits and reallocate assets
elsewhere. Among the bond markets that began to offer the greatest value
potential toward the end of the period were those in Canada and
Australia. In both countries, fixed-income securities outperformed U.S.
government equivalent.
[GRAPHIC OF HORIZONTAL BAR CHART OMITTED: BOND MARKET PERFORMANCE
BY SECTOR]
Information reads:
Comparison of total returns, 10/31/95-4/30/96*
Lehman Brothers 1.66%
Mortage-Backed
Lehman Brothers 0.53%
Aggregate Bond
Lehman Brothers 0.08%
Corporate Bond
Salomon Brothers -0.13%
World Government Bond
Lehman Brothers -3.49%
Long-Term Treasury Bond
0%
*These indexes reflect the general performance of market sectors in
which the fund invests. The fund's performance will differ. Past
performance is not indicative of future results.
* EXPOSURE TO RISING INTEREST RATES SUPPRESSES PERFORMANCE
Another element of our strategy to boost your fund's performance
centered around management of the portfolio's duration. Duration is a
measure of the price sensitivity of a portfolio of bonds to changes in
interest rates. Like maturity, with which it is often confused, duration
is measured in years.
Through the first several months of the period, we kept the portfolio's
duration relatively long, seeking to enhance the fund's value as long-
term interest rates continued to decline. Because bond prices rise as
interest rates fall, a longer duration gives the fund the potential to
derive greater benefit when long-term rates are in decline. However,
greater rewards always entail greater potential risks; such a strategy
exposes the fund to negative effects in the event of a rate increase.
When 1995's bond-market rally began to slow earlier this year, the U.S.
economy still appeared relatively weak, and the prospects for a
sustained drop in bond prices seemed remote. As a result, we maintained
our approach. In late February, when the intensity of the market's
decline became evident and interest rates changed direction, we began to
shorten duration aggressively. Our goal was to reduce declines in the
portfolio's value, but we were not able to prevent some loss as interest
rates rose.
* STEADY ECONOMIC GROWTH COULD FUEL CORPORATE PROFITS
Over the first four months of 1996, economic indicators gradually
compiled evidence that the U.S. economy is again growing at an above-
average pace. For the coming six months, this suggests an environment in
which inflation is a valid concern and, consequently, certain sectors of
the bond market may continue to struggle. In this climate, your fund's
inherent flexibility will enable us to reduce the portfolio's allocation
to underperforming sectors of the market and focus on those sectors that
tend to fare better when economic growth is strong. As long as these
conditions persist, we expect to emphasize corporate bonds, which
generally perform well during times of hardy economic growth because the
issuing corporations benefit from increased profits.
[GRAPHIC CHART OMITTED: CHANGES IN PORTFOLIO COMPOSITION*]
Chart reads:
10/31/95 4/30/96
U.S. Treasury securities 43.3% 35.9%
Mortgage-backed securties 34.9% 33.8%
Corporate bonds 8.1% 10.8%
Foreign bonds and notes 9.8% 10.1%
Collateralized mortgage obligations 8.4% 7.8%
Short-term investments 0.3% 4.1%
*Based on total net assets as of indicated date. Holdings will vary over time
During an economic rally, mortgage-backed securities typically
outperform Treasury securities. This has been the case over the past
several months, and we expect this trend to continue until the bond-
market atmosphere in the United States improves. As with corporate
bonds, we plan to maintain the portfolio's above-average allocation to
mortgage-backed securities until the market for Treasuries shows signs
of improvement.
Going forward, we will keep abreast of changing market conditions to
identify the best value opportunities as we strive to maintain the
fund's competitive income and total return.
The views expressed here are exclusively those of Putnam Management and
are not meant as investment advice. Although the described holdings were
viewed favorably as of 4/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 4/30/96
Class A Class B Class M
(inception date) (6/2/86) (6/6/94) (4/12/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
6 months -0.61% -5.35% -1.05% -5.87% -0.82% -4.03%
- ----------------------------------------------------------------------------
1 year 8.33 3.18 7.50 2.50 8.00 4.52
- ----------------------------------------------------------------------------
5 years 37.12 30.58 -- -- -- --
Annual average 6.52 5.48 -- -- -- --
- ----------------------------------------------------------------------------
Life of class 93.74 84.57 12.27 8.27 8.45 4.94
Annual average 6.90 6.38 6.28 4.27 8.03 4.70
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED
4/30/96
Lehman Bros.
Government Consumer
Bond Index Price Index
- ----------------------------------------------------------------------------
6 months 0.03% 1.30%
- ----------------------------------------------------------------------------
1 year 8.35 2.50
- ----------------------------------------------------------------------------
5 years 47.11 15.16
Annual average 8.02 2.86
- ----------------------------------------------------------------------------
Life of class A 123.21 42.98
Annual average 8.43 3.67
- ----------------------------------------------------------------------------
Life of class B 15.55 5.56
Annual average 7.83 2.89
- ----------------------------------------------------------------------------
Life of class M 9.76 2.84
Annual average 8.97 2.70
- ----------------------------------------------------------------------------
Performance data represent past results and are not indicative of future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions or, for class A shares, distribution
fees prior to implementation of the class A distribution plan in 1990.
Investment returns and net asset value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 4.75% maximum sales charge for class A shares
and 3.25% for class M shares. CDSC for class B shares assumes the
applicable sales charge, with the maximum being 5%.
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (6/2/86) (6/6/94) (4/12/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
6 months 1.39% -3.41% 1.16% -3.77% 1.37% -1.94%
- ----------------------------------------------------------------------
1 year 10.14 4.87 9.42 4.42 -- --
- ----------------------------------------------------------------------
5 years 39.03 32.40 -- -- -- --
Annual average 6.81 5.77 -- -- -- --
- ----------------------------------------------------------------------
Life of class 94.74 85.53 13.04 9.04 9.15 5.61
Annual average 7.02 6.49 6.96 4.87 -- --
- ----------------------------------------------------------------------
Performance data represent past results and are not indicative of future
performance. Investment returns and net asset value will fluctuate so
that an investor's shares, when sold, may be worth more or less than
their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/96
Class A Class B Class M
- -----------------------------------------------------------------------
Distributions(number) 6 6 6
- -----------------------------------------------------------------------
Income $0.294 $0.259 $0.282
- -----------------------------------------------------------------------
Total $0.294 $0.259 $0.282
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------
10/31/95 $10.17 $10.68 $10.14 $10.17 $10.51
- -----------------------------------------------------------------------
4/30/96 9.82 10.31 9.78 9.81 10.14
- -----------------------------------------------------------------------
Current return
- -----------------------------------------------------------------------
End of period
- -----------------------------------------------------------------------
Current dividend rate1 5.99% 5.70% 5.28% 5.75% 5.56%
- -----------------------------------------------------------------------
Current 30-day SEC yield2 6.01 5.72 5.26 5.82 5.62
- -----------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 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 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.*
Lehman Brothers Aggregate Bond Index is an unmanaged list of investment-
grade bonds.*
Lehman Brothers Corporate Bond Index is an unmanaged list of publicly
issued, fixed-rate non-convertible investment-grade domestic corporate
debt securities frequently used as a general measure of the performance
of fixed-income securities.*
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 of greater.*
Lehman Brothers Mortgage-Backed Securities Index is an unmanaged list of
GNMA bonds.*
Salomon Brothers World Government Bond Index is a market-capitalization
weighted benchmark that tracks the performance of government-bond
markets in 14 countries.*
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take into account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
in the fund will differ. It is not possible to invest directly in an
index.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
International New Opportunities Fund
Investors Fund
Natural Resources Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three
investment portfolios that spread your
money across a variety of stocks, bonds,
and money market investments to help maximize
your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENT+
Putnam money market funds:
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be
insured up to certain limits by federal/state agencies.
Savings accounts may also be insured up to certain
limits. 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
April 30, 1996 (Unaudited)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (69.7%) *
PRINCIPAL AMOUNT VALUE VALUE
<S> <C> <C> <C>
U.S. Government Agency Mortgage pass through certificates (33.8%) *
- -----------------------------------------------------------------------------------------------------
$10,992,535 Federal National Mortgage Association, 6s, Dwarf,
with various due dates from January 1, 2009 to
1-Nov-10 $10,408,507
Government National Mortgage Association
39,875,741 8s, with various due dates from January 15,
2001 to April 15, 2026
13,863,000 8s, TBA, May 16, 2026 40,623,217
40,391,493 7 1/2s, with various due dates from July 15, 14,040,585
2025 to April 15, 2026 39,924,170
21,310,762 6 1/2s, with various due dates from April 15,
2023 to November 15, 2025 19,945,417
5,175,273 6 1/2s, Midgets, with various due dates from
April 15, 2008 to December 15, 2008 5,037,774
5,447,364 6s, Midgets, with various due dates from
November 15, 2008 to May 15, 2009 5,186,880
-------------
$135,166,550
U.S. Treasury Obligations (35.9%) *
- -----------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
$21,575,000 11 7/8s, November 15, 2003 $28,185,796
15,800,000 11 5/8s, November 15, 2004 20,828,824
21,600,000 7 1/2s, November 15, 2024 22,798,152
U.S. Treasury Notes
12,400,000 9s, May 15, 1998 13,085,844
22,000,000 7 1/8s, October 15, 1998 22,491,480
15,000,000 5 5/8s, February 28, 2001 14,517,150
11,855,000 5 5/8s, October 31, 1997 11,803,075
9,650,000 5 1/4s, July 31, 1998 9,481,125
-------------
$143,191,446
-------------
Total U.S. Government and Agency
Obligations (cost $282,697,909) $278,357,996
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (7.8%) *
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp. Sub. Mtge. 144A
$4,104,918 Ser. 93-3, Class B 7, 7.46s, October 29, 2024 $3,782,939
956,791 Ser. 93-3, Class B 6, 7.46s, October 29, 2024 881,743
1,333,579 Ser. 94-G, Class B 3, 7s, April 25, 2025 ++++++ 1,176,050
1,167,521 CMC Securities Corp. Ser. 94-F Class B 2, 6 1/4s,
25-May-14 1,056,607
2,915,832 Housing Securities, Inc., Mtge. pass through certificate,
Ser. 93-J Class J 2, 6.66s, January 25, 2009 2,749,995
Prudential Home Mortgage Securities 144A
$2,731,695 Ser. 94-28, Class B 2, 6.76s, September 25, 2001 $2,571,207
4,949,824 Ser. 94-D, Class 3 B, 6.31s, August 28, 2009 4,535,276
3,728,946 Ser. 93-31, Class B 1, 6s, August 25, 2000 3,490,060
Residential Funding Mortgage Securities
1,035,278 Ser. 93-S17, Class M 3, 7s, May 25, 2008 978,338
4,688,534 Ser. 93-MZ3, Class A 1, 6.97s, August 28, 2023 4,524,436
803,892 Ser. 93-S23, Class M 3, 6 1/2s, June 25, 2008 741,590
Securitized Asset Sales Inc., Mortgage pass through
certificates 144A
3,379,940 Ser. 93-J, Class 2 B, 6.81s, November 28, 2023 3,007,618
1,876,132 Ser. 94-3, Class B 1, 6.1s, March 25, 1999 1,790,827
-------------
Total Non-Agency Collateralized Mortgage
Obligations (cost $29,907,178) $31,286,686
CORPORATE BONDS AND NOTES (10.8%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.7%)
- -----------------------------------------------------------------------------------------------------
$2,950,000 Northrop-Grumman Corp. 144A notes 7s, 2006 $2,850,438
Entertainment (0.7%)
- -----------------------------------------------------------------------------------------------------
2,835,000 Time Warner Entertainment Co. deb. 7 1/4s, 2008 2,661,044
Insurance and Finance (2.2%)
- -----------------------------------------------------------------------------------------------------
3,925,000 Advanta Corp. med. term. notes 7s, 2001 3,920,094
3,120,000 BHP Finance USA, Ltd. company guaranty 6.42s, 2026 3,017,383
1,545,000 Conseco Inc. sr. notes 10 1/2s, 2004 1,735,653
-------------
8,673,130
Mining (0.5%)
- -----------------------------------------------------------------------------------------------------
1,770,000 PT Alatief Freeport sr. notes, 9 3/4s, 2001 (Netherlands) 1,888,679
Oil and Gas (1.0%)
- -----------------------------------------------------------------------------------------------------
3,620,000 Parker & Parsley Petroleum Co. sr. notes, 8 7/8s, 2005 3,879,301
Publishing and Printing (0.7%)
- -----------------------------------------------------------------------------------------------------
3,070,000 News America Holdings, Inc. deb. 7.7s, 2025 2,786,915
Real Estate (1.6%)
- -----------------------------------------------------------------------------------------------------
1,270,000 Health Care Property Investors, Inc. sr. notes 6 1/2s, 200 1,172,197
3,335,000 Meditrust med. term. notes 7.3s, 2006 (R) 3,267,166
2,020,000 Sun Communities, Inc. sr. notes, 7 5/8s, 2003 (R) 2,009,900
-------------
6,449,263
Telecommunications (0.8%)
- -----------------------------------------------------------------------------------------------------
3,380,000 360 Communications Co. sr. notes 7 1/2s, 2006 3,217,659
Utilities (2.6%)
- -----------------------------------------------------------------------------------------------------
$9,944,000 Citizens Utilities Co. bonds 7.68s, 2034 $10,532,088
-------------
Total Corporate Bonds and Notes (cost $42,627,217) $42,938,517
FOREIGN GOVERNMENT BONDS AND NOTES (10.1%) *
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
AUD 23,611,000 Australia (Government of) bonds, Series 101,
8 3/4s, 2001 $18,809,070
CAD 18,264,000 Canada (Government of) deb., 7 1/2s, 2001 13,636,959
DEM 5,450,000 Germany (Federal Republic of) bonds, 8 1/4s, 2001 4,014,310
GBP 2,335,000 United Kingdom Treasury deb., 10s, 2001 3,864,697
-------------
Total Foreign Government Bonds and Notes
(cost $38,720,030) $40,325,036
SHORT-TERM INVESTMENTS (4.1%) *
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
$10,000,000 Federal National Mortgage Association, effective
yield of 5.17%, May 29, 1996 $9,959,788
6,606,000 Interest in $648,384,000 joint repurchase agreement
dated April 30, 1996 with Morgan (J.P.) & Co., Inc. due
May 1, 1996 with respect to various U. S. Treasury
obligations-maturity value of $6,606,974 for an
effective yield of 5.31% 6,606,974
-------------
Total Short-Term Investments (cost $16,566,762) $16,566,762
- -----------------------------------------------------------------------------------------------------
Total Investments (cost $410,519,096) *** $409,474,997
- -----------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $399,531,276.
(R) Real Estate Investment Trust
++++++ Forward Commitment (Note 1)
*** The aggregate identified cost on a tax basis is $410,664,665 resulting in gross unrealized
appreciation and depreciation of $5,409,834 and $6,599,502 respectively, or net unrealized
depreciation of $1,189,668.
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.
TBA after the name of the security represents to be announced
securities (Note 1).
<CAPTION>
- -------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell Outstanding at April 30, 1996
(aggregate face value of $39,217,961)
Unrealized
Market AggregateFace Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Austrailian Dollars $19,204,192 $19,054,170 6/12/96 $(150,022)
Canadian Dollars 14,047,798 13,963,554 6/12/96 (84,244)
Deutschemarks 2,129,361 2,253,805 6/12/96 124,444
British Pounds 3,875,345 3,946,432 6/12/96 71,087
- -------------------------------------------------------------------------------------------
$ (38,735)
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $410,519,096) (Note 1) $409,474,997
- ---------------------------------------------------------------------------------------------
Cash 298,676
- ---------------------------------------------------------------------------------------------
Interest receivable 6,040,598
- ---------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 224,876
- ---------------------------------------------------------------------------------------------
Receivable for securities sold 3,955,699
- ---------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 200,806
- ---------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,273,099
- ---------------------------------------------------------------------------------------------
Total assets $421,468,751
Liabilities
- ---------------------------------------------------------------------------------------------
Payable for securities purchased 19,396,243
- ---------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,188
- ---------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 314,571
- ---------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 629,682
- ---------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 302
- ---------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 723
- ---------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 85,329
- ---------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 158,618
- ---------------------------------------------------------------------------------------------
Payable for open forward currency contracts 239,541
- ---------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,031,722
- ---------------------------------------------------------------------------------------------
Other accrued expenses 78,556
- ---------------------------------------------------------------------------------------------
Total liabilities 21,937,475
- ---------------------------------------------------------------------------------------------
Net assets $399,531,276
Represented by
- ---------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $632,967,029
- ---------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,352,280
- ---------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (235,699,019)
- ---------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (1,089,014)
- ---------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $399,531,276
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($394,170,541 divided by 40,152,842 shares) $ 9.82
- ---------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.82) * $10.31
- ---------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($5,016,121 divided by 512,684 shares)** $ 9.78
- ---------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($344,614 divided by 35,128 shares) $9.81
- ---------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.81) * $10.14
- ---------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1996 (Unaudited)
<S> <C>
Interest Income: $ 14,280,663
- ----------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,298,870
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 419,821
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,691
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,748
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 519,010
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 15,619
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 580
- ----------------------------------------------------------------------------------------------
Reports to shareholders 21,504
- ----------------------------------------------------------------------------------------------
Auditing 13,344
- ----------------------------------------------------------------------------------------------
Legal 4,376
- ----------------------------------------------------------------------------------------------
Postage 43,423
- ----------------------------------------------------------------------------------------------
Registration fees 10,035
- ----------------------------------------------------------------------------------------------
Other 7,293
- ----------------------------------------------------------------------------------------------
Total expenses 2,365,314
- ----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (83,210)
- ----------------------------------------------------------------------------------------------
Net expenses 2,282,104
- ----------------------------------------------------------------------------------------------
Net investment income 11,998,559
- ----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,171,346
- ----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 162,436
- ----------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and
foreign currency translation (Note 1) 1,032,022
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and
foreign currency translation during the period 853,099
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (19,485,926)
- ----------------------------------------------------------------------------------------------
Net loss on investments (14,267,023)
- ----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (2,268,464)
- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1996* 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ----------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------
Net investment income $ 11,998,559 $ 26,899,845
- ----------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions 4,365,804 14,450,612
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (18,632,827) 22,754,337
- ----------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting
from operations (2,268,464) 64,104,794
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------
From net investment income
Class A (12,051,888) (26,249,604)
- ----------------------------------------------------------------------------------------------
Class B (77,943) (56,929)
- ----------------------------------------------------------------------------------------------
Class M (6,181) (2,393)
- ----------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (14,336,661) (59,501,922)
- ----------------------------------------------------------------------------------------------
Total decrease in net assets (28,741,137) (21,706,054)
- ----------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------
Beginning of period 428,272,413 449,978,467
- ----------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $3,352,280 and $3,489,733, respectively) $399,531,276 $428,272,413
- ----------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the Period
April 12, 1995
Six months (commencement Six months
ended of operations) ended Year ended
April 30 to October 31 April 30 October 31
- -------------------------------------------------------------------------------------------------------
1996* 1995 1996* 1995
- -------------------------------------------------------------------------------------------------------
Class M
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.17 $9.57 $10.14 $9.30
- -------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------
Net investment income .27** .29** .24** .52
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.35) .60 (.34) .84
- -------------------------------------------------------------------------------------------------------
Total from investment operations (.08) .89 (.10) 1.36
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income (0.28) (0.29) (0.26) (0.52)
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- --
- -------------------------------------------------------------------------------------------------------
From paid in capital -- -- -- --
- -------------------------------------------------------------------------------------------------------
Total distributions (0.28) (0.29) (0.26) (0.52)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.81 $10.17 $9.78 $10.14
- -------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) (0.82)(c) 9.35(c) (1.05)(c) 15.09
- -------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $345 $186 $5,016 $1,835
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .69(c) .71(c) .94(c) 1.85
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 2.71(c) 3.15(c) 2.44(c) 5.42
- -------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 165.48(c) 234.95 165.48(c) 234.95
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
For the Period
June 6, 1994
(commencement Six months
of operations) ended
to October 31 April 30
- -------------------------------------------------------------------------------------------------------
1994 1996* 1995 1994
- -------------------------------------------------------------------------------------------------------
Class B Class A
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.68 $10.17 $9.32 $10.47
- -------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------
Net investment income .18 .29** .60 .61
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.32) (.35) .84 (1.07)
- -------------------------------------------------------------------------------------------------------
Total from investment operations (.14) (.06) 1.44 (.46)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income (0.23) (0.29) (0.59) (0.66)
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- --
- -------------------------------------------------------------------------------------------------------
From paid in capital (.01) -- -- (.03)
- -------------------------------------------------------------------------------------------------------
Total distributions (0.24) (0.29) (0.59) (0.69)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.30 $9.82 $10.17 $9.32
- -------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) (1.42)(c) (0.61)(c) 15.97 (4.54)
- -------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $498 $394,171 $426,252 $449,480
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .72(c) .56(c) 1.12 1.06
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 2.34(c) 2.86(c) 6.22 6.91
- -------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 317.91 165.48(c) 234.95 317.91
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
Year
ended
October 31
- ----------------------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.47 $10.52 $9.90
- ----------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------
Net investment income .83 .84 .80
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments -- (.05) .62
- ----------------------------------------------------------------------------------------
Total from investment operations .83 .79 1.42
- ----------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------
From net investment income (0.83) (0.72) (0.80)
- ----------------------------------------------------------------------------------------
From net realized gain on investments -- (.12) --
- ----------------------------------------------------------------------------------------
From paid in capital -- -- --
- ----------------------------------------------------------------------------------------
Total distributions (0.83) (0.84) (0.80)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $10.47 $10.47 $10.52
- ----------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) 8.17 7.75 14.90
- ----------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $600,181 $655,656 $730,319
- ----------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.05 1.11 1.17
- ----------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 7.81 6.83 7.90
- ----------------------------------------------------------------------------------------
Portfolio turnover (%) 150.05 248.37 215.17
- ----------------------------------------------------------------------------------------
* Unaudited.
** Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) The ratio of expenses to average net assets for the periods ended October
31, 1995 and thereafter, includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts. (Note 2).
(c) Not annualized.
</TABLE>
Notes to financial statements
April 30, 1996 (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. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
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 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 preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price. Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost, which approximates market value, and
other investments are stated at fair value following procedures approved
by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other accounts. 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.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income. Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
Discounts on zero coupon bonds are accreted according to the effective
yield method. Securities purchased or sold on a forward commitment or
delay delivery basis may be settled a month or more after the trade
date; interest income is not accrued until settlement date. The fund
instructs the custodian to segregate assets in a separate account with a
current value at least equal to the amount of its forward commitment
purchase commitment. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not
perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value 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 prices
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. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded 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 fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or which it invests to increase its current returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) TBA purchase commitments The fund, may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the
unit price has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate
more than 2.0% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled
TBA purchase commitments are valued at the current market value of the
underlying securities, 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 their portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deem it
appropriate to do so.
I) 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. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At October 31, 1995, the fund had a capital loss carryover of
approximately $240,052,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ----------------------------------------------------
$ 52,679,000 October 31, 1996
$118,265,000 October 31, 1997
$ 15,005,000 October 31, 1998
$ 54,103,000 October 31, 2002
- ----------------------------------------------------
J) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fees,
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: 0.75% 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 0.40% of any amount over $1 billion, subject, under current law, to
reduction in any year by the amount of certain brokerage commissions and
fees (less expenses) received by affiliates of Putnam Management on the
fund's portfolio transactions.
The fund reimburses Putnam Management 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 Trustees fee of $940 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended April 30, 1996, fund expenses were reduced by
$83,210 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 these assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund 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, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $21,817 and $86 from
the sale of class A and class M shares, respectively and received $3,788
in contingent deferred sales charges from redemptions of class B shares.
A deferred sales charge of up to 1% is assessed on certain redemptions
of class A shares. For the period ended April 30, 1996, Putnam Mutual
Funds Corp., acting as underwriter received no monies on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended April 30, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $175,660,836 and $147,460,947, respectively.
Purchases and sales of U.S. government obligations aggregated
$509,168,466 and $554,692,812, 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, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 1,094,412 $11,113,470
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 626,489 6,348,385
- ----------------------------------------------------
1,720,901 17,461,855
- ----------------------------------------------------
Shares
repurchased (3,471,335) (35,310,093)
- ----------------------------------------------------
Net decrease (1,750,434) $(17,848,238)
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 1,000,695 $9,647,859
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,396,135 13,441,981
- ----------------------------------------------------
2,396,830 23,089,840
- ----------------------------------------------------
Shares
repurchased (8,733,361) (84,013,840)
- ----------------------------------------------------
Net decrease (6,336,531) $(60,924,000)
- ----------------------------------------------------
Six months ended
April 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 429,490 $4,330,952
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,608 66,406
- ----------------------------------------------------
436,098 4,397,358
- ----------------------------------------------------
Shares
repurchased (104,410) (1,054,220)
- ----------------------------------------------------
Net increase 331,688 $3,343,138
- ----------------------------------------------------
Year ended
October 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 229,692 $2,219,468
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,496 43,550
- ----------------------------------------------------
234,188 2,263,018
- ----------------------------------------------------
Shares
repurchased (106,780) (1,019,887)
- ----------------------------------------------------
Net increase 127,408 $1,243,131
- ----------------------------------------------------
Six months ended
April 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 17,081 $170,497
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 345 3,505
- ----------------------------------------------------
17,426 174,002
- ----------------------------------------------------
Shares
repurchased (548) (5,563)
- ----------------------------------------------------
Net increase 16,878 $168,439
- ----------------------------------------------------
April 12, 1995
(commencement of
operations) to
October 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 18,625 $182,753
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 155 1,550
- ----------------------------------------------------
18,780 184,303
- ----------------------------------------------------
Shares
repurchased (530) (5,356)
- ----------------------------------------------------
Net increase 18,250 $178,947
- ----------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.*
* SWITCH FUNDS EASILY
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
* Regular investing of course, does not guarantee a profit or protect against a
loss in a declining market.
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Alan Bankart
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
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
the principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ----------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ----------------------
25122-039/334/878 6/96
