<PAGE>
PUTNAM
ADJUSTABLE RATE
U.S. GOVERNMENT
FUND
SEMIANNUAL REPORT
APRIL 30, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
The fund's total returns of 3.91% and 3.29% at net asset value for
class A and class B shares, respectively, far surpassed the 0.21%
average total return of the 79 adjustable-rate mortgage funds tracked
by Lipper Analytical Services for the 12 months ended April 30, 1995.*
SEMIANNUAL RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <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 3.20% -0.14% 2.90% -0.10%
- ----------------------------------------------------------------------
- --
SHARE VALUE NAV POP NAV
- ----------------------------------------------------------------------
- --
10/31/94 $10.17 $10.51 $10.15
4/30/95 10.24 10.58 10.22
- ----------------------------------------------------------------------
- --
CURRENT RETURN: NAV POP NAV
- ----------------------------------------------------------------------
- --
End of period
Current dividend rate(1) 5.27% 5.10% 4.70%
Current 30-day SEC yield(2) 4.25 4.11 3.63
- ----------------------------------------------------------------------
- --
DISTRIBUTIONS NO. INCOME TOTAL
- ----------------------------------------------------------------------
- --
Class A 6 $0.250 $0.250
Class B 6 0.220 0.220
- ----------------------------------------------------------------------
- --
<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 3.25% maximum sales charge for class A shares. CDSC assumes 3%
maximum contingent deferred sales charge. (1)Income portion of most
recent distribution, annualized and divided by NAV or POP at end of
period. (2)Based only on investment income, calculated using SEC
guidelines.
* Lipper Analytical Services 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 34 out of 79 and 3 out of 5
adjustable rate mortgage funds for 1- and 5-year performance,
respectively. The fund's class B shares were initially offered on
5/11/92, and ranked 47 out of 79 for 1-year performance.
</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 ADJUSTABLE RATE
U.S. GOVERNMENT FUND 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 MANAGER MICHAEL MARTINO RELATES YOUR
FUND'S PERFORMANCE DURING THE FIRST HALF OF FISCAL 1995 TO THIS MARKET
AND ECONOMIC SETTING. THEN HE PROVIDES A GLIMPSE OF WHAT HE BELIEVES
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 MANAGER
MICHAEL MARTINO
Over the past six months, stabilizing interest rates and low inflation
contributed to a turnaround in the fixed-income markets, with the
mortgage-backed sector leading the recovery in government securities.
As a result, fixed-income investments have made great strides,
recapturing much of their losses since market lows last November.
Putnam Adjustable Rate U.S. Government Fund has been an active
participant in the rally, with class A shares posting a total return
of 3.20%, at net asset value, for the semiannual period ended April
30, 1995. The fund also offers class B shares, whose performance --
while different -- reflects a similar trend. Please see pages 8 and 9
for detailed performance information.
FED ACTIONS SUCCESSFULLY RESTRAIN INFLATION
Preoccupied with an accelerating economy and the threat of inflation,
the Federal Reserve Board remained committed
to its tight stance on U.S. monetary policy throughout the semiannual
period. In November, the Fed initiated its most aggressive increase in
short-term interest rates--three-quarters of a percentage point. This
sharp rate hike helped calm inflation fears considerably. Growing
investor confidence was confirmed by the fact that the Fed's widely
expected rate increase in February -- the seventh in 12 months --
barely caused a ripple in the bond markets.
The current shape of the yield curve suggests the Fed has not
tightened rates enough to spark a recession. If the economic expansion
continues to decelerate, fixed-income markets, which historically have
favored a slow-growth, noninflationary environment, would likely react
in a positive fashion.
MANAGEMENT STRATEGIES REMAIN CAUTIOUS
For the most part, the fund's strategy has changed little since the
beginning of the fiscal year. At 86% of total net assets, adjustable-
rate mortgage (ARM) securities continue to represent the lion's share
of the portfolio's holdings. This is an increase from the 73%
allocation at the beginning of the period.
<PAGE>
The fund's ARM position is primarily made up of Federal Home Loan
Mortgage Corp. (Freddie Mac) and Federal National Mortgage Association
(Fannie Mae) securities whose coupons are adjusted relative to the one-
year Constant Maturity Treasury Index (CMT). This index resets more
frequently than the other major yardstick for adjustable rate
mortgages, the 11th District Cost of Funds Index (COFI), and allows
the fund to capture the higher coupons produced by rising short-term
interest rates more readily than the COFI. In addition, ARMs pegged to
the CMT are more liquid than their COFI counterparts, affording
greater flexibility in decisions to buy and sell.
The balance of the portfolio comprises mostly Treasury securities,
with a small allocation to fixed-rate mortgage-backed securities
(currently, the fund does not hold any collateralized mortgage
obligations or other derivatives). The Treasury portion remains
slightly barbelled, with assets concentrated in Treasury bills --
which carry maturities of one year or less -- and five-year Treasury
notes. The objective of this strategy is to match the average yield of
two- and three-year Treasuries, without actually purchasing those
securities. Prices of two- and three-year Treasuries increased during
the recent bond market rally, and in our opinion, these securities
currently offer less value than five-year Treasuries.
[BAR CHART]
PORTFOLIO COMPOSITION*
- ----------------------------------------------------------------------
- --
[PLOT POINTS]
10/31/94 4/30/95
Adjustable-Rate Mortgages 72.6% 85.8%
U.S. Treasuries 20.4% 7.9%
Fixed-Rate Mortgages 3.5% 4.5%
Cash and short-term investments 3.5% 1.8%
*Based on percentage of total net assets. Holdings will vary over
time.
<PAGE>
Underscoring the fund's lower interest-rate risk profile is its
average effective duration of 1.3 years. Generally, the lower the
average duration of a portfolio, the more stable its net asset value.
In fact, the fund's net asset value for both class A and class B
shares remained steady over the six-month period, each closing $0.07
higher than when the period began on October 31, 1994.
BALANCE OF FISCAL 1995 LOOKS PROMISING
While the dramatic turnaround in the fixed-income markets is unlikely
to continue at such an accelerated pace for the balance of fiscal
1995, there are several reasons to be cautiously optimistic about your
fund's performance. By most accounts, the most dramatic rise in
interest rates is behind us. With interest rates stabilizing, the fund
will likely remain fully invested in order to take advantage of any
near-term market rallies. Furthermore, low inflation and moderate
economic growth foster a generally favorable environment for bonds.
More specifically, the outlook for ARM securities is promising because
these investments tend to perform well in periods of low interest-rate
volatility. Should ARMs continue to offer a yield premium to short-
term Treasuries, increased investor demand should help build a natural
price support, further contributing to their relative price stability.
The U.S. economy appears to be slowing toward the modest growth rate
the Fed has targeted. We anticipate that the yield curve will remain
relatively unchanged in the near term; the Fed, satisfied with the
current economic trend, appears unlikely to manipulate short-term
interest rates, and diminished inflation fears among investors should
allow long-term rates to stabilize. An environment in which short-term
interest rates remain steady or decline moderately may prove
beneficial to the fund, since the short-term securities it holds would
likely increase in value.
We expect that prepayments on mortgage-backed securities will continue
to be slow over the remainder of the fund's fiscal year, although
there can be no assurance of this. Prepayments can accelerate as long-
term interest rates fall and mortgage holders
<PAGE>
[MOUNTAIN CHART]
MORTGAGE-BACKED SECURITIES VERSUS
LONG-TERM U.S. TREASURIES*
- ----------------------------------------------------------------------
- --
[PLOT POINTS]
Lehman Mortgage-backed Lehman Long-Term
Date Securities Index Treasury Bond Index
- ----------------------------------------------------------------------
- --
4/94 0 0
5/94 0.4 -0.66
6/94 0.18 -1.6
7/94 2.18 1.73
8/94 2.51 0.99
9/94 1.05 -2.19
10/94 0.99 -2.53
11/94 0.68 -1.96
12/94 1.49 -0.45
1/95 3.66 2.11
2/95 6.3 5
3/95 6.8 5.9
4/95 8.32 7.79
* Based on monthly total returns of unmanaged indexes, whose
performance and holdings will differ from those of the fund. This
chart illustrates the cumulative performance advantage and lower
relative volatility offered by mortgage-backed securities versus
long-term Treasury bonds for the year ended April 30, 1995.
rush to refinance. However, we believe that this is likely to occur
only after a sustained slowdown in economic growth pushes long-term
interest rates substantially lower.
The performance of fixed-income investments thus far in 1995 has done
much to ease the trying memories of 1994. That
being said, shareholders can take comfort in the fact that the
mortgage-backed sector was the second-best performing sector in 1994,
trailing only the corporate high-yield sector. Clearly, those who
remained committed to their long-term goals are reaping the benefits
of patience and perseverance.
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. While
U.S. government backing of individual securities does not insure your
principal, which will fluctuate, it does guarantee that the fund's
government-backed holdings will make timely payments of interest and
principal. Mortgage-backed securities are subject to prepayment risk,
which is the risk that the investor's principal will be returned in
full at some point earlier or later than the security's stated
maturity date. Such prepayment may cause an investor's actual rate of
return to differ from the expected rate of return.
<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 Adjustable Rate U.S. Government Fund is
designed for investors seeking attractive current income and
preservation of capital primarily through U.S. adjustable rate
mortgage 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 3.20% -0.14% 2.90% -0.10%
- ----------------------------------------------------------------------
- --
1 year 3.91 0.49 3.29 0.30
- ----------------------------------------------------------------------
- --
5 years 24.81 20.73 -- --
Annual average 4.53 3.84 -- --
- ----------------------------------------------------------------------
- --
Life of class A 42.75 38.15 -- --
Annual average 4.98 4.51 -- --
- ----------------------------------------------------------------------
- --
Life of class B -- -- 3.85 2.02
Annual average -- -- 1.28 0.68
- ----------------------------------------------------------------------
- --
</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
- ----------------------------------------------------------------------
- --
6 months 2.44% -0.86% 2.05% -0.95%
- ----------------------------------------------------------------------
- --
1 year 2.70 -0.65 2.08 -0.87
- ----------------------------------------------------------------------
- --
5 years 23.76 19.75 -- --
Annual average 4.36 3.67 -- --
- ----------------------------------------------------------------------
- --
Life of class A 41.71 37.14 -- --
Annual average 4.93 4.46 -- --
- ----------------------------------------------------------------------
- --
Life of class B -- -- 3.14 1.31
Annual average -- -- 1.08 0.45
- ----------------------------------------------------------------------
- --
<FN>
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions. Performance data for
periods before June 7, 1991, do not represent operations under the
fund's current objectives and policies. Performance data represent
past results. Investment returns and net asset value will fluctuate so
an investor's shares, when sold, may be worth more or less than their
original cost. The fund began operations on January 5, 1988, offering
shares now known as class A. Effective May 11, 1992, the fund began
offering class B shares. Performance of each share class will differ.
</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.
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 3.25% sales charge
for class A 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 3% maximum during
the first year to 1% during the fourth year. After the fourth year,
the CDSC no longer applies.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/95
<TABLE><CAPTION>
<S> <C> <C>
LEHMAN BROS.
MORTGAGE-BACKED CONSUMER PRICE
SECURITIES INDEX INDEX
- ----------------------------------------------------------------------
- --
6 months 7.25% 1.61%
- ----------------------------------------------------------------------
- --
1 year 8.31 3.05
- ----------------------------------------------------------------------
- --
5 years 54.97 17.84
Annual average 9.16 3.34
- ----------------------------------------------------------------------
- --
Life of class A (1/5/88) 92.85 31.63
Annual average 9.37 3.83
- ----------------------------------------------------------------------
- --
Life of class B (5/11/92) 19.88 8.89
Annual average 6.23 2.91
- ----------------------------------------------------------------------
- --
</TABLE>
COMPARATIVE BENCHMARKS
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. It
reflects changes in market price and reinvestment of all interest
payments but does not take into account brokerage commissions or other
costs. Securities in the fund do not match those in the index and may
pose different risks.
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.
CONSUMER PRICE INDEX (CPI) 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 (98.2%)*
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------
- --
FEDERAL HOME LOAN MORTGAGE CORP. ADJUSTABLE RATE MORTGAGES (ARMS)
$55,648 7.72s, March 1, 2019 $ 54,500
125,297 7.69s, November 1, 2022 124,708
1,595,980 7.651s, March 1, 2017 1,629,396
2,406,965 7.62s, September 1, 2021 2,494,218
351,002 7.541s, February 1, 2020 354,512
689,677 7.45s, December 1, 2022 687,306
1,736,987 7 3/8s, July 1, 2017 1,765,213
694,224 7.335s, February 1, 2018 698,997
1,445 7.256s, February 1, 2019 1,488
2,420,037 7 1/4s, November 1, 2016 2,466,169
25 7 1/8s, June 1, 2017 252
1,245,254 7.092s, April 1, 2019 1,261,987
1,870,790 7.079s, January 1, 2018 1,907,037
6,012,609 7.051s, February 1, 2022 6,136,619
4,935,541 7.003s, March 1, 2019 5,091,319
222,149 6.84s, December 1, 2018 222,913
1,150,790 6.77s, April 1, 2018 1,172,367
207 6.425s, February 1, 2019 214
1,647,592 6.372s, April 1, 2019 1,675,910
3,416,434 5 7/8s, April 1, 2018 3,507,183
2,714,385 5 7/8s, February 1, 2018 2,756,797
5,451,409 5 7/8s, April 1, 2017 5,465,038
FEDERAL NATIONAL MORTGAGE ASSOCIATION
229,838 11 1/4s, October 1, 2010 248,656
5,000,000 8.55s, December 10, 2004 5,118,750
FEDERAL NATIONAL MORTGAGE ASSOCIATION ARMS
207,658 8.05s, January 1, 2017 205,776
202,313 7.86s, February 1, 2027 200,543
4,270,671 7.795s, September 1, 2018 4,422,814
4,844,461 7.597s, April 1, 2022 4,970,114
817,657 7 1/2s, September 1, 2018 837,076
489,263 7.484s, April 1, 2019 497,672
121,921 7.45s, May 1, 2016 123,940
<PAGE>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------
- --
FEDERAL NATIONAL MORTGAGE ASSOCIATION ARMS (continued)
$3,615,438 7.398s, March 1, 2019 $ 3,697,915
2,050,904 7.336s, May 1, 2020 2,097,690
4,554,372 7.327s, March 1, 2022 4,628,381
17,611,051 7.29s, December 1, 2018 18,060,305
3,344,666 7.224s, December 1, 2019 3,433,509
752,445 7.22s, April 1, 2019 765,378
672,963 7.203s, December 1, 2018 687,894
1,737,189 7.135s, July 1, 2027 1,791,476
698,000 6.993s, March 1, 2019 714,359
4,818,008 6.892s, June 1, 2018 4,902,323
2,592,732 6.714s, July 1, 2020 2,668,083
4,908 5.99s, February 1, 2016 4,908
8,321,772 5.976s, April 1, 2028 8,597,431
232,534 5.839s, July 1, 2026 232,098
182,286 5.839s, November 1, 2024 181,944
U.S. TREASURY NOTES
2,935,000 9 1/4s, January 15, 1996 2,993,700
6,500,000 8 1/2s, May 15, 1995 6,506,094
- ----------------------------------------------------------------------
- --
TOTAL U. S. GOVERNMENT AND AGENCY
OBLIGATIONS (cost $119,387,848) $118,062,972
- ----------------------------------------------------------------------
- --
</TABLE>
<TABLE><CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS (0.9%)* (COST $1,072,527)
PRINCIPAL AMOUNT VALUE
$1,072,000 Interest in $485,809,000 joint repurchase
agreement dated April 28, 1995 with
J.P. Morgan Securities Inc., due
May 1, 1995 with respect to various
U.S. Treasury obligations -- maturity
value of $1,072,527 for an effective
yield of 5.9% $1,072,527
- ----------------------------------------------------------------------
- --
TOTAL INVESTMENTS (cost $120,460,375)*** $119,135,499
- ----------------------------------------------------------------------
- --
<PAGE>
<FN>
NOTES
* Percentages indicated are based on net assets of $120,169,012,
which correspond to a net asset value per class A share and class
B share of $10.24, and $10.22, respectively.
*** The aggregate identified cost on a tax cost basis is
$121,871,834, resulting in gross unrealized appreciation and
depreciation of $335,691 and $3,072,026, respectively, or net
unrealized depreciation of $2,736,335.
The rates shown on Adjustable Rate Mortgages (ARMS) are the
current interest rates at April 30, 1995, which are subject to
change based on the terms of the security.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
</TABLE>
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
- --
Investments in securities, at value (identified
cost $120,460,375) (Note 1) $119,135,499
- ----------------------------------------------------------------------
- --
Cash 367
- ----------------------------------------------------------------------
- --
Interest and other receivables 1,519,583
- ----------------------------------------------------------------------
- --
Receivable for shares of the fund sold 296,092
- ----------------------------------------------------------------------
- --
TOTAL ASSETS 120,951,541
- ----------------------------------------------------------------------
- --
LIABILITIES
- ----------------------------------------------------------------------
- --
Payable for shares of the fund repurchased 410,100
- ----------------------------------------------------------------------
- --
Distributions payable to shareholders 7,944
- ----------------------------------------------------------------------
- --
Payable for compensation of Manager (Note 2) 188,628
- ----------------------------------------------------------------------
- --
Payable for compensation of Trustees (Note 2) 80
- ----------------------------------------------------------------------
- --
Payable for administrative services (Note 2) 748
- ----------------------------------------------------------------------
- --
Payable for investor servicing and custodian fees (Note 2) 50,918
- ----------------------------------------------------------------------
- --
Payable for distribution fees (Note 2) 40,995
- ----------------------------------------------------------------------
- --
Other accrued expenses 83,116
- ----------------------------------------------------------------------
- --
TOTAL LIABILITIES 782,529
- ----------------------------------------------------------------------
- --
NET ASSETS 120,169,012
- ----------------------------------------------------------------------
- --
REPRESENTED BY
- ----------------------------------------------------------------------
- --
Paid-in capital (Notes 1 and 4) 148,479,543
- ----------------------------------------------------------------------
- --
Undistributed net investment income (Note 1) 204,599
- ----------------------------------------------------------------------
- --
Accumulated net realized loss on investment
transactions (Note 1) (27,190,254)
- ----------------------------------------------------------------------
- --
Net unrealized depreciation of investments (1,324,876)
- ----------------------------------------------------------------------
- --
TOTAL--REPRESENTING NET ASSETS APPLICABLE TO CAPITAL
SHARES OUTSTANDING 120,169,012
- ----------------------------------------------------------------------
- --
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
- --
Net asset value and redemption price of class A shares
($88,425,423 divided by 8,637,241 shares) $10.24
- ----------------------------------------------------------------------
- --
Offering price per class A share (100/96.75 of $10.24)* $10.58
- ----------------------------------------------------------------------
- --
Net asset value and offering price of class B shares
($31,743,589 divided by 3,105,436 shares)+ $10.22
- ----------------------------------------------------------------------
- --
<FN>
* On single retail sales of less than $100,000. On sales of
$100,000 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.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1995 (Unaudited)
<TABLE><CAPTION>
<S> <C>
INTEREST INCOME $4,335,660
- ----------------------------------------------------------------------
- --
EXPENSES:
- ----------------------------------------------------------------------
- --
Compensation of Manager (Note 2) $399,808
- ----------------------------------------------------------------------
- --
Investor servicing and custodian fees (Note 2) 139,469
- ----------------------------------------------------------------------
- --
Compensation of Trustees (Note 2) 5,477
- ----------------------------------------------------------------------
- --
Reports to shareholders 39,004
- ----------------------------------------------------------------------
- --
Auditing 40,760
- ----------------------------------------------------------------------
- --
Legal 7,528
- ----------------------------------------------------------------------
- --
Postage 45,931
- ----------------------------------------------------------------------
- --
Registration fees 225
- ----------------------------------------------------------------------
- --
Administrative services (Note 2) 4,064
- ----------------------------------------------------------------------
- --
Distribution fees -- Class A (Note 2) 124,034
- ----------------------------------------------------------------------
- --
Distribution fees -- Class B (Note 2) 144,117
- ----------------------------------------------------------------------
- --
Other expenses 3,355
- ----------------------------------------------------------------------
- --
TOTAL EXPENSES 953,772
- ----------------------------------------------------------------------
- --
NET INVESTMENT INCOME 3,381,888
- ----------------------------------------------------------------------
- --
Net realized loss on investments (Notes 1 and 3) (825,576)
- ----------------------------------------------------------------------
- --
Net unrealized appreciation of investments during the period 1,403,028
- ----------------------------------------------------------------------
- --
NET GAIN ON INVESTMENT TRANSACTIONS 577,452
- ----------------------------------------------------------------------
- --
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,959,340
- ----------------------------------------------------------------------
- --
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30 OCTOBER 31
------------- --------------
1995* 1994
- ----------------------------------------------------------------------
- --
DECREASE IN NET ASSETS
- ----------------------------------------------------------------------
- --
Operations:
- ----------------------------------------------------------------------
- --
Net investment income $3,381,888 $8,828,838
- ----------------------------------------------------------------------
- --
Net realized loss on investments (825,576) (19,138,140)
- ----------------------------------------------------------------------
- --
Net unrealized appreciation of
investments 1,403,028 10,083,482
- ----------------------------------------------------------------------
- --
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 3,959,340 (225,820)
- ----------------------------------------------------------------------
- --
Distributions to shareholders from
- ----------------------------------------------------------------------
- --
Net investment income
- ----------------------------------------------------------------------
- --
Class A (2,438,067) (5,871,952)
- ----------------------------------------------------------------------
- --
Class B (739,222) (1,349,595)
- ----------------------------------------------------------------------
- --
Tax return of capital:
- ----------------------------------------------------------------------
- --
Class A -- (353,894)
- ----------------------------------------------------------------------
- --
Class B -- (81,338)
- ----------------------------------------------------------------------
- --
Decrease from capital share
transactions (Note 4) (28,845,094) (81,245,467)
- ----------------------------------------------------------------------
- --
TOTAL DECREASE IN NET ASSETS (28,063,043) (89,128,066)
- ----------------------------------------------------------------------
- --
NET ASSETS
- ----------------------------------------------------------------------
- --
Beginning of period 148,232,055 237,360,121
- ----------------------------------------------------------------------
- --
END OF PERIOD (including undistributed
net investment income of $204,599 and
$0, respectively. $120,169,012 $148,232,055
- ----------------------------------------------------------------------
- --
<FN>
* Unaudited
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
- --
FOR THE PERIOD
MAY 11, 1992
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED OF OPERATIONS) TO
APRIL 30 OCTOBER 31 OCTOBER 31
------------ ----------------- -----------------
1995* 1994 1993 1992
- ----------------------------------------------------------------------
- --
Class B
- ----------------------------------------------------------------------
- --
NET ASSET VALUE,
BEGINNING OF PERIOD $10.15 $10.53 $10.91 $11.15
- ----------------------------------------------------------------------
- --
INVESTMENT OPERATIONS
Net investment income .24 .43 .52 .33(a)
Net realized and
unrealized gain
(loss) on investments .05 (46) (.45) (.26)
- ----------------------------------------------------------------------
- --
TOTAL FROM INVESTMENT
OPERATIONS .29 (.03) .07 .07
- ----------------------------------------------------------------------
- --
LESS DISTRIBUTIONS FROM:
Net investment income (.22) (.33) (.45) (.31)
Tax return of capital (d) -- (.02) -- --
- ----------------------------------------------------------------------
- --
TOTAL DISTRIBUTIONS (.22) (.35) (.45) (.31)
- ----------------------------------------------------------------------
- --
NET ASSET VALUE, END
OF PERIOD (in thousands)$10.22 $10.15 $10.53 $10.91
- ----------------------------------------------------------------------
- --
TOTAL INVESTMENT
RETURN AT NET
ASSET VALUE (%)(b) 2.90(c) (.31) .66 .58(c)
- ----------------------------------------------------------------------
- --
Net assets, end of
period (in thousands) $31,744 $38,030 $43,851 $42,017
- ----------------------------------------------------------------------
- --
Ratio of expenses to |
average net assets (%) .93(c) 1.59 1.67 .82(a)(c)
- ----------------------------------------------------------------------
- --
Ratio of net investment
income to average net
assets (%) 2.30(c) 3.98 4.78 2.45(a)(c)
- ----------------------------------------------------------------------
- --
Portfolio turnover (%) 25.88 196.0 49.16 237.21
- ----------------------------------------------------------------------
- --
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continue)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30 OCTOBER 31
- ----------------------------------------------------------------------
- --
1995* 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------
- --
Class A
- ----------------------------------------------------------------------
- --
$10.17 $10.55 $10.92 $11.25 $11.34 $11.65
- ----------------------------------------------------------------------
- --
.27 .55 .59 .75(a) .96(a) 1.02(a)
.05 (.52) (.44) (.34) (.02) (.25)
.32 .03 .15 .41 .94 .77
- ----------------------------------------------------------------------
- --
(.25) (.39) (.52) (.74) (1.03) (1.08)
-- (.02) -- -- -- --
- ----------------------------------------------------------------------
- --
(.25) (.41) (.52) (.74) (1.03) (1.08)
$10.24 $10.17 $10.55 $10.92 $11.25 $11.34
- ----------------------------------------------------------------------
- --
3.20(c) .30 1.34 3.72 8.64 6.98
- ----------------------------------------------------------------------
- --
$88,425 $110,202 $193,510 $376,353 $203,492 $57,798
- ----------------------------------------------------------------------
- --
.63(c) .99 1.07 1.12(a) 1.29(a) 1.26(a)
- ----------------------------------------------------------------------
- --
2.59(c) 4.59 5.42 6.44(a) 8.02(a) 8.93(a)
- ----------------------------------------------------------------------
- --
25.88 196.0 49.16 237.21 328.29 247.46
- ----------------------------------------------------------------------
- --
<FN>
* Unaudited.
(a) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the years
ended October 31, 1992, 1991 and 1990 reflect per share
reductions of $0.01 (for class A shares), $0.02 and $0.03,
respectively.
(b) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(c) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 attractive current income and preservation of capital by
investing primarily in adjustable rate mortgage securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities.
The fund offers both class A and class B shares. Class A shares are
sold with a maximum front-end sales charge of 3.25%. Class B shares 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 four years
of purchase. Expenses of the fund are borne pro-rata by the holders of
both classes 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 is 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.
<PAGE>
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. 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.
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. Treasury Bills are accreted using the straight line method.
Discount on Interest Only bonds is accreted according to the effective
yield method.
E 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 $24,953,220 which may be available to offset realized
gains, if any, to the extent provided by regulations. Of this amount,
$519,541, $798,564, $7,515,503 and $16,119,612 will expire October 31,
1998, 1999, 2001 and 2002, respectively. To the extent that capital
loss carryovers are used to offset realized capital gains, it is
unlikely that gains so offset will be distributed to shareholders,
since any such distribution might be taxable as ordinary income.
F DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are
recorded by the fund on the ex-dividend date.
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. The differences include
treatment of gains and losses realized on paydowns for mortgage-backed
securities and amortization of market discount. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers)
under income tax regulations.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund for the quarter. Such fee is based on the following annual
rates: 0.60% of the first $500 million of average net assets, 0.50% of
the next $500 million, 0.45% of the next $500 million and 0.40% of any
amount over $1.5 billion, subject, under current law, to reduction in
any year to the extent that expenses (exclusive of brokerage,
interest, taxes, custody credits and distribution fees) of the fund
exceed 2.5% of the first $30 million of average net assets, 2.0% of
the next $70 million, and 1.5% of any amount 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.
<PAGE>
The aggregate amount of all such reimbursements is determined annually
by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $710 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 the Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions were provided by Putnam Investor
Services, a division of PFTC.
Investor servicing and custodian fees reported in the statement of
operations for the period 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 shares and class B 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 of
up to 0.25% and 1.00% of the average net assets attributable to class
A and class B shares, respectively. The Trustees have approved
payments by the fund at annual rates of 0.25% and 0.85% of the average
net assets attributable to class A and class B shares, respectively.
For the six months ended April 30, 1995, Putnam Mutual Funds Corp.,
acting as the underwriter, received net commissions of $9,184 from the
sale of class A shares and $90,456 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
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 an
underwriter, received $93 on class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
Purchases and sales of U.S. government and agency obligations for the
six months ended April 30, 1995 aggregated $32,046,617 and
$57,873,396, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
<PAGE>
NOTE 4
CAPITAL SHARES
For the six months ended April 30, 1995, there was an unlimited number
of shares of beneficial interest authorized, divided into two classes,
class A and class B capital shares. Transactions in capital shares
were as follows:
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30
- ----------------------------------------------------------------------
- --
1995
- ----------------------------------------------------------------------
- --
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
- --
Shares sold 2,375,785 $24,096,248
Shares issued in connection with
reinvestment of distributions 173,239 1,754,614
- ----------------------------------------------------------------------
- --
2,549,024 25,850,862
- ----------------------------------------------------------------------
- --
Shares repurchased (4,748,496) (48,233,749)
- ----------------------------------------------------------------------
- --
NET DECREASE (2,199,472) $(22,382,887)
- ----------------------------------------------------------------------
- --
YEAR ENDED OCTOBER 31
- ----------------------------------------------------------------------
- --
1994
- ----------------------------------------------------------------------
- --
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
- --
Shares sold 8,174,921 $85,716,268
Shares issued in connection with
reinvestment of distributions 449,619 4,659,107
- ----------------------------------------------------------------------
- --
8,624,540 90,375,375
- ----------------------------------------------------------------------
- --
Shares repurchased (16,129,035) (167,412,127)
- ----------------------------------------------------------------------
- --
NET DECREASE (7,504,495) $(77,036,752)
- ----------------------------------------------------------------------
- --
SIX MONTHS ENDED APRIL 30
- ----------------------------------------------------------------------
- --
1995
- ----------------------------------------------------------------------
- --
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
- --
Shares sold 809,067 $8,184,705
Shares issued in connection with
reinvestment of distributions 56,398 570,527
- ----------------------------------------------------------------------
- --
865,465 8,755,232
- ----------------------------------------------------------------------
- --
Shares repurchased (1,505,554) (15,217,439)
- ----------------------------------------------------------------------
- --
NET DECREASE (640,089) $(6,462,207)
- ----------------------------------------------------------------------
- --
YEAR ENDED OCTOBER 31
- ----------------------------------------------------------------------
- --
1994
- ----------------------------------------------------------------------
- --
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
- --
Shares sold 3,092,770 $31,899,850
Shares issued in connection with
reinvestment of distributions 106,374 1,097,120
- ----------------------------------------------------------------------
- --
3,199,144 32,996,970
- ----------------------------------------------------------------------
- --
Shares repurchased (3,616,750) (37,205,685)
- ----------------------------------------------------------------------
- --
NET DECREASE (417,606) $(4,208,715)
- ----------------------------------------------------------------------
- --
</TABLE>
<PAGE>
FUND INFORMATION
April 30, 1995 (Unaudited)
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
Michael Martino
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
Adjustable Rate U.S. Government Fund. 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
18338-048/887
<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.
