PUTNAM
ADJUSTABLE RATE
U.S. GOVERNMENT
FUND
ANNUAL REPORT
October 31, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
FUND HIGHLIGHTS
"Putnam Adjustable Rate U.S. Government Fund has been a solid
performer since [Michael] Martino assumed management duties in July of
1994. The fund is a suitable choice for investors looking for an
extremely conservative, higher-yielding alternative to a money market
fund."*
-- The Value Line Mutual Fund Survey, October 3, 1995
For the 12 months ended October 31, 1995, the fund's class A shares
were ranked 11 out of 64 adjustable-rate mortgage funds tracked by
Lipper Analytical Services, outperforming 83% of their competitive
universe.( )
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
15 Financial statements
* Unlike money-market funds, Putnam Adjustable Rate U.S. Government
Fund does not attempt to keep its net asset value stable at $1.00
per share. In addition, the fund invests in mortgage-backed
securities, which are subject to prepayment risk.
Rankings by Lipper Analytical Services -- a mutual fund industry
research organization -- are based on total-return performance,
vary over time, and do not reflect the effects of sales charges.
The fund's class A and class B shares were ranked 11 and 30,
respectively, out of 64 adjustable-rate mortgage funds for one-
year performance through 10/31/95. The fund's class A shares were
ranked 3 out of 5 adjustable-rate mortgage funds for five-year
performance through 10/31/95. Class B shares were not ranked for
five-year performance. Past performance is not indicative of
future results.
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND CLOSED THE BOOKS ON AN
EVENTFUL 12-MONTH PERIOD THAT BEGAN AT THE TAG END OF ONE OF THE
SHARPEST BOND MARKET DECLINES ON RECORD AND ENDED IN THE MIDST OF ONE
OF THE MARKET'S STRONGEST RALLIES. AS FUND MANAGER MICHAEL MARTINO
RELATES IN THE REPORT THAT FOLLOWS, RESULTS FOR THE FISCAL YEAR THAT
ENDED ON OCTOBER 31, 1995, WERE GRATIFYING, ESPECIALLY IN CONTRAST TO
LAST YEAR'S CHALLENGES.
MOREOVER, MIKE SEES FIRM EVIDENCE THAT THE CURRENT ENVIRONMENT, WHICH
HAS BEEN SO AMENABLE TO FIXED-INCOME INVESTMENTS, WILL CONTINUE IN THE
MONTHS AHEAD. AMONG THE FAVORABLE FACTORS ARE PROSPECTS FOR A
SUSTAINABLE PACE OF ECONOMIC GROWTH AND CONTINUED LOW INFLATION.
ANOTHER CUT IN SHORT-TERM INTEREST RATES BY THE FEDERAL RESERVE BOARD
AND AGREEMENT BY CONGRESS AND THE PRESIDENT ON A FEDERAL BUDGET THAT
REDUCES THE NATIONAL DEFICIT APPEAR TO BE REASONABLE PROSPECTS. WE
EXPECT BOTH WOULD BE GREETED WARMLY BY THE BOND MARKET AS YOUR FUND
ENTERS FISCAL 1996.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
DECEMBER 20, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
MICHAEL MARTINO
Fiscal 1995 was a good year for Putnam Adjustable Rate U.S. Government
Fund. Following the difficulties posed in fiscal 1994 by rapidly
rising short-term interest rates, your fund bounced back convincingly
in 1995. Its total returns of 7.48% and 6.86% at net asset value for
class A and class B shares, respectively, placed the fund ahead of
most of its competitors in the Lipper adjustable-rate mortgage fund
category, through October 31, 1995.
While a favorable bond-market backdrop provided critical support, we
attribute the fund's competitive outperformance to several key
maneuvers undertaken during the fiscal year's second half. First, we
reduced the allocation to adjustable-rate mortgage-backed securities
(ARMs) in favor of short-term U.S. Treasuries, which we believed
offered better relative value and greater predictability as bond
yields continued to decline. Second, we varied the composition of the
fund's ARM holdings by building a small position in Ginnie Mae* ARMs
late in the fiscal year. Finally, we maintained our conservative
approach to security selection by avoiding derivatives and by focusing
exclusively on government-agency ARMs and Treasury securities.
* Government National Mortgage Association.
REALLOCATION TO TREASURIES PROVES CRITICAL TO STRONG PERFORMANCE
While short-term interest rates have been relatively stable in
calendar 1995, intermediate rates have declined, leading borrowers to
refinance variable-rate mortgages and shift into fixed-rate mortgages.
Although the overall volume of refinancing activity has been moderate
so far this year, we believe it could accelerate in the months to
come. Moreover, we believe the prospect of increased refinancing
activity -- which results in more rapid prepayment of mortgage-backed
securities -- is not yet fully reflected in ARM prices.
<PAGE>
Given the market's heightened expectations for accelerating ARM
prepayments, we reallocated a portion of the fund's assets out of
conventional Fannie Mae* and Freddie Mac ARMs and into short-term
Treasuries. We increased the fund's weighting in Treasuries from
approximately 8% of the portfolio at the fiscal year's midpoint to
nearly 25% on October 31. Much of this reallocation was completed
during the spring of 1995, and the timing proved beneficial since
Treasury performance pulled even with that of ARMs during the summer
and outperformed ARMs in October (see chart on page 7). We believe
this trend is likely to continue if, as we expect, the Federal Reserve
Board begins to ease monetary policy more aggressively.
ANTICIPATION OF FALLING RATES LEADS MANAGEMENT TO GINNIE MAE ARMs
In addition to providing the fund with greater price predictability
and performance advantages, Treasuries also represented a very
marketable reserve from which we were able to move gradually into
Ginnie Mae ARMs. Given our belief that rates are likely to fall over
the coming months -- especially on the short end of the yield spectrum
- -- Ginnie Mae ARMs make sense strategically for the portfolio. This is
because the historical prepayment speeds
* Federal National Mortgage Association.
Federal Home Loan Mortgage Corporation.
PORTFOLIO COMPOSITION
[BAR CHART]
10/31/94 10/31/95
- ---------------------------------------------------------------------
FNMA and FHMLC ARMs 72.7% 61.7%
U.S. Treasury securities 20.5% 24.8%
GNMA ARMs 0.0% 9.0%
Cash and short-term investments 2.5% 1.6%
Fixed-rate mortgage-backed securities 0.2% 0.2%
Other 3.3% 0.0%
*Based on percentage of net assets. Holdings will vary over time.
<PAGE>
of Ginnie Mae ARMs have been lower than those of Fannie Mae and
Freddie Mac ARMs.
Consequently, when short-term rates decline, Ginnie Mae ARMs --
because of their different structure -- tend to outperform other
sectors of the ARM market. We witnessed such outperformance early in
calendar 1995 as interest rates fell, and we believe a similar
scenario could develop during the first half of fiscal 1996. As of
October 31, approximately 9% of the portfolio was invested in Ginnie
Mae ARMs.
CAUTIOUS, CONSERVATIVE APPROACH PROVES EFFECTIVE
Perhaps the greatest reason for the fund's success over the fiscal
year was our consistent focus on relatively straightforward holdings.
Since we took over management responsibilities for the fund in July
1994, we have tried to follow a more conservative route to competitive
performance than in previous years; fiscal 1995 was no exception. We
invested exclusively in Treasuries and in ARMs issued by government
agencies. We avoided less-liquid, privately-issued ARMs and other more
exotic mortgage-backed securities, such as inverse floaters, interest-
only securities, and principal-only securities. Every year is
different, of course, and there can be no performance or other
guarantees. However, fiscal 1995 demonstrates that our current goal of
providing an annualized total return that is 1% to 1.5% higher than
money-market funds over any three-year period can be pursued in terms
of what the fund owns as well as in terms of what it does not own.
Another indicator of the fund's generally cautious approach was our
avoidance of ARMs linked to the 11th District Cost of Funds Index
(COFI). We chose instead to concentrate on ARMs whose coupons reset
according to the more-current Constant Maturity Treasury Index (CMT).
Because coupons on CMT-linked bonds adjust more rapidly than those on
COFI-linked bonds, emphasizing CMT-linked bonds provided us with more
flexibility whether rates rose or declined. In addition, ARMs pegged
to the CMT are more liquid than their COFI counterparts, making them
easier to buy and sell when rates change directions.
<PAGE>
ARMs VERSUS SHORT-TERM TREASURIES
[LINE CHART]
DATE MERRILL LEHMAN BROS
- -----------------------------------------------------
10/94 0% 0
11/94 -54% -28%
12/94 -28% 24%
1/95 128% 190%
2/95 300% 395%
3/95 356% 443%
4/95 459% 554%
5/95 707% 725%
6/95 770% 769%
7/95 797% 807%
8/95 871% 873%
9/95 932% 950%
Source: Merrill Lynch 1-5 year Treasury Index and Lehman Brothers
Adjustable-Rate Mortgage-Backed Securities Index. Indexes assume
reinvestment of all distributions and do not take into account
brokerage commissions or other costs. The fundOs portfolio contains
securities that do not match those in the indexes. It is not possible
to invest directly in an index.
GINNIE MAE ARMs, TREASURIES LIKELY TO REMAIN CENTRAL FOCUS SHOULD
RATES DECLINE
We believe slower economic growth is likely to result in a further
relaxation of the monetary reins by the Fed as we move into calendar
1996. While there can be no assurances, we believe there is a good
chance that short-term bank-lending rates could decline substantially
from their current 5.75% level by early-to-mid 1996
In such an environment, we would likely respond by increasing the
fund's exposure to Ginnie Mae ARMs. We would also likely maintain a
significant weighting in short-term Treasuries, spreading our holdings
among 1- to 3-year maturities. Like Ginnie Mae ARMs, Treasuries
normally respond better in the near term to falling rates than do
conventional ARMs because conventional ARMs are initially buffeted by
increased prepayment activity. Eventually, when conventional ARMs
adjust to the new interest- rate levels, they may represent superior
value over Treasuries. At that point, we would reduce the fund's
Treasury holdings and increase its allocation to Fannie Mae and
Freddie Mac ARMs.
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 10/31/95, 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 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
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.
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 10/31/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
(1/5/88) (5/11/92)
NAV POP NAV CDSC
- ----------------------------------------------------------------------
- --
1 year 7.48% 4.01% 6.86% 3.86%
- ----------------------------------------------------------------------
- --
5 years 23.10 19.11 -- --
Annual average 4.24 3.56 -- --
- ----------------------------------------------------------------------
- --
Life-of-class 46.98 43.88 7.84 6.92
Annual average 5.20 4.76 2.20 1.95
- ----------------------------------------------------------------------
- --
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIOD ENDED 10/31/95
<TABLE><CAPTION>
<S> <C> <C>
LEHMAN BROS.
MORTGAGE-BACKED CONSUMER
SECURITIES INDEX PRICE INDEX
- ----------------------------------------------------------------------
- --
1 year 14.61% 2.81%
- ----------------------------------------------------------------------
- --
5 years 54.06 15.13
Annual average 9.03 2.86
- ----------------------------------------------------------------------
- --
Life of class A 106.07 33.19
Annual average 9.67 3.73
- ----------------------------------------------------------------------
- --
Life of class B 28.10 10.18
Annual average 7.33 2.83
- ----------------------------------------------------------------------
- --
<FN>
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take
into account any adjustment for taxes payable on reinvested
distributions. The fund began operations on 1/5/88, offering shares
now known as class A, however, performance data for periods before
6/1/91 do not represent operations under the fund's current objectives
and policies. 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 3.25% maximum sales charge for class
A shares. CDSC for class B shares assumes a 3% maximum contingent
deferred sales charge during the first year, declining 1% during the
fourth year. After the fourth year, the CDSC no longer applies.
<PAGE>
GROWTH OF A $10,000 INVESTMENT
[MOUNTAIN CHART}
FUNDOS CLASS A LEHMAN BROS. MORTGAGE- CONSUMER
DATE SHARES AT POP BACKED SECURITIES INDEX PRICE INDEX
- ----------------------------------------------------------------------
- --
1/5/88 $9,950 $10,000 $10,000
10/31/88 $10,925 $11,091 $10,416
10/31/89 $11,687 $12,333 $10,884
10/31/90 $12,697 $13,376 $11,568
10/31/91 $13,169 $15,638 $11,906
10/31/92 $13,346 $16,915 $12,288
10/31/93 $13,346 $18,251 $12,626
10/31/94 $13,385 $17,981 $12,955
10/31/95 $14,388 $20,607 $13,319
- ----------------------------------------------------------------------
- --
Past performance is no assurance of future results. A $10,000
investment in the fundOs class B shares at inception on 5/11/92 would
have been valued at $10,784 on 10/31/95 ($10,692 with a redemption at
the end of the period).
PRICE AND DISTRIBUTION INFORMATION
YEAR ENDED 10/31/95
</TABLE>
<TABLE><CAPTION>
<S> <C> <C> <C>
DISTRIBUTIONS: CLASS A CLASS B
- ----------------------------------------------------------------------
- --
Number 12 12
- ----------------------------------------------------------------------
- --
Income $0.530 $0.469
- ----------------------------------------------------------------------
- --
Total 0.530 0.469
- ----------------------------------------------------------------------
- --
SHARE VALUE:
- ----------------------------------------------------------------------
- --
NAV POP NAV
- ----------------------------------------------------------------------
- --
10/31/94 $10.17 $10.51 $10.15
- ----------------------------------------------------------------------
- --
10/31/95 10.38 10.73 10.36
- ----------------------------------------------------------------------
- --
CURRENT RETURN (end of period)
- ----------------------------------------------------------------------
- --
Current dividend rate(1) 5.78% 5.59% 5.21%
- ----------------------------------------------------------------------
- --
Current 30-day SEC yield(2) 4.97 4.81 4.32
- ----------------------------------------------------------------------
- --
<FN>
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.
</TABLE>
<PAGE>
TOTAL RETURN FOR PERIODS ENDED 9/30/95
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
(1/5/88) (5/11/92)
NAV POP NAV CDSC
- ----------------------------------------------------------------------
- --
1 year 6.86% 3.42% 6.13% 3.13%
- ----------------------------------------------------------------------
- --
5 years 23.68 19.66 -- --
Annual average 4.34 3.65 -- --
- ----------------------------------------------------------------------
- --
Life-of-class 47.82 43.05 7.27 6.35
Annual average 5.18 4.73 2.09 1.83
- ----------------------------------------------------------------------
- --
<FN>
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take
into account any adjustment for taxes payable on reinvested
distributions. 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.
</TABLE>
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.
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 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 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.
MERRILL LYNCH 1-5 YEAR TREASURY INDEX is composed of actively traded
and less actively traded U.S. Treasury issues with an average maturity
of 1 to 5 years.
LEHMAN BROTHERS ADJUSTABLE-RATE MORTGAGE-BACKED SECURITIES INDEX
reflects performance of adjustable-rate securities backed by GNMA,
FHLMC, and FNMA mortgage pools.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Indexes assume reinvestment of all distributions and do not take into
account brokerage commissions or other costs. The fund's portfolio
contains securities that do not match those in the indexes. It is not
possible to invest directly in an index.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
for the fiscal year ended October 31, 1995
To the Trustees and Shareholders of
Putnam Adjustable Rate U.S. Government Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related
statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of Putnam Adjustable Rate U.S. Government Fund
("the fund") at October 31, 1995, and the results of its operations,
the changes in its net assets, and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
October 31, 1995 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 15, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
October 31, 1995
<TABLE><CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (95.7%)*
PRINCIPAL AMOUNT VALUE
FEDERAL HOME LOAN MORTGAGE CORP. ADJUSTABLE RATE
MORTGAGES PARTICIPATION CERTIFICATES (ARMS)
- ----------------------------------------------------------------------
- --
$4,705,470 7.925s, March 1, 2019 $4,860,609
348,640 7.851s, February 1, 2020 356,865
218,108 7.82s, December 1, 2018 222,300
1,217,318 7.787s, April 1, 2019 1,245,280
616,965 7.639s, February 1, 2018 629,785
2,213,137 7 5/8s, September 1, 2021 2,290,597
1,074,587 7.556s, April 1, 2018 1,098,260
1,546,337 7.531s, January 1, 2018 1,578,238
1,503,277 7.523s, April 1, 2019 1,540,392
5,151,230 7.473s, February 1, 2022 5,268,730
2,248,447 7 1/4s, November 1, 2016 2,284,288
55,216 6.845s, March 1, 2019 55,648
3,027,557 6.254s, March 1, 2019 3,093,316
3,265,988 5.875s, April 1, 2018 3,362,433
124,442 5.69s, November 1, 2022 127,028
522,085 5.645s, December 1, 2022 529,509
2,503,446 5 3/8s, February 1, 2018 2,545,704
4,969,591 5 3/8s, April 1, 2017 5,028,630
FEDERAL NATIONAL MORTGAGE ASSOCIATION PASS-THROUGH CERTIFICATE
- ----------------------------------------------------------------------
- --
159,181 11 1/4s, October 1, 2010 177,934
FEDERAL NATIONAL MORTGAGE ASSOCIATION PASS-THROUGH CERTIFICATES ARMS
- ----------------------------------------------------------------------
- --
1,649,083 8.2s, July 1, 2027 1,706,801
692,094 7.915s, March 1, 2019 703,340
779,883 7.866s, September 1, 2018 803,402
2,704,548 7.849s, December 1, 2019 2,789,065
745,987 7.801s, April 1, 2019 764,636
3,873,578 7.797s, September 1, 2018 4,009,153
569,631 7.559s, December 1, 2018 584,675
1,822,019 7.547s, May 1, 2020 1,872,981
4,568 6.42s, February 1, 2016 4,583
4,497,801 7.383s, June 1, 2018 4,594,774
218,048 6.391s, July 1, 2026 218,731
174,829 6.391s, November 1, 2024 175,376
206,236 6.05s, January 1, 2017 210,199
7,686,653 5.975s, April 1, 2028 7,958,825
200,715 5.86s, February 1, 2027 203,443
4,082,896 5.678s, April 1, 2022 4,195,176
485,738 5.485s, April 1, 2019 489,304
120,733 5.45s, May 1, 2016 122,016
<PAGE>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
PRINCIPAL AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ARMS
- ----------------------------------------------------------------------
- --
$9,800,000 TBA, 6s, November 14, 2025 $9,821,438
U.S. TREASURY NOTES
- ----------------------------------------------------------------------
- --
5,000,000 8 1/8s, February 15, 1998 5,258,600
5,000,000 7 7/8s, January 15, 1998 5,226,550
1,500,000 7 3/8s, November 15, 1997 1,548,990
10,000,000 7 1/4s, November 15, 1996 10,162,500
5,000,000 6s, August 31, 1997 5,031,250
- ----------------------------------------------------------------------
- --
TOTAL U. S. GOVERNMENT AND AGENCY
OBLIGATIONS (cost $105,487,069) $104,751,354
- ----------------------------------------------------------------------
- --
SHORT-TERM INVESTMENTS (1.6%)* (cost $1,804,293)
PRINCIPAL AMOUNT VALUE
$1,804,000 Interest in $515,000,000 joint repurchase
agreement dated October 31, 1995 with J.P. Morgan
Securities Inc., due November 1, 1995 with respect
to various U.S. Treasury obligations -- maturity
value of $1,804,293 for an effective yield
of 5.85% $1,804,293
- ----------------------------------------------------------------------
- --
TOTAL INVESTMENTS (cost $107,291,362)*** $106,555,647
- ----------------------------------------------------------------------
- --
<PAGE>
<FN>
NOTES
* Percentages indicated are based on net assets of $109,487,617.
TBA's are mortgage-backed securities traded under delayed
delivery commitments settling after October 31, 1995. Although
the unit price has been established, the principal amount has not
been finalized. However, the amount of the commitments will not
fluctuate more than 2.0% from the principal amount. Income on the
securities will not be earned until settlement date. The cost of
the TBA purchase at October 31, 1995 was $9,829,094.
*** The aggregate identified cost for federal income tax purpose is
$108,702,819, resulting in gross unrealized appreciation and
depreciation of $223,909 and $2,371,081, respectively, or net
unrealized depreciation of $2,147,172.
The rates shown on Adjustable Rate Mortgages (ARMS) are the
current interest rates at October 31, 1995, which are subject to
change based on the terms of the security.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
- --
Investments in securities, at value
(identified cost $107,291,362) (Note 1) $106,555,647
- ----------------------------------------------------------------------
- --
Cash 305
- ----------------------------------------------------------------------
- --
Interest and other receivables 2,212,379
- ----------------------------------------------------------------------
- --
Receivable for securities sold 9,909,343
- ----------------------------------------------------------------------
- --
Receivable for shares of the fund sold 1,611,507
- ----------------------------------------------------------------------
- --
TOTAL ASSETS 120,289,181
LIABILITIES
- ----------------------------------------------------------------------
- --
Payable for shares of the fund repurchased 637,490
- ----------------------------------------------------------------------
- --
Payable for securities purchased 9,863,394
- ----------------------------------------------------------------------
- --
Payable for compensation of Manager (Note 2) 166,078
- ----------------------------------------------------------------------
- --
Payable for compensation of Trustees (Note 2) 309
- ----------------------------------------------------------------------
- --
Payable for administrative services (Note 2) 677
- ----------------------------------------------------------------------
- --
Payable for investor servicing and custodian fees (Note 2) 47,848
- ----------------------------------------------------------------------
- --
Payable for distribution fees (Note 2) 38,105
- ----------------------------------------------------------------------
- --
Other accrued expenses 47,663
- ----------------------------------------------------------------------
- --
TOTAL LIABILITIES 10,801,564
- ----------------------------------------------------------------------
- --
NET ASSETS $109,487,617
- ----------------------------------------------------------------------
- --
REPRESENTED BY
- ----------------------------------------------------------------------
- --
Paid-in capital (Notes 1 and 4) $136,236,302
- ----------------------------------------------------------------------
- --
Undistributed net investment income (Note 1) 314,913
- ----------------------------------------------------------------------
- --
Accumulated net realized loss on investment transactions
(Note 1) (26,327,883)
- ----------------------------------------------------------------------
- --
Net unrealized depreciation of investments (735,715)
- ----------------------------------------------------------------------
- --
TOTAL -- REPRESENTING NET ASSETS APPLICABLE
TO CAPITAL SHARES OUTSTANDING $109,487,617
- ----------------------------------------------------------------------
- --
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
- --
Net asset value and redemption price of class A shares
($80,112,335 divided by 7,718,991 shares) $10.38
- ----------------------------------------------------------------------
- --
Offering price per class A share (100/96.75 of $10.38)* $10.73
- ----------------------------------------------------------------------
- --
Net asset value and offering price of class B shares
($29,375,282 divided by 2,834,744 shares)** $10.36
- ----------------------------------------------------------------------
- --
<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.
<PAGE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1995
</TABLE>
<TABLE>
<S> <C>
INTEREST INCOME $8,572,947
- ----------------------------------------------------------------------
- --
EXPENSES:
- ----------------------------------------------------------------------
- --
Compensation of Manager (Note 2) 741,632
- ----------------------------------------------------------------------
- --
Investor servicing and custodian fees (Note 2) 268,169
- ----------------------------------------------------------------------
- --
Compensation of Trustees (Note 2) 11,142
- ----------------------------------------------------------------------
- --
Reports to shareholders 34,156
- ----------------------------------------------------------------------
- --
Auditing 50,600
- ----------------------------------------------------------------------
- --
Legal 14,999
- ----------------------------------------------------------------------
- --
Postage 31,572
- ----------------------------------------------------------------------
- --
Registration fees 425
- ----------------------------------------------------------------------
- --
Administrative services (Note 2) 8,179
- ----------------------------------------------------------------------
- --
Distribution fees -- Class A (Note 2) 228,757
- ----------------------------------------------------------------------
- --
Distribution fees -- Class B (Note 2) 271,706
- ----------------------------------------------------------------------
- --
Other expenses 15,190
- ----------------------------------------------------------------------
- --
TOTAL EXPENSES 1,676,527
- ----------------------------------------------------------------------
- --
EXPENSE REDUCTION (NOTE 2) (59,233)
- ----------------------------------------------------------------------
- --
NET EXPENSES 1,617,294
- ----------------------------------------------------------------------
- --
NET INVESTMENT INCOME 6,955,653
- ----------------------------------------------------------------------
- --
Net realized loss on investments (Notes 1 and 3) (472,237)
- ----------------------------------------------------------------------
- --
Net unrealized appreciation of investments during the year 1,992,189
- ----------------------------------------------------------------------
- --
NET GAIN ON INVESTMENT TRANSACTIONS 1,519,952
- ----------------------------------------------------------------------
- --
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,475,605
- ----------------------------------------------------------------------
- --
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<S> <C> <C>
Year ended October 31
- ----------------------------------------------------------------------
- --
1995 1994
- ----------------------------------------------------------------------
- --
DECREASE IN NET ASSETS
- ----------------------------------------------------------------------
- --
Operations:
- ----------------------------------------------------------------------
- --
Net investment income $6,955,653 $8,828,838
- ----------------------------------------------------------------------
- --
Net realized loss on investments (472,237) (19,138,140)
- ----------------------------------------------------------------------
- --
Net unrealized appreciation of investments 1,992,189 10,083,482
- ----------------------------------------------------------------------
- --
Net increase (decrease) in net assets
resulting from operations 8,475,605 (225,820)
- ----------------------------------------------------------------------
- --
Distributions to shareholders from:
- ----------------------------------------------------------------------
- --
Net investment income:
- ----------------------------------------------------------------------
- --
Class A (4,678,220) (5,871,952)
- ----------------------------------------------------------------------
- --
Class B (1,453,488) (1,349,595)
- ----------------------------------------------------------------------
- --
Tax return of capital:
- ----------------------------------------------------------------------
- --
Class A -- (353,894)
- ----------------------------------------------------------------------
- --
Class B -- (81,338)
- ----------------------------------------------------------------------
- --
Decrease from capital share transactions
(Note 4) (41,088,335) (81,245,467)
- ----------------------------------------------------------------------
- --
TOTAL DECREASE IN NET ASSETS (38,744,438) (89,128,066)
NET ASSETS
- ----------------------------------------------------------------------
- --
Beginning of year 148,232,055 237,360,121
- ----------------------------------------------------------------------
- --
END OF YEAR (including undistributed net
investment income of $314,913 and $0,
respectively) $109,487,617 $148,232,055
- ----------------------------------------------------------------------
- --
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C>
YEAR ENDED OCTOBER 31
- --------------------------------------------------------------------------------
- ----------------
1995 1994 1993
- --------------------------------------------------------------------------------
- ----------------
CLASS B
- --------------------------------------------------------------------------------
- ----------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.15 $10.53 $10.91
- --------------------------------------------------------------------------------
- ----------------
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
- ----------------
Net investment income .54 .43 .52
- --------------------------------------------------------------------------------
- ----------------
Net realized and unrealized gain (loss) on investments .14 (.46) (.45)
- --------------------------------------------------------------------------------
- ----------------
TOTAL FROM INVESTMENT OPERATIONS .68 (.03) .07
- --------------------------------------------------------------------------------
- ----------------
LESS DISTRIBUTIONS FROM:
- --------------------------------------------------------------------------------
- ----------------
Net investment income (.47) (.33) (.45)
- --------------------------------------------------------------------------------
- ----------------
Tax return of capital -- (.02) --
- --------------------------------------------------------------------------------
- ----------------
TOTAL DISTRIBUTIONS (.47) (.35) (.45)
- --------------------------------------------------------------------------------
- ----------------
NET ASSET VALUE, END OF PERIOD (IN THOUSANDS) $10.36 $10.15 $10.53
- --------------------------------------------------------------------------------
- ----------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%)(b) 6.86 (.31) .66
- --------------------------------------------------------------------------------
- ----------------
NET ASSETS, END OF PERIOD (IN THOUSANDS) $29,375 $38,030 $43,851
- --------------------------------------------------------------------------------
- ----------------
Ratio of expenses to average net assets (%)(d) 1.80 1.59 1.67
- --------------------------------------------------------------------------------
- ----------------
Ratio of net investment income to average net assets (%)5.20 3.98 4.78
- --------------------------------------------------------------------------------
- ----------------
Portfolio turnover (%) 178.97 196.0 49.16
- --------------------------------------------------------------------------------
- ----------------
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
</TABLE>
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C>
FOR THE PERIOD
MAY 11, 1992
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31 YEAR ENDED OCTOBER 31
- --------------------------------------------------------------------------------
- ----------------
1992 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
- ----------------
CLASS A
- --------------------------------------------------------------------------------
- ----------------
$11.15 $10.17 $10.55 $10.92 $11.25 $11.34
- --------------------------------------------------------------------------------
- ----------------
.33(a) .61 .55 .59 .75(a) .96(a)
- --------------------------------------------------------------------------------
- ----------------
(.26) .13 (.52) (.44) (.34) (.02)
- --------------------------------------------------------------------------------
- ----------------
.07 .74 .03 .15 .41 .94
- --------------------------------------------------------------------------------
- ----------------
(.31) (.53) (.39) (.52) (.74) (1.03)
- --------------------------------------------------------------------------------
- ----------------
-- -- (.02) -- -- --
- --------------------------------------------------------------------------------
- ----------------
(.31) (.53) (.41) (.52) (.74) (1.03)
- --------------------------------------------------------------------------------
- ----------------
$10.91 $10.38 $10.17 $10.55 $10.92 $11.25
- --------------------------------------------------------------------------------
- ----------------
.58(c) 7.48 .30 1.34 3.72 8.64
- --------------------------------------------------------------------------------
- ----------------
$42,017 $80,112 $110,202 $193,510 $376,353 $203,492
- --------------------------------------------------------------------------------
- ----------------
.82(a)(c) 1.20 .99 1.07 1.12(a) 1.29(a)
- --------------------------------------------------------------------------------
- ----------------
2.45(a)(c) 5.78 4.59 5.42 6.44(a) 8.02(a)
- --------------------------------------------------------------------------------
- ----------------
237.21 178.97 196.0 49.16 237.21 328.29
- --------------------------------------------------------------------------------
- ----------------
<FN>
(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
and 1991 reflect per share reductions of $0.01 and $0.02 (for class A
shares), respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Not annualized.
(d) The ratio of expenses to average net assets for the year ended October 31,
1995 included amounts paid through expenses offset arrangments. Prior
period ratios exclude these amounts (See Note 2).
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
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 may be 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 shareholders of each
class of shares, except that each class bears expenses unique to that
class (including the distribution fees applicable to such class). Each
class votes as a class only with respect to its own distribution plan
or other matters on which a class vote is required by law or
determined by the Trustees. Shares of each class would receive their
pro-rata share of the net assets of the fund, if the fund were
liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
A SECURITY VALUATION Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are reported -- as
in the case of some securities traded over-the-counter -- the last
reported bid price, except that certain U.S. government obligations
are stated at the mean between the bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are stated
at amortized cost, which approximates market value, and other
investments are stated at fair value following procedures approved by
the Trustees.
B 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
<PAGE>
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. 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.
C 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.
D 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.
E SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual
basis.
F 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.
<PAGE>
At October 31, 1995, the fund had a capital loss carryover of
approximately $24,725,000 which may be available to offset future
capital gains. The amount of the carryover and the expiration dates
are:
Loss Carryover Expiration
- ------------------------------------------
$291,340 10/31/1998
$798,564 10/31/1999
$7,515,503 10/31/2006
$16,119,612 10/31/2002
- ------------------------------------------
G DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from
net investment income are recorded by the fund on the ex-dividend
date. Capital gain distributions, if any, are recorded on the ex-
dividend date and paid annually. The amount and character of income
and gains to be distributed are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. These differences include treatment of paydown gains and
losses on mortgage- backed securities. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations.
For the year ended October 31, 1995, the fund reclassified $509,032 to
decrease undistributed net investment income and $509,032 to decrease
accumulated net realized loss on investments. The calculation of net
investment income per share in the financial highlights table excludes
these adjustments.
NOTE 2 MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund 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
<PAGE>
by the amount of certain brokerage commissions and fees (less
expenses) received by affiliates of the Manager on the fund's
portfolio transactions.
The fund also reimburses the Manager for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $700 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.
During the year ended October 31, 1995, 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 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.
For the year ended October 31, 1995, fund expenses were reduced by
$59,233 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 the assets
utilized in connection with the offset arrangments in an income-
producing asset if it had not entered into such arrangements.
<PAGE>
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 up
to 0.35% and 1.00% of the average net assets attributable to class A
and class B shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25% and 0.85% of the average net
assets attributable to class A and class B shares, respectively.
For the year ended October 31, 1995, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $19,433 from the sale of
class A shares and $142,422 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 year ended
October 31, 1995, Putnam Mutual Funds Corp., acting as underwriter
received $6,228 on class A redemptions.
NOTE 3 PURCHASES AND SALES OF SECURITIES Purchases and sales of U.S.
government and agency obligations for the year ended October 31, 1995
aggregated $235,197,318 and $275,165,537, 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 At October 31, 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>
YEAR ENDED OCTOBER 31
- ---------------------------------------------------------
1995
- ---------------------------------------------------------
CLASS A SHARES AMOUNT
- ---------------------------------------------------------
Shares sold 4,270,588 $43,668,758
Shares issued in
connection with
reinvestment of
distributions 326,061 3,329,547
- ---------------------------------------------------------
4,596,649 46,998,305
- ---------------------------------------------------------
Shares repurchased (7,714,371) (78,844,222)
- ---------------------------------------------------------
NET DECREASE (3,117,722) $(31,845,917)
- ---------------------------------------------------------
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)
- ---------------------------------------------------------
YEAR ENDED OCTOBER 31
- ---------------------------------------------------------
1995
- ---------------------------------------------------------
CLASS B SHARES AMOUNT
- ---------------------------------------------------------
Shares sold 1,322,585 $13,480,112
Shares issued in
connection with
reinvestment of
distributions 110,183 1,124,255
- ---------------------------------------------------------
1,432,768 14,604,367
- ---------------------------------------------------------
Shares repurchased (2,343,549) (23,846,785)
- ---------------------------------------------------------
NET DECREASE (910,781) $(9,242,418)
- ---------------------------------------------------------
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>
FEDERAL TAX INFORMATION
(Unaudited)
The Form 1099 you receive in January 1996 will show the tax status of
all distributions paid to your account in calendar 1995.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
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 Coburn
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
21690-048/887 12/95
<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.
