PUTNAM ADJUSTABLE RATE US GOVERNMENT FUND
N-30D, 1996-06-26
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Putnam
Adjustable Rate 
U.S. Government
Fund

SEMIANNUAL REPORT
April 30, 1996


[LOGO: BOSTON * LONDON * TOKYO]



Fund highlights

*     For the 12 months ended April 30, 1996, Putnam Adjustable Rate 
U.S. Government Fund's class A and class B shares were ranked  8 and 19, 
respectively, out of 58 adjustable-rate mortgage funds tracked by Lipper 
Analytical Services. These rankings placed both share classes within the 
top 33% of all adjustable-rate mortgage funds ranked and in the case of 
class A shares, actually placed them in the top 14%.*

       CONTENTS
 4     Report from Putnam Management
 8     Fund performance summary
11     Portfolio holdings
13     Financial statements

*Lipper is an independent mutual-fund research organization. Its 
rankings are based on total return performance, vary over time, and do 
not reflect the effects of sales charges. The fund's class A shares were 
ranked 7 out of 9 adjustable-rate mortgage funds for 5-year performance 
through 4/30/96. Class B shares were not ranked over longer applicable 
periods. Past performance is not indicative of future results.


[GRAPHIC OMITTED: photo of George Putnam]

(copyright) Karsh, Ottawa

From the Chairman


Dear Shareholder:

Putnam Adjustable Rate U.S. Government Fund's current fiscal year opened 
in the midst of one of the U.S. bond market's strongest advances in 
recent memory. It proved a fragile rally, derailed in March by hints of 
a pickup in inflation caused by the economy's persistence in growing. 

Anticipating such a possibility, Fund Manager Michael Martino had taken 
some defensive measures that mitigated, but did not entirely neutralize, 
the market's resulting decline. 

All in all, the fund performed respectably within its universe during 
the six months ended April 30, 1996, as Mike explains in the report that 
follows. He also takes a look at prospects for the second half of fiscal 
1996.

You will soon receive proxy materials regarding a proposed merger of 
your fund into Putnam Intermediate U.S. Government Income Fund. The 
proxy statement describes in detail the reasons for the proposed merger. 
We urge you to read the materials and return your marked proxy card 
promptly. Meanwhile, since May 6, 1996, your fund has been closed to new 
investments.

Respectfully yours,


/s/George Putnam

Chairman of the Trustees

June 19, 1996

Report from the Fund Manager
Michael Martino

The first half of Putnam Adjustable Rate U.S. Government Fund's 1996 
fiscal year -- the six months ended April 30 -- spanned a sharply 
changing environment in the fixed-income markets. Through the first two 
months of the period, the bond market continued the strong performance 
that capped off a successful calendar 1995. Signs of weakness began to 
appear during January and February, however, culminating in a 
substantial selloff on March 8 in the wake of February's stronger-than-
expected employment figures. While the market regained some stability 
during April, its underlying support remained decidedly fragile.

February's surprisingly robust employment report led investors to 
conclude that the Federal Reserve Board would be unlikely to reduce 
short-term interest rates again any time in the near future. Moreover, 
in the often contrary logic of the bond markets, investors frequently 
react negatively to indications of economic strength out of fear that 
inflation could re-emerge, which would erode the value of investments 
with fixed income streams. Despite these market dislocations, your fund 
posted respectable results for the period and, for the year ended April 
30, 1996, outperformed most other adjustable-rate mortgage funds on a 
relative basis. (Please refer to the footnote on page 2 and to the 
tables on pages 8 and 9 for complete performance information.)

*     HIGH-COUPON ARMs PROVE ADVANTAGEOUS AS INTEREST RATES CHANGE 
DIRECTION

Early in the fiscal year, our strategy was focused on structuring a 
defensive portfolio that would minimize the fund's exposure to 
prepayment risk.* Our plan was to shift the portfolio gradually into 
lower-coupon adjustable-rate mortgage-backed securities (ARMs), which, 
in an environment of falling interest rates, would be less susceptible 
to prepayment. When rates began to move back up during February and 
March, however, this strategy was no longer viable. 

Footnote reads:
*Prepayment risk -- a central type of risk with all mortgage-backed 
securities -- is the risk that an investor's principal will be returned 
in full at some point prior to 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.

Interestingly, with the dramatic shift in the direction of interest 
rates, the higher-coupon securities in the portfolio -- a position we 
had been preparing to reduce -- began to outperform their lower-coupon 
brethren as prepayment fears receded. As a result, instead of 
redeploying these assets into lower-coupon securities in response to 
falling rates, we maintained the fund's commitment to higher-coupon 
ARMs. As the chart below indicates, at the end of the period we had 
nearly 68% of the portfolio invested in securities with coupons of 7% or 
greater. In the current higher-rate environment, higher-coupon ARMs 
offer a degree of protection. Because of their higher coupons, their 
prices are not likely to drop as rapidly as lower-coupon ARMs, which 
become comparatively less attractive because of their smaller income 
streams. In addition, higher-coupon ARMs help to boost the fund's 
dividend income. 

*     TREASURIES BUFFETED BY MARKET UNCERTAINTY AND RISING RATES

The fund's average allocation of approximately 25% of the portfolio to 
U.S. Treasuries proved to be a drag on performance as interest rates 
moved up over the period. Treasuries with maturities from two to five 
years were noticeable victims of the market's disenchantment with 
economic strength and the diminished likelihood of additional Fed rate 
reductions. We currently plan to maintain the fund's Treasury position, 
but we expect to concentrate its holdings in securities with very short 
maturities of less than two years. By doing so, we hope to keep the 
fund's interest-rate sensitivity in check. 

[GRAPHIC OMITTED: horizontal bar chart COUPON BREAKDOWN (4/30/96)*]
showing
Coupon%                   % of Portfolio
5%-6%                         6.9%
6%-7%                        25.5%
7%-8%                        62.6%
8%+                           5.0%

Footnote reads:
*Based on percentage of total investments.

*     GINNIE MAE ARMs PROVIDE FLEXIBILITY IN THE MIDST OF MARKET 
FLUCTUATIONS

As we discussed in the fund's annual report dated October 31, 1995, we 
built a small position in Ginnie Mae ARMs* late in fiscal 1995. We 
maintained this allocation throughout the first half of fiscal 1996, 
although we reduced it somewhat as the period ended. Because Ginnie Mae 
ARMs tend to be somewhat more marketable than other types of ARMs, we 
continued to find them attractive. The ability to move into and out of 
Ginnie Mae ARMs with relative ease provided your fund with an important 
source of flexibility amid the market uncertainties of the past few 
months. What's more, the market has priced Ginnie Mae ARMs in such a way 
that as of the period's end, we believed they offered more value to 
investors than other ARM categories. 

In keeping with our conservative approach with the fund, we continued to 
invest exclusively in relatively straightforward government-backed ARMs 
and Treasury securities. 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. 

*     DEFENSIVE APPROACH PLANNED IN LIGHT OF GROWTH FORECAST

Putnam's economists foresee the possibility of relatively strong 
economic growth in the coming months. Rising prices for oil, metals, 
grains, and other commodities, along with a recent indication of 
potentially increasing labor costs for corporations, may spark 
persistent inflation fears. Given such a scenario, we believe it's 
likely the fixed-income market's latent trepidation over a Fed rate 
increase could put pressure on short-term bonds -- the market sector 
most immediately impacted by any Fed action. 

Footnote reads:
*Securities issued by the Government National Mortgage Association.

[GRAPHIC OMITTED: COMPARATIVE PORTFOLIO COMPOSITION*]

LEDGEND READS [BLACK BAR]     10/31/95
              [GREY BAR]       4/30/96

FNMA and FHLMC ARMS [BLACK BAR]                           63.4%
                    [GREY BAR]                            54.0%

U.S. Treasury securities [BLACK BAR]                      25.6%
                         [GREY BAR]                       25.4%

GNMA ARMS [BLACK BAR]                                      9.2%
          [GREY BAR]                                       4.7%

FHA ARMs [BLACK BAR]                                       0.0%
         [GREY BAR]                                        8.9%

Fixed-rate mortgage-backed securities [BLACK BAR]          0.2%
                                      [GREY BAR]           0.1%

Cash and short-term investments [BLACK BAR]                1.6%
                                [GREY BAR]                 6.9%


Footnote reads:
*Based on percentage of total investments. Holdings will vary over time. 
FNMA is the Federal National Mortgage Association, or "Fannie Mae;" 
FHLMC is the Federal Home Loan Mortgage Corporation, or "Freddie Mac;" 
GNMA is the Government National Mortgage Association, or "Ginnie Mae;" 
and FHA is the Federal Housing Administration.



Because of this outlook, we plan to maintain a defensive profile in your 
fund's portfolio over the near term. Our current strategy is to keep the 
portfolio's effective maturity quite short and to concentrate 
investments in high-coupon ARMs and very short-term Treasuries. If the 
present bearish tone in the market does persist -- which is by no means 
certain -- high-coupon ARMs may hold their value better than their 
lower-coupon counterparts, and extremely short-term Treasuries may 
provide at least partial shelter from any further rise in rates. While 
we can never provide assurances regarding performance or market 
behavior, we believe such a defensive strategy is most conducive to 
pursuing your fund's objectives of attractive current income and 
preservation of capital. 

Footnote reads:
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 4/30/96, 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.

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 4/30/96
                           Class A               Class B
(inception date)           (1/5/88)             (5/11/92)
                        NAV       POP        NAV       CDSC
- ------------------------------------------------------------------------
6 months               2.54%     -0.81%     2.23%     -0.75%
- ------------------------------------------------------------------------
1 year                 6.79       3.36      6.16       3.16
- ------------------------------------------------------------------------
5 years               19.58      15.73        --         --
Annual average         3.64       2.97        --         --
- ------------------------------------------------------------------------
Life of class         52.45      47.53     10.26       9.33
Annual average         5.20       4.78      2.49       2.27
- ------------------------------------------------------------------------

COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/96
                             Lehman Bros.
                            Mortgage-backed          Consumer
                           Securities Index        Price Index
- ------------------------------------------------------------------------
6 months                         1.66%                1.69%
- ------------------------------------------------------------------------
1 year                           8.64                 2.90
- ------------------------------------------------------------------------
5 years                         45.05                15.61
Annual average                   7.72                 2.94
- ------------------------------------------------------------------------
Life of class A                109.50                35.44
Annual average                   9.28                 3.71
- ------------------------------------------------------------------------
Life of class B                 30.23                12.04
Annual average                   6.83                 2.91
- ------------------------------------------------------------------------

Footnote reads:
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.

TOTAL RETURN FOR PERIODS ENDED 3/31/96 
(most recent calendar quarter)
                            Class A                Class B
                        NAV         POP        NAV        CDSC
- ------------------------------------------------------------------------
6 months               2.63%      -0.72%      2.43%      -0.56%
- ------------------------------------------------------------------------
1 year                 7.06        3.61       6.53        3.53
- ------------------------------------------------------------------------
5 years               20.13       16.27         --          --
Annual average         3.74        3.06         --          --
- ------------------------------------------------------------------------
Life of class         51.72       46.82       9.88        8.96
Annual average         5.19        4.77       2.45        2.23
- ------------------------------------------------------------------------

Footnote reads:
Performance data represent past results, do not reflect future 
performance, and will differ for each share class. Investment returns 
and net asset value will fluctuate so that an investor's shares, when 
sold, may be worth more or less than their original cost.

PRICE AND DISTRIBUTION INFORMATION 
6 months ended 4/30/96
                              Class A                   Class B
- ------------------------------------------------------------------------
Distributions (number)            6                        6
- ------------------------------------------------------------------------
Income                        $0.300                   $0.269
- ------------------------------------------------------------------------
  Total                       $0.300                   $0.269
- ------------------------------------------------------------------------
Share value:                    NAV         POP          NAV
- ------------------------------------------------------------------------
10/31/95                       $10.38      $10.73      $10.36
- ------------------------------------------------------------------------
4/30/96                         10.34       10.69       10.32
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate1           5.80%       5.61%       5.23%
- ------------------------------------------------------------------------
Current 30-day SEC yield2        5.00        4.83        4.40
- ------------------------------------------------------------------------

Footnote reads:
1     Income portion of most recent distribution, annualized and divided 
      by NAV or POP at end of period.

2     Based on investment income, calculated using SEC guidelines.


TERMS AND DEFINITIONS

Class A shares are generally subject to an initial sales charge.  

Class B shares may be subject to a sales charge upon redemption.

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. Index assumes 
reinvestment of all distributions and does not take into account 
brokerage commissions or other costs. The fund's portfolio contains 
securities that do not match those in the index. It is not possible to 
invest directly in an index.

Consumer Price Index (CPI) is a commonly used measure of inflation; it 
does not represent an investment return.



<TABLE>
<CAPTION>
Portfolio of investments owned
April 30, 1996 (Unaudited)

U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.3%) *
PRINCIPAL AMOUNT                                                                                                VALUE
- ---------------------------------------------------------------------------------------------------------------------
             <S>       <C>                                                                           <C>
                       Federal Home Loan Mortgage Association Adjustable 
                         Rate Mortgage Participation certificates (ARMS)          
     $  362,130          7.954s, December 1, 2022                                                    $       368,862
        346,245          7.917s, February 1, 2020                                                            356,578
      4,385,788          7.897s, March 1, 2019                                                             4,539,291
      3,061,650          7 7/8s, April 1, 2018                                                             3,156,377
      1,188,054          7.785s, April 1, 2019                                                             1,219,609
        513,001          7.77s, February 1, 2018                                                             526,468
      1,936,106          7 3/4s, September 1, 2021                                                         1,988,149
        214,014          7.745s, December 1, 2018                                                            218,964
         54,773          7.72s, March 1, 2019                                                                 55,561
      2,659,009          7.678s, March 1, 2019                                                             2,748,751
      1,289,417          7.603s, January 1, 2018                                                           1,321,047
      4,476,416          7.558s, February 1, 2022                                                          4,580,627
        975,992          7.525s, April 1, 2018                                                             1,001,769
      2,045,056          7 1/2s, November 1, 2016                                                          2,085,957
      1,399,537          7.464s, April 1, 2019                                                             1,441,524
      2,327,503          7 3/8s, February 1, 2018                                                          2,371,865
      4,567,032          7 1/8s, April 1, 2017                                                             4,635,538
                       Federal Housing Authority ARMS          
      9,449,617          6s, November 20, 2025                                                             9,456,988
                       Federal National Mortgage Association  Pass-Through 
                         Certificate          
        156,186          11 1/4s, October 1, 2010                                                            174,586
                       Federal National Mortgage Association ARM          
        642,111          7.967s, March 1, 2019                                                               653,549
        204,732          7.95s, January 1, 2017                                                              211,897
        199,033          7.69s, February 1, 2027                                                             199,905
        483,088          7.686s, April 1, 2019                                                               487,546
      2,386,264          7.667s, December 1, 2019                                                          2,469,783
      1,662,991          7.58s, May 1, 2020                                                                1,719,896
        119,495          7.458s, May 1, 2016                                                                 121,287
      3,682,112          7.429s, September 1, 2018                                                         3,810,987
      4,017,331          7.294s, June 1, 2018                                                              4,107,078
      2,721,112          7.238s, April 1, 2022                                                             2,775,534
        418,252          7.223s, April 1, 2019                                                               425,245
      7,092,739          6.975s, April 1, 2028                                                             7,293,323
        149,158          6.283s, November 1, 2024                                                            148,599
        207,355          6.283s, July 1, 2026                                                                206,578
          4,244          6.22s, February 1, 2016                                                               4,228
                      Government National Mortgage Association ARMS          
      5,000,000          TBA, 6s, May 16, 2026                                                             4,975,000
                      U.S. Treasury Notes          
      5,000,000          8 1/8s,  February 15, 1998                                                        5,175,000
      5,000,000          7 7/8s,  January 15, 1998                                                         5,150,000
      1,500,000          7 3/8s,  November 15, 1997                                                        1,530,465
    $10,000,000          7 1/4s, November 15, 1996                                                     $  10,093,700
      5,000,000          6s, August 31, 1997                                                               5,004,700
                                                                                                      --------------
                      Total U.S. Government and Agency Obligations 
                         (cost $99,736,567)                                                            $  98,812,811
SHORT-TERM INVESTMENTS  (7.1%) *
PRINCIPAL AMOUNT                                                                                               VALUE
- ---------------------------------------------------------------------------------------------------------------------
     $5,000,000       Federal National Mortgage Association effective 
                        yield of 5.17%, May 29, 1996                                                  $    4,979,176
      2,300,000       Interest in $500,000,000 joint repurchase agreement 
                        dated April 30, 1996 with Lehman Brothers, Inc. 
                        due May 1, 1996 with respect to various 
                        U.S. Treasury obligations-maturity value $2,300,342 
                        for an effective yield of 5.35%                                                    2,300,342
                                                                                                      --------------
                      Total Short-Term Investments  (cost $7,279,518)                                 $    7,279,518
                                                                                                      --------------
                      Total Investments  (cost $107,016,085)***                                         $106,092,329
- ---------------------------------------------------------------------------------------------------------------------
   *  Percentages indicated are based on net assets of $102,602,157. 
 ***  The aggregate identified cost on a tax cost basis is $107,016,085, resulting in  gross unrealized appreciation 
and depreciation of $148,291, and $1,072,047, respectively, or net unrealized depreciation of $923,756. TBA after 
the name of a security represents to be announced securities (See Note 1 to financial statements). The rates shown 
on Adjustable Rate Mortgages (ARMS) are the current interest rates at April 30, 1996, which are subject to change 
based on the terms of the security. 

The accompanying notes are an integral part of these financial statements.
</TABLE>


<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30,1996 (Unaudited)

<S>                                                                                        <C>
Assets
- --------------------------------------------------------------------------------------------------------
Investments in securities, at value  
(identified cost $107,016,085  (Note 1)                                                     $106,092,329
- --------------------------------------------------------------------------------------------------------
Cash                                                                                                 258
- --------------------------------------------------------------------------------------------------------
Interest and other receivables                                                                 1,678,624
- --------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold                                                           752,970
- --------------------------------------------------------------------------------------------------------
Total assets                                                                                 108,524,181

Liabilities
- --------------------------------------------------------------------------------------------------------
Payable for securities purchased                                                               4,999,531
- --------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased                                                       683,046
- --------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2)                                                     155,667
- --------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2)                                                      3,695
- --------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2)                                                         627
- --------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2)                                                            35,854
- --------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2)                                        14,103
- --------------------------------------------------------------------------------------------------------
Other accrued expenses                                                                            29,501
- --------------------------------------------------------------------------------------------------------
Total liabilities                                                                              5,922,024
- --------------------------------------------------------------------------------------------------------
Net assets                                                                                  $102,602,157

Represented by
- --------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4)                                                             $129,771,117
- --------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1)                                                     298,794
- --------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1)                                        (26,543,998)
- --------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments                                                      (923,756)
- --------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to 
capital shares outstanding                                                                  $102,602,157

Computation of net asset value and offering price
- --------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares 
($73,951,980 divided by 7,154,357 shares)                                                         $10.34
- --------------------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $10.34)*                                           $10.69
- --------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares 
($28,650,177 divided by 2,775,734 shares)**                                                       $10.32
- --------------------------------------------------------------------------------------------------------
*     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. 

The accompanying notes are an integral part of these financial statements.
</TABLE>


<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30,1996 (Unaudited)

<S>                                                                                           <C>
Investment Income
- --------------------------------------------------------------------------------------------------------
Interest                                                                                      $3,622,570
- --------------------------------------------------------------------------------------------------------
Total investment income                                                                        3,622,570

Expenses:
- --------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2)                                                                 318,011
- --------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2)                                                   108,466
- --------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2)                                                                  5,455
- --------------------------------------------------------------------------------------------------------
Reports to shareholders                                                                           16,799
- --------------------------------------------------------------------------------------------------------
Auditing                                                                                          12,773
- --------------------------------------------------------------------------------------------------------
Legal                                                                                                514
- --------------------------------------------------------------------------------------------------------
Postage                                                                                            8,528
- --------------------------------------------------------------------------------------------------------
Registration fees                                                                                    225
- --------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2)                                                             96,711
- --------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2)                                                            121,785
- --------------------------------------------------------------------------------------------------------
Administrative services (Note 2)                                                                   3,753
- --------------------------------------------------------------------------------------------------------
Other expenses                                                                                     1,617
- --------------------------------------------------------------------------------------------------------
Total expenses                                                                                   694,637
- --------------------------------------------------------------------------------------------------------
Expense reduction (Note 2)                                                                       (46,462)
- --------------------------------------------------------------------------------------------------------
Net expenses                                                                                     648,175
- --------------------------------------------------------------------------------------------------------
Net investment income                                                                          2,974,395
- --------------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3)                                               (216,115)
- --------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments during the period                                   (188,041)
- --------------------------------------------------------------------------------------------------------
Net loss on investments                                                                         (404,156)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations                                          $2,570,239
- --------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.
</TABLE>


<TABLE>
<CAPTION>
Statement of changes in net assets

                                                                    Six months ended          Year ended
                                                                            April 30          October 31
                                                                               1996*                1995
- --------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                  <C>
Decrease in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income                                                $    2,974,395       $    6,955,653
- --------------------------------------------------------------------------------------------------------
Net realized loss on investments                                           (216,115)            (472,237)
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments                  (188,041)           1,992,189
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations                      2,570,239            8,475,605
- --------------------------------------------------------------------------------------------------------
Distributions to shareholders:          
- --------------------------------------------------------------------------------------------------------
From net investment income:          
  Class A                                                                  (2,245,402)          (4,678,220)
- --------------------------------------------------------------------------------------------------------
  Class B                                                                    (745,112)          (1,453,488)
- --------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4)                        (6,465,185)         (41,088,335)
- --------------------------------------------------------------------------------------------------------
Total decrease in net assets                                             (6,885,460)         (38,744,438)
- --------------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------
Beginning of period                                                     109,487,617          148,232,055
- --------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment 
  income of $298,794 and $314,913, respectively)                         $102,602,157         $109,487,617
- --------------------------------------------------------------------------------------------------------
*     Unaudited 
</TABLE>




<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)

                                                         Six months
                                                           ended
                                                          April 30                 Year ended October 31
                                                      ---------------------------------------------------------------
                                                            1996*             1995               1994          1993
                                                      ---------------------------------------------------------------
                                                                                     Class B
                                                      ---------------------------------------------------------------
<S>                                                        <C>               <C>               <C>             <C>
Net asset value, beginning of period                       $10.36            $10.15             $10.53         $10.91
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income                                         .27               .54                .43            .52
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 
on investments                                               (.04)              .14               (.46)          (.45)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations                              .23               .68               (.03)           .07
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income                                        (.27)             (.47)              (.33)          (.45)
- ---------------------------------------------------------------------------------------------------------------------
Tax return capital                                             --                --               (.02)            --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions                                          (.27)             (.47)              (.35)          (.45)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                             $10.32            $10.36             $10.15         $10.53
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b)            2.23 (c)          6.86              (0.31)          0.66
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                  $28,650           $29,375            $38,030        $43,851
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d)                .87 (c)          1.80               1.59           1.67
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average 
net assets (%)                                               2.58 (c)          5.20               3.98           4.78
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%)                                      17.35 (c)        178.97             196.00          49.16
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)

                                                          For the Period                              
                                                           May 11, 1992                              
                                                          (commencement       Six months                         
                                                        of operations) to       ended                         
                                                           October 31          April 30              Year ended October 31
- ----------------------------------------------------------------------------------------------------------------------------
                                                              1992               1996*              1995               1994
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                              Class A
- ----------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>                <C>                <C>
Net asset value, beginning of period                         $11.15             $10.38             $10.17             $10.55
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income                                           .33 (a)            .30                .61                .55
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 
on investments                                                 (.26)              (.04)               .13               (.52)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations                                .07                .26                .74                .03
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income                                          (.31)              (.30)              (.53)              (.39)
- ----------------------------------------------------------------------------------------------------------------------------
Tax return capital                                                --                --                 --               (.02)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions                                             (.31)             (.30)              (.53)              (.41)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                $10.91            $10.34             $10.38             $10.17
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b)               0.58 (c)          2.54  (c)          7.48               0.30
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                     $42,017           $73,952            $80,112           $110,202
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d)                   .82 (a)(c)        .57 (c)           1.20                .99
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average 
net assets (%)                                                  2.45 (a)(c)       2.87 (c)           5.78               4.59
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%)                                        237.21             17.53 (c)         178.97             196.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)

                                                                                        Year ended October 31
- -------------------------------------------------------------------------------------------------------------------------
                                                                             1993                 1992              1991
- -------------------------------------------------------------------------------------------------------------------------
                                                                                                 Class A
- -------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>               <C>
Net asset value, beginning of period                                       $10.92                $11.25            $11.34
- -------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------
Net investment income                                                         .59                   .75 (a)           .96 (a)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 
on investments                                                               (.44)                 (.34)             (.02)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations                                              .15                   .41               .94
- -------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income                                                        (.52)                 (.74)            (1.03)
- -------------------------------------------------------------------------------------------------------------------------
Tax return capital                                                             --                    --                --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions                                                          (.52)                 (.74)            (1.03)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                             $10.55                $10.92            $11.25
- -------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b)                            1.34                  3.72              8.64
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                                 $193,510              $376,353          $203,492
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d)                               1.07                  1.12 (a)          1.29 (a)
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average 
net assets (%)                                                               5.42                  6.44 (a)          8.02 (a)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%)                                                      49.16                237.21            328.29
- -------------------------------------------------------------------------------------------------------------------------
*       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 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 and thereafter includes 
        amounts paid through expenses offset arrangements. Prior period ratios exclude these amounts (See Note 2).
</TABLE>

Notes to financial statements
April 30, 1996 (Unaudited)

Note 1 
Significant accounting policies

The fund is registered under the Investment Company Act of 1940, as 
amended, as a diversified, open-end management investment company. The 
fund seeks 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, which 
convert to class A shares after approximately four years, 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 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 determined by the 
Trustees. Shares of each class would receive their pro-rata share of the 
net assets of the fund, if the fund were liquidated. In addition, the 
Trustees declare separate dividends on each class of shares.

The following is a summary of significant accounting policies 
consistently followed by the fund in the preparation of its financial 
statements. The preparation of financial statements is in conformity 
with generally accepted accounting principles and requires management to 
make estimates and assumptions that affect the reported amounts of 
assets and liabilities. Actual results could differ from those 
estimates.

A) Security valuation Investments for which market quotations are 
readily available are stated at market value, which is determined using 
the last reported sale price, or, if no sales are reported -- as in the 
case of some securities traded over-the-counter -- the last reported bid 
price. Short-term investments having remaining maturities of 60 days or 
less are stated at amortized cost, which approximates market value, and 
other investments are stated at fair value following procedures approved 
by the Trustees.

B) Joint trading account Pursuant to an exemptive order issued by the 
Securities and Exchange Commission, the fund may transfer uninvested 
cash balances into a joint trading account along with the cash of other 
registered investment companies managed by Putnam Investment Management, 
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned 
subsidiary of Putnam Investments, Inc. and certain other accounts. These 
balances may be invested in one or more repurchase agreements and/or 
short-term money market instruments. 

C) Repurchase agreements The fund, or any joint trading account, through 
its custodian, receives delivery of the underlying securities, the 
market value of which at the time of purchase is required to be in an 
amount at least equal to the resale price, including accrued interest. 
Putnam Management is responsible for determining that the value of these 
underlying securities is at all times at least equal to the resale 
price, including accrued interest.

D) Security transactions and related investment income Security 
transactions are accounted for on the trade date (date the order to buy 
or sell is executed). Interest income is recorded on the accrual basis.

E) TBA purchase commitments The fund, may enter into "TBA" (to be 
announced) purchase commitments to purchase securities for a fixed unit 
price at a future date beyond customary settlement time. Although the 
unit price has been established, the principal value has not been 
finalized. However, the amount of the commitments will not fluctuate 
more than 2.0% from the principal amount. The fund holds, and maintains 
until settlement date, cash or high-grade debt obligations in an amount 
sufficient to meet the purchase price, or the fund may enter into 
offsetting contracts for the forward sale of other securities it owns. 
Income on the securities will not be earned until settlement date. TBA 
purchase commitments may be considered securities in themselves, and 
involve a risk of loss if the value of the security to be purchased 
declines prior to the settlement date, which risk is in addition to the 
risk of decline in the value of the fund's other assets. Unsettled TBA 
purchase commitments are valued at the current market value of the 
underlying securities, generally according to the procedures described 
under "Security valuation" above.

Although the fund will generally enter into TBA purchase commitments 
with the intention of acquiring securities for their portfolio or for 
delivery pursuant to options contracts it has entered into, the fund may 
dispose of a commitment prior to settlement if Putnam Management deem it 
appropriate to do so. 

F) Federal taxes It is the policy of the fund to distribute all of its 
taxable income within the prescribed time and otherwise comply with the 
provisions of the Internal Revenue Code applicable to regulated 
investment companies. It is also the intention of the fund to distribute 
an amount sufficient to avoid imposition of any excise tax under Section 
4982 of the Internal Revenue Code of 1986. Therefore, no provision has 
been made for federal taxes on income, capital gains or unrealized 
appreciation on securities held and for excise tax on income and capital 
gains.

At October 31, 1995, the fund had a capital loss carryover of 
approximately $24,725,000 available to offset future capital gains, if 
any. 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 semiannually. The amount and character of income and gains to 
be distributed are determined in accordance with income tax regulations 
which may differ from generally accepted accounting principles. 
Reclassifications are made to the fund's capital accounts to reflect 
income and gains available for distribution (or available capital loss 
carryovers) under income tax regulations.

Note 2 
Management fee, administrative services, and other transactions

Compensation of Putnam Management, for managment and investment advisory 
services is paid quarterly based on the average net assets of the fund. 
Such fee is based on the following annual rates: 0.60% of the first $500 
million, 0.50% of the next $500 million. 0.45% of the next $500 million, 
0.40% of any amount over $1.5 billion subject, under current law, to 
reduction in any year by the amount of certain brokerage commissions and 
fees (less expenses) received by affiliates of Putnam Management on the 
fund's portfolio transactions.

The fund reimburses Putnam Management for the compensation and related 
expenses of certain officers of the fund and their staff who provide 
administrative services to the fund. The aggregate amount of all such 
reimbursements is determined annually by the Trustees.

Trustees of the fund receive an annual Trustees fee of $690 and an 
additional fee for each Trustee's meeting attended. Trustees who are not 
interested persons of Putnam Management and who serve on committees of 
the Trustees receive additional fees for attendance at certain committee 
meetings.

The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows 
the Trustees to defer the receipt of all or a portion of Trustees Fees 
payable on or after July 1, 1995. The deferred fees remain in the fund 
and are invested in the fund or in other Putnam funds until distribution 
in accordance with the Plan.

Custodial functions for the fund's assets are provided by Putnam 
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam 
Investments, Inc. Investor servicing agent functions are provided by 
Putnam Investor Services, a division of PFTC. 

For the six months ended April 30, 1996, fund expenses were reduced by 
$46,462 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 expense offset arrangements in an income producing asset if it 
had not entered into such arrangements.

The fund has adopted distribution plans (the "Plans") with respect to 
its class A 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 period ended April 30, 1996, Putnam Mutual Funds Corp., acting 
as underwriter received net commissions of $19,698 from the sale of 
class A shares and $651 in contingent deferred sales charges from 
redemptions of class B shares. A deferred sales charge of up to 1% is 
assessed on certain redemptions of class A shares. For the period ended 
April 30, 1996, Putnam Mutual Funds Corp., acting as underwriter 
received $34,947 on class A redemptions.

Note 3 
Purchase and sales of securities

During the six months ended April 30, 1996, purchases and sales of U.S. 
government and agency obligations other than short-term investments 
aggregated $15,862,793 and $21,713,342, respectively. In determining the 
net gain or loss on securities sold, the cost of securities has been 
determined on the identified cost basis.

Note 4 
Capital shares
At April 30, 1996, there was an unlimited number of shares of beneficial 
interest authorized. Transactions in capital shares were as follows:

                            Six months ended 
                              April 30, 1996
- ----------------------------------------------------
Class A                   Shares           Amount
- ----------------------------------------------------
Shares sold              3,890,920       $40,363,426
- ----------------------------------------------------
Shares issued in 
connection with 
reinvestment of 
distributions              147,878         1,531,067
- ----------------------------------------------------
                         4,038,798        41,894,493

Shares 
repurchased             (4,603,432)      (47,746,396)
- ----------------------------------------------------
Net decrease              (564,634)      $(5,851,903)
- ----------------------------------------------------

                                 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)
- ----------------------------------------------------

                              Six months ended 
                               April 30, 1996
- ----------------------------------------------------
Class B                    Shares          Amount
- ----------------------------------------------------
Shares sold                995,546       $10,303,752
- ----------------------------------------------------
Shares issued in 
connection with 
reinvestment of 
distributions               55,935           578,262
- ----------------------------------------------------
                         1,051,481        10,882,014

Shares 
repurchased             (1,110,491)      (11,495,296)
- ----------------------------------------------------
Net decrease               (59,010)      $  (613,282)
- ----------------------------------------------------

                                 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)
- ----------------------------------------------------


Our commitment to quality service

*     CHOOSE AWARD-WINNING SERVICE

Putnam Investor Services has won the DALBAR Quality Tested Service Seal 
for the past six years. In 1995, over 146,000 tests of 56 shareholder 
service components demonstrated that Putnam outperformed the industry 
standard in every category.

*     HELP YOUR INVESTMENT GROW

Set up a systematic program for investing with as little as $25 a month 
from a Putnam money market fund or from your checking or savings 
account.*

*     SWITCH FUNDS EASILY

You can move money from one account to another with the same class of 
shares without a service charge. (This privilege is subject to change or 
termination.)

*     ACCESS YOUR MONEY QUICKLY

You can get checks sent regularly or redeem shares any business day at 
the then-current net asset value, which may be more or less than the 
original cost of the shares.

For details about any of these or other services, contact your financial 
advisor or call the toll-free number shown below and speak with a 
helpful Putnam representative.

To make an additional investment in this or any other Putnam fund, 
contact your financial advisor or call our toll-free number: 1-800-225-
1581.

Footnote reads:
*     Regular investing of course, does not guarantee a profit or 
protect against a loss in a declining market.


Fund information


INVESTMENT MANAGER
Putnam Investment 
Management, Inc.
One Post Office Square
Boston, MA 02109

MARKETING SERVICES
Putnam Mutual Funds Corp. 
One Post Office Square
Boston, MA 02109

CUSTODIAN
Putnam Fiduciary Trust Company

LEGAL COUNSEL
Ropes & Gray

TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike

OFFICERS
George Putnam
President 

Charles E. Porter
Executive Vice President

Patricia C. Flaherty
Senior Vice President

John D. Hughes
Senior Vice President and Treasurer

Lawrence J. Lasser
Vice President 

Gordon H. Silver
Vice President 

Gary Coburn
Vice President

Alan Bankart
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 

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.


[PUTNAM INVESTMENTS LOGO GOES HERE]


The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109

- ------------
Bulk Rate 
U.S. Postage
PAID
Putnam
Investments
- ------------

25116-048/887     6/96




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