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| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
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| FORM N-CSR |
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| CERTIFIED SHAREHOLDER REPORT OF REGISTERED |
| MANAGEMENT INVESTMENT COMPANIES |
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| Investment Company Act file number: (811- 03897) | |
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| Exact name of registrant as specified in charter: Putnam U.S. Government Income Trust |
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| Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109 |
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| Name and address of agent for service: | Beth S. Mazor, Vice President |
| | One Post Office Square |
| | Boston, Massachusetts 02109 |
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| Copy to: | John W. Gerstmayr, Esq. |
| | Ropes & Gray LLP |
| | One International Place |
| | Boston, Massachusetts 02110 |
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| Registrant’s telephone number, including area code: | (617) 292-1000 |
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| Date of fiscal year end: September 30, 2008 | |
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| Date of reporting period: October 1, 2007— September 30, 2008 |
Item 1. Report to Stockholders:
The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:
What makes
Putnam different?
A time-honored tradition in
money management
Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.
A prudent approach to investing
We use a research-driven team approach to seek superior investment results over time.
Funds for every investment goal
We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.
A commitment to doing what’s right for investors
With a focus on investment performance, below-average expenses, and in-depth information about our funds, we put the interests of investors first and seek to set the standard for integrity and service.
Industry-leading service
We help investors, along with their financial representatives, make informed investment decisions with confidence.
In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.
THE PRUDENT MAN RULE
All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.
Putnam U.S.
Government
Income Trust
9|30|08
Annual Report
| | |
| Message from the Trustees | 1 | |
| About the fund | 2 | |
| Performance and portfolio snapshots | 4 | |
| Interview with your fund’s Portfolio Leader | 5 | |
| Performance in depth | 8 | |
| Expenses | 10 | |
| Portfolio turnover | 11 | |
| Risk | 11 | |
| Your fund’s management | 12 | |
| Terms and definitions | 13 | |
| Trustee approval of management contract | 14 | |
| Other information for shareholders | 17 | |
| Financial statements | 17 | |
| Federal tax information | 39 | |
| About the Trustees | 40 | |
| Officers | 43 | |
Cover photograph: © Richard H. Johnson
Message from the Trustees
Dear Fellow Shareholder:
The financial markets have been experiencing the kind of upheaval not seen in decades. Investor confidence has been shaken by losses across a range of sectors and by the collapse of several financial industry companies. Coordinated responses by a full array of economic and financial authorities both in the United States and overseas should restore stability in due course, but investors should not expect a reduction in volatility in the near term. The likelihood of a U.S. recession, in particular, now makes the situation more challenging. History has shown that markets are extremely resilient over the long term, and we expect that, in time, they will recover from this crisis.
As a shareholder of this fund, you should feel confident about the financial standing of Putnam Investments. Our parent companies, Great-West Lifeco and Power Financial Corporation, are among the largest and most successful organizations in the financial services industry. All three companies are well capitalized with strong cash flows.
We are pleased to announce that Robert L. Reynolds, a well-known leader and visionary in the mutual fund industry, has joined the Putnam leadership team as President and Chief Executive Officer of Putnam Investments, effective July 1, 2008. Charles E. Haldeman, Jr., former President and CEO, has taken on the role of Chairman of Putnam Investment Management, LLC, the firm’s fund management company. He continues to serve as President of the Funds and as a Trustee.
Mr. Reynolds brings to Putnam Investments substantial industry experience and an outstanding record of success, including serving as Vice Chairman and Chief Operating Officer at Fidelity Investments from 2000 to 2007. We look forward to working with Mr. Reynolds as we continue our efforts to position Putnam Investments to exceed our shareholders’ expectations.
We would also like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam during these challenging times.
About the fund
Seeking opportunities through mortgage-backed securities
Home ownership is the most common way to invest in the real estate market, but it is not the only way. It is also possible for individuals to invest in the mortgages used to finance homes and businesses through instruments called mortgage-backed securities (MBSs).
Since 1984, Putnam U.S. Government Income Trust has invested in some of the highest-quality MBSs with the goal of maximizing income. However, investing in MBSs carries certain risks. As a result, your fund’s team of experienced analysts uses proprietary models to seek out investment opportunities, while striving to maintain an appropriate amount of risk for the fund.
MBSs are essentially securities that represent a stake in the principal from, and interest paid on, a collection of mortgages. Most MBSs are created when government-sponsored entities, including Fannie Mae, Ginnie Mae, and Freddie Mac, buy mortgages from financial institutions, such as banks or credit unions, and package them together by the thousands. These pools of mortgages act as collateral for the MBSs that government-sponsored entities sell to different investors, including Putnam U.S. Government Income Trust, which currently holds most of its assets in MBSs.
As a consequence of the credit crisis that gripped financial markets in 2007 and 2008, Fannie Mae and Freddie Mac were placed under conservatorship by their regulator, the Federal Housing Finance Agency, and were given a line of credit with the U.S. Treasury. This combination of being placed under direct government control with access to credit from the U.S. Treasury suggests that, like Ginnie Mae, securities issued by Fannie Mae and Freddie Mac may be backed by the full faith and credit of the United States. However, the extent of this guarantee is still being finalized. By seeking opportunities among MBSs, your fund’s management team seeks higher returns than Treasuries can typically offer, but with less volatility than stocks.
Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. The use of derivatives involves special risks and may result in losses. Funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.
Understanding mortgage-
related securities
MBSs (Mortgage-backed securities): MBSs are pools of mortgages used as collateral for issuing a security. These securities represent claims on the principal and interest payments made by the borrowers whose loans are in the pool.
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation): Formerly public companies, Fannie Mae and Freddie Mac were placed under conservatorship by the U.S. government in September 2008 and are now controlled by the Federal Housing Finance Agency. Both companies buy mortgages from primary lenders (savings and loans, commercial banks, credit unions, and housing finance agencies) and develop MBSs that may carry an explicit government guarantee on the payment of principal and interest.
Ginnie Mae (Government National Mortgage Association): Ginnie Mae is a government-owned corporation established in 1968 whose MBSs are backed by the full faith and credit of the U.S. government.
Collateralized mortgage obligations (CMOs): CMOs are structured mortgage-backed securities that use pools of MBSs, or mortgage loans themselves, as collateral and
carve the cash flows into different classes to meet the needs of various investors.
Performance and portfolio snapshots
Average annual total return (%) comparison as of 9/30/08
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 5 and 8–9 for additional performance information. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com.
“The collateralized mortgage obligations (CMOs)
currently held by the fund offer the potential for
substantial returns once the market environment
stabilizes and investors begin to capitalize on
the value embedded in these securities. Of
course, a stable market environment depends
upon whether the measures introduced by the
Federal Reserve Board and the U.S.Treasury are
successful at solving the credit crisis.”
Rob Bloemker, Portfolio Leader, Putnam U.S. Government Income Trust
Allocations are represented as a percentage of portfolio market value and include derivative instruments. These may differ from allocations shown later in this report. Holdings and allocations may vary over time.
Portfolio composition as of 9/30/08
4
How did the fund perform for the period, Rob?
It was a difficult period for the fund, as it trailed both its benchmark, the Lehman GNMA Index, and the average for its Lipper peer group, GNMA Funds. Specifically, the fund returned 0.60% at net asset value versus a 6.94% return for the Lehman index and a 5.51% rise for the peer group average.
How would you characterize the environment in the government bond markets over this period?
It was a period during which liquidity conditions worsened significantly — particularly over the final three months. Short-term credit markets seized up amid widespread turmoil in the financial system. U.S. Treasury bonds — considered to be the ultimate “safe” investment — outperformed all other fixed-income categories as investors generally fled from risk.
The yield curve steepened but also shifted lower during the period, which is good news for bonds generally, since rates declined across the board. Strong demand for Treasuries, particularly on the short end of the yield curve, pushed prices up and, consequently, yields tumbled. Longer-term bond yields, which tend to be more sensitive to inflation trends, fell as the global economic slowdown provided some comfort to investors that inflation might abate going forward.
During the final month of the period, the Federal Reserve Board [the Fed], in coordinated action with other central banks around the world, injected huge amounts of liquidity into the banking system. The goal of this action was to loosen the paralysis that had gripped short-term credit markets for many months.
By way of background, the yield curve is a graphical representation of the difference in yields between shorter- and longer-term bonds. A steep Treasury yield curve reflects a market where short-term bond yields are substantially lower than yields on longer-term bonds.
Why did the fund lag its benchmark and Lipper peer group average?
As a normal part of our investment strategy, we maintained a large out-of-benchmark position in collateralized mortgage obligations [CMOs]. CMOs are
Broad market index and fund performance
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 9/30/08. See the previous page and pages 8–9 for additional fund performance information. Index descriptions can be found on page 13.
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structured mortgage-backed securities that use pools of mortgage pass-through bonds, or mortgage loans themselves, as collateral and carve the cash flows into different classes to meet the needs of various investors. The CMOs that the fund held were structured from pools backed by Fannie Mae and Freddie Mac — both of which are government-controlled enterprises — and therefore carried implicit backing by the U.S. government. As a result, these securities carried Aaa credit ratings.
We use CMOs to try to enhance the fund’s yield while still maintaining high credit quality. However, given the ongoing market turbulence during the period, investors that were experiencing increasing duress — such as many investment banks and broker/dealers — began liquidating their Aaa-rated holdings, which caused yield spreads to widen and prices to decline significantly in this area of the market. Essentially, the fund underperformed because we purchased safe cash flows through high-quality securities, which the market subsequently priced at much wider-than-normal yield spreads because of the liquidity disruption that was occurring.
What were some of the other key aspects of your investment strategy during the period?
One area where we began to build new positions during the final months of the period was in “intermarket” spread swaps that we believe will benefit from the government’s efforts to ease the distress in short-term credit markets. We believe these positions likely will perform well if the yield spread between three-month LIBOR and the federal funds rate tightens. Historically, this spread has hovered around 0.12%. However, at the end of the period, it had skyrocketed to more than 3% due to the liquidity crisis. Consequently, if the Fed and the U.S. Treasury are successful at restoring confidence in the banking system and freeing up interbank lending, this spread likely will tighten dramatically and swap investments designed to profit from this would rise in value.
To provide some definitions, LIBOR stands for “London Interbank Offered Rate” and is the rate at which banks lend to each other on the London interbank market. Loan terms can range from overnight to one year. Intermarket spread swaps are derivative securities that seek to capitalize on yield discrepancies between credit market sectors. And the federal funds rate is the key target rate set by the Fed for overnight loans between banks.
What’s the team’s outlook for the economy and the fund in the coming months, Rob?
The scope and depth of the credit crisis that has weighed heavily on financial markets throughout this period is
Comparison of maturity composition
This chart illustrates the fund’s composition by maturity, showing the percentage of holdings in different maturity ranges and how the composition has changed over the past six months. Holdings and maturity ranges will vary over time.
6
unprecedented in market history. The economic damage from this crisis has been vast, and the economy and corporate earnings will worsen before they improve. Consequently, we believe a recession is likely, and there is a distinct possibility that it will be severe, with major implications not only for corporate profits, but also for default rates on corporate bonds and bank loans.
That said, the CMOs currently held by the fund offer the potential for substantial returns once the market environment stabilizes and investors begin to capitalize on the value embedded in these securities. And, given the government takeover of Fannie Mae and Freddie Mac, we believe the AAA rating on these securities is not at risk and therefore the risk of default is negligible. Of course, a stable market environment depends upon whether the measures introduced by the Fed and the Treasury are successful at solving the credit crisis. We are encouraged by the actions being taken. Moreover, we believe that these and other measures still to come should facilitate the formation and deployment of capital that will enable private investors to invest in CMOs and other mortgage-backed securities alongside the government. As a result, we would urge patience and encourage investors to maintain a long-term perspective while this process is carried out.
Thank you, Rob, for your time and insights today.
The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.
Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.
Of special interest
We are pleased to report that effective March 2008, your fund’s dividend was increased from $0.047 to $0.050 per share. This dividend increase was made possible due to increased interest income resulting from higher yields on interest-only (IO) securities and other mortgage-backed securities. IOs are securities derived from the interest portion of underlying mortgages.
I N T H E N E W S
On October 3, 2008, federal lawmakers approved the Emergency Economic Stabilization Act of 2008 (EESA), a $700 billion economic package designed to ease the nation’s worsening credit crisis. EESA creates a facility — the “Troubled Asset Relief Program (TARP)” — that authorizes the U.S. Treasury to purchase the failed mortgages and mortgage-related securities that are at the heart of the crisis. EESA is designed to provide an infusion of capital so that financial institutions can increase lending and improve marketplace confidence. To enhance TARP’s effectiveness, U.S. Treasury Secretary Henry Paulson and President Bush revised the program on October 14, allowing the government to take the unprecedented step of buying direct equity stakes in several major U.S. banks.
Credit quality overview
Credit qualities shown as a percentage of portfolio value as of 9/30/08. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody’s but considered by Putnam Management to be of comparable quality. Ratings will vary over time.
7
Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended September 30, 2008, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section of www.putnam.com or call Putnam at 1-800-225-1581. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 9/30/08
| | | | | | | | | | |
| | Class A | Class B | Class C | Class M | Class R | Class Y |
| (inception dates) | (2/8/84) | (4/27/92) | (7/26/99) | (2/6/95) | (1/21/03) | (4/11/94) |
|
| | NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | NAV | NAV |
|
| Annual average (life of fund) | 6.80% | 6.63% | 5.94% | 5.94% | 6.00% | 6.00% | 6.47% | 6.33% | 6.53% | 6.96% |
|
| 10 years | 49.46 | 43.52 | 38.81 | 38.81 | 38.66 | 38.66 | 45.88 | 41.10 | 45.42 | 53.29 |
| Annual average | 4.10 | 3.68 | 3.33 | 3.33 | 3.32 | 3.32 | 3.85 | 3.50 | 3.82 | 4.36 |
|
| 5 years | 15.36 | 10.74 | 11.28 | 9.36 | 11.12 | 11.12 | 13.98 | 10.30 | 13.62 | 16.80 |
| Annual average | 2.90 | 2.06 | 2.16 | 1.81 | 2.13 | 2.13 | 2.65 | 1.98 | 2.59 | 3.15 |
|
| 3 years | 9.56 | 5.15 | 7.21 | 4.32 | 7.10 | 7.10 | 8.83 | 5.30 | 8.49 | 10.39 |
| Annual average | 3.09 | 1.69 | 2.35 | 1.42 | 2.31 | 2.31 | 2.86 | 1.74 | 2.75 | 3.35 |
|
| 1 year | 0.60 | –3.43 | –0.06 | –4.87 | –0.13 | –1.09 | 0.42 | –2.83 | 0.12 | 0.87 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After sales charge returns (public offering price, or POP) for class A and M shares reflect a maximum 4.00% and 3.25% load, respectively, as of 1/2/08. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Life of fund performance is for the period beginning 2/8/84 and ending 9/30/08. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares.
For a portion of the period, this fund limited expenses, without which returns would have been lower.
A 1% short-term trading fee may be applied to shares exchanged or sold within 7 days of purchase.
Change in the value of a $10,000 investment ($9,600 after sales charge)
Cumulative total return from 9/30/98 to 9/30/08
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and class C shares would have been valued at $13,881 and $13,866, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,675 after sales charge) would have been valued at $14,110 at public offering price. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $14,542 and $15,329, respectively.
8
Comparative index returns For periods ended 9/30/08
| | |
| | | Lipper GNMA Funds |
| | Lehman GNMA Index | category average* |
|
| Annual average (life of fund) | 8.49% | 7.44% |
|
| 10 years | 72.59 | 58.51 |
| Annual average | 5.61 | 4.70 |
|
| 5 years | 26.13 | 20.00 |
| Annual average | 4.75 | 3.71 |
|
| 3 years | 17.14 | 13.95 |
| Annual average | 5.41 | 4.44 |
|
| 1 year | 6.94 | 5.51 |
|
Index and Lipper results should be compared to fund performance at net asset value.
* Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 9/30/08, there were 63, 58, 57, 36, and 7 funds, respectively, in this Lipper category.
Fund price and distribution information For the 12-month period ended 9/30/08
| | | | | | | | |
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y |
|
| Number | 12 | 12 | 12 | 12 | 12 | 12 |
|
| Income | $0.585 | $0.487 | $0.487 | $0.550 | $0.552 | $0.620 |
|
| Capital gains | — | — | — | — | — | — |
|
| Total | $0.585 | $0.487 | $0.487 | $0.550 | $0.552 | $0.620 |
|
| Share value | NAV | POP | NAV | NAV | NAV | POP | NAV | NAV |
|
| 9/30/07 | $13.17 | $13.72* | $13.10 | $13.15 | $13.16 | $13.60 | $13.16 | $13.13 |
|
| 9/30/08 | 12.68 | 13.21 | 12.62 | 12.66 | 12.68 | 13.11 | 12.64 | 12.64 |
|
| Current yield (end of period) | NAV | POP | NAV | NAV | NAV | POP | NAV | NAV |
|
| Current dividend rate 1 | 4.73% | 4.54% | 3.90% | 3.89% | 4.45% | 4.30% | 4.46% | 5.03% |
|
| Current 30-day SEC yield 2,3 | | | | | | | | |
| (with expense limitation) | N/A | 4.49 | 3.95 | 3.91 | N/A | 4.29 | 4.43 | 4.94 |
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| Current 30-day SEC yield 3 | | | | | | | | |
| (without expense limitation) | N/A | 4.48 | 3.93 | 3.90 | N/A | 4.28 | 4.42 | 4.93 |
|
The classification of distributions, if any, is an estimate. Final distribution information will appear on your year-end tax forms.
* Reflects an increase in sales charges that took effect on 1/2/08.
1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.
2 For a portion of the period, this fund may have limited expenses, without which yields would have been lower.
3 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.
Fund’s annual operating expenses For the fiscal year ended 9/30/07
| | | | | | |
| | Class A | Class B | Class C | Class M | Class R | Class Y |
|
| Net expenses* | 0.99% | 1.69% | 1.74% | 1.23% | 1.24% | 0.74% |
|
| Total annual fund operating expenses | 1.00 | 1.70 | 1.75 | 1.24 | 1.25 | 0.75 |
|
* Reflects Putnam Management’s decision to contractually limit expenses through 9/30/08.
Expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown in the next section and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
9
Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.
Review your fund’s expenses
The following table shows the expenses you would have paid on a $1,000 investment in Putnam U.S. Government Income Trust from April 1, 2008, to September 30, 2008. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| | | | | | | |
| | | Class A | Class B | Class C | Class M | Class R | Class Y |
|
| Expenses paid per $1,000* | | $4.69 | $8.15 | $8.35 | $5.86 | $5.91 | $3.47 |
|
| Ending value (after expenses) | | $955.90 | $952.70 | $952.10 | $954.60 | $952.30 | $956.30 |
|
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended September 30, 2008, use the following calculation method. To find the value of your investment on April 1, 2008, call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
| | | | | | | |
| | | Class A | Class B | Class C | Class M | Class R | Class Y |
|
| Expenses paid per $1,000* | | $4.85 | $8.42 | $8.62 | $6.06 | $6.11 | $3.59 |
|
| Ending value (after expenses) | | $1,020.20 | $1,016.65 | $1,016.45 | $1,019.00 | $1,018.95 | $1,021.45 |
|
Compare expenses using industry averages
You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown indicates how much of your fund’s average net assets have been used to pay ongoing expenses during the period.
| | | | | | | |
| | | Class A | Class B | Class C | Class M | Class R | Class Y |
|
| Your fund’s annualized expense ratio† | | 0.96% | 1.67% | 1.71% | 1.20% | 1.21% | 0.71% |
|
| Average annualized expense ratio for Lipper peer group‡ | | 1.01% | 1.72% | 1.76% | 1.25% | 1.26% | 0.76% |
|
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 9/30/08.The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
† For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
‡ Putnam keeps fund expenses below the Lipper peer group average expense ratio by limiting our fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage/service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect 12b-1 fees. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund, and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times; the fund’s expense ratio shown here is annualized data for the most recent six-month period, while the quarterly updated Lipper average is based on the most recent fiscal year-end data available for the peer grou p funds as of 9/30/08.
10
Your fund’s portfolio turnover and Morningstar® Risk
Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s average portfolio value within a given period. Funds with high turnover may be more likely to generate capital gains that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.
Funds that invest in bonds or other fixed-income instruments may have higher turnover than funds that invest only in stocks. Short-term bond funds tend to have higher turnover than longer-term bond funds, because shorter-term bonds will mature or be sold more frequently than longer-term bonds. You can use the following table to compare your fund’s turnover with the average turnover for funds in its Lipper category.
Turnover comparisons
Percentage of holdings that change every year
| | | | | | |
| | | 2008 | 2007 | 2006 | 2005 | 2004 |
|
| Putnam U.S. Government Income Trust | | 271%* | 253%* | 579%* | 782%* | 198%* |
|
| Lipper GNMA Funds category average | | 245% | 244% | 288% | 315% | 286% |
|
Turnover data for the fund is calculated based on the fund’s fiscal-year period, which ends on September 30. Turnover data for the fund’s Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund’s portfolio turnover rate to the Lipper average. Comparative data for 2008 is based on information available as of 9/30/08.
* Portfolio turnover excludes dollar roll transactions.
Your fund’s Morningstar® Risk
This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Morningstar Risk.
Your fund’s Morningstar Risk is shown alongside that of the average fund in its Morningstar category. The risk bar broadens the comparison by translating the fund’s Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of September 30, 2008. A higher Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.
Morningstar determines a fund’s Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over a 3-year period, if available. Those measures are weighted and averaged to produce the fund’s Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2008 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
11
Your fund’s management
Your fund is managed by the members of the Putnam Taxable Fixed-Income Team. Rob Bloemker is the Portfolio Leader, and Daniel Choquette and Michael Salm are Portfolio Members, of your fund. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund.
For a complete listing of the members of the Putnam Taxable Fixed-Income Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, please visit the Individual Investors section of www.putnam.com.
Trustee and Putnam employee fund ownership
As of September 30, 2008, 12 of the 13 Trustees of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.
| | | |
| | Assets in | Total assets in | |
| | the fund | all Putnam funds | |
| |
| Trustees | $319,000 | $37,000,000 | |
| |
| Putnam employees | $4,197,000 | $471,000,000 | |
| |
Other Putnam funds managed by the Portfolio Leader and Portfolio Members
Rob Bloemker is also a Portfolio Leader of Putnam American Government Income Fund and Putnam Income Fund. He is also a Portfolio Member of Putnam Diversified Income Trust, Putnam Global Income Trust, Putnam Premier Income Trust, and Putnam Master Intermediate Income Trust.
Daniel Choquette is also a Portfolio Member of Putnam American Government Income Fund.
Michael Salm is also a Portfolio Member of Putnam American Government Income Fund, Putnam Income Fund, and Putnam Global Income Trust.
Rob Bloemker, Daniel Choquette, and Michael Salm may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.
Investment team fund ownership
The following table shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of September 30, 2008, and September 30, 2007.
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Terms and definitions
Important terms
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.
Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
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 4.00% maximum sales charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Current yield is the annual rate of return earned from dividends or interest of an investment. Current yield is expressed as a percentage of the price of a security, fund share, or principal investment.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
Lehman GNMA Index is an unmanaged index of Government National Mortgage Association bonds.
Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.
13
Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management (“Putnam Management”). In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2008, the Contract Committee met several times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of t his information with all of the Independent Trustees. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract, effective July 1, 2008.
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and
• That this fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees, were subject to the continued application of certain expense reductions and waivers and other considerations noted below, and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.
Management fee schedules and
categories; total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs or responsibilities, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. In this regard, the Trustees also noted that shareholders of your fund voted in 2007 to approve new management contracts containing an identical fee structure. The Trustees focuse d on two areas of particular interest, as discussed further below:
• Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 60th percentile in management fees and in the 50th percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2007 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). (Because the fund’s custom peer group is smaller than the fund’s broad Lipper Inc. peer group, this expense information may differ from the Lipper peer expense information found elsewhere in this report.) The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints.
The Trustees noted that the expense ratio increases described above were currently being controlled by expense limitations initially implemented in January 2004. The Trustees have received a commitment from Putnam Management and its parent company to continue this program through at least June 30, 2009. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit fund expenses has served shareholders well since its inception.
In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to extend for the twelve months beginning July 1, 2008, an additional expense limitation for certain funds at an amount equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper to correspond to the
14
size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the custom peer group data for the period ended December 31, 2007. This additional expense limitation will be applied to your fund.
In addition, the Trustees devoted particular attention to analyzing the Putnam funds’ fees and expenses relative to those of competitors in fund complexes of comparable size and with a comparable mix of asset categories. The Trustees concluded that this analysis did not reveal any matters requiring further attention at the current time.
• Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of the fund (as a percentage of fund assets) declines as the fund grows in size and crosses specified asset thresholds. Conversely, if the fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale at current asset levels.
In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Oversight Coordinating Committee of the Trustees and the Investment Oversight Committees of the Trustees, which had met on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognized that this does not guarantee favorab le investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.
While the Trustees noted the satisfactory investment performance of certain Putnam funds, they considered the disappointing investment performance of many funds in recent periods, particularly over periods in 2007 and 2008. They discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has taken steps to strengthen its investment personnel and processes to address areas of underperformance, including recent efforts to further centralize Putnam Management’s equity research function. In this regard, the Trustees took into consideration efforts by Putnam Management to improve its ability to assess and mitigate investment risk in individual funds, across asset classes, and across the complex as a whole. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional changes to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper GNMA Funds) for the one-year, three-year and five-year periods ended December 31, 2007 (the first percentile being the best-performing funds and the 100th percentile being the worst-performing funds):
| |
| One-year period | 19th |
|
| Three-year period | 30th |
|
| Five-year period | 50th |
|
(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report.) Over the one-year, three-year and five-year periods ended December 31, 2007, there were 58, 57, and 54 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future returns.
As a general matter, the Trustees believe that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight
* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper GNMA Funds category for the one-year, five-year and ten-year periods ended September 30, 2008 were 93rd, 87th, and 84th, respectively. Over the one-year, five-year and ten-year periods ended September 30, 2008, your fund ranked 59th out of 63, 50th out of 57, and 31st out of 36 funds, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.
15
of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.
Brokerage and soft-dollar
allocations; other benefits
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees considered changes made in 2008, at Putnam Management’s request, to the Putnam funds’ brokerage allocation policy, which expanded the permitted categories of brokerage and research services payable with soft dollars and increased the permitted soft dollar allocation to third-party services over what had been authorized in previous years. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage and trend s in industry practice to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.
The Trustees’ annual review of your fund’s management contract arrangements also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the investor servicing agreement with Putnam Fiduciary Trust Company (“PFTC”), each of which provides benefits to affiliates of Putnam Management. In the case of the investor servicing agreement, the Trustees considered that certain shareholder servicing functions were shifted to a third-party service provider by PFTC in 2007.
Comparison of retail and
institutional fee schedules
The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparisons of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across different asset classes are typically higher o n average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
16
Other information for shareholders
Putnam’s policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ addresses, telephone numbers, Social Security numbers, and the names of their financial representatives. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and, in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial representative, if you’ve listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don’t hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 8:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2008, are available in the Individual Investors section of www.putnam.com, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.
Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, constitute the fund’s financial statements.
The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.
Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)
Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.
Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semi-annual report, the highlight table also includes the current reporting period.
17
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam U.S. Government Income Trust:
We have audited the accompanying statement of assets and liabilities of Putnam U.S. Government Income Trust, including the fund’s portfolio, as of September 30, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2008 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam U.S. Government Income Trust as of September 30, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
November 19, 2008
18
The fund’s portfolio 9/30/08
| | |
| U.S. GOVERNMENT AND AGENCY | Principal | |
| MORTGAGE OBLIGATIONS (88.6%)* | amount | Value |
|
| U.S. Government Guaranteed Mortgage Obligations (62.8%) | |
| Government National Mortgage | | |
| Association Adjustable Rate | | |
| Mortgages 4 3/4s, July 20, 2026 | $25,992 | $26,042 |
|
| Government National Mortgage | | |
| Association Graduated Payment Mortgages | | |
| 13 3/4s, November 20, 2014 | 967 | 1,131 |
| 13 1/4s, December 20, 2014 | 14,417 | 16,737 |
| 12 3/4s, with due dates from | | |
| December 15, 2013 to July 20, 2014 | 28,076 | 32,385 |
| 12 1/4s, with due dates from | | |
| February 15, 2014 to March 15, 2014 | 40,220 | 46,600 |
| 11 1/4s, with due dates from | | |
| September 15, 2015 to January 15, 2016 | 65,020 | 75,448 |
| 10s, with due date of November 15, 2009 | 2,399 | 2,477 |
| 9 1/4s, with due dates from | | |
| April 15, 2016 to May 15, 2016 | 23,140 | 25,536 |
|
| Government National Mortgage | | |
| Association Pass-Through Certificates | | |
| 8 1/2s, December 15, 2019 | 10,310 | 11,215 |
| 8s, with due dates from | | |
| May 15, 2009 to November 15, 2009 | 224,332 | 226,048 |
| 7 1/2s, October 20, 2030 | 209,795 | 222,793 |
| 7s, with due dates from | | |
| November 15, 2008 to August 15, 2012 | 484,823 | 492,293 |
| 6 1/2s, with due dates from | | |
| August 20, 2023 to November 20, 2037 | 267,411,952 | 274,235,307 |
| 6 1/2s, TBA, October 1, 2038 | 74,000,000 | 75,722,809 |
| 6s, with due dates from | | |
| November 15, 2023 to October 15, 2033 | 1,031,600 | 1,063,336 |
| 5 1/2s, with due dates from | | |
| March 15, 2033 to October 15, 2035 | 9,446,967 | 9,474,166 |
| 5 1/2s, TBA, October 1, 2038 | 402,000,000 | 401,811,542 |
|
| | | 763,485,865 |
| U.S. Government Agency Mortgage Obligations (25.8%) | |
| Federal Home Loan Mortgage Corporation | | |
| Pass-Through Certificates | | |
| 6s, with due dates from | | |
| June 1, 2021 to October 1, 2021 | 750,605 | 764,679 |
| 5 1/2s, with due dates from | | |
| June 1, 2014 to May 1, 2020 | 663,655 | 671,476 |
| 5s, with due dates from | | |
| May 1, 2034 to June 1, 2037 | 558,404 | 544,541 |
|
| Federal National Mortgage Association | | |
| Pass-Through Certificates | | |
| 7 1/2s, with due dates from | | |
| January 1, 2030 to May 1, 2030 | 38,679 | 41,384 |
| 7s, with due dates from | | |
| September 1, 2028 to December 1, 2035 | 1,895,164 | 1,990,656 |
| 7s, with due dates from | | |
| November 1, 2012 to January 1, 2015 | 107,901 | 111,810 |
| 6 1/2s, with due dates from | | |
| September 1, 2032 to September 1, 2037 | 172,635 | 177,726 |
| 6 1/2s, with due dates from | | |
| February 1, 2014 to February 1, 2017 | 433,166 | 449,771 |
| 6 1/2s, TBA, October 1, 2038 | 6,000,000 | 6,149,063 |
| 6s, with due dates from | | |
| March 1, 2037 to September 1, 2037 | 581,765 | 589,561 |
| 6s, with due dates from | | |
| July 1, 2016 to January 1, 2022 | 2,803,766 | 2,867,386 |
| 6s, TBA, October 1, 2038 | 30,000,000 | 30,360,936 |
| 5 1/2s, with due dates from | | |
| March 1, 2037 to December 1, 2037 | 1,345,328 | 1,341,491 |
| 5 1/2s, with due dates from | | |
| June 1, 2009 to April 1, 2021 | 1,862,171 | 1,886,609 |
| 5 1/2s, TBA, November 1, 2038 | 55,000,000 | 54,682,034 |
| | |
| U.S. GOVERNMENT AND AGENCY | Principal | |
| MORTGAGE OBLIGATIONS (88.6%)* cont. | amount | Value |
|
| Federal National Mortgage Association | | |
| Pass-Through Certificates | | |
| 5 1/2s, TBA, October 1, 2038 | $143,000,000 | $142,419,063 |
| 5s, May 1, 2021 | 46,645 | 46,388 |
| 5s, TBA, October 1, 2038 | 54,000,000 | 52,557,185 |
| 5s, TBA, November 1, 2035 | 14,000,000 | 13,605,157 |
| 4 1/2s, with due dates from | | |
| June 1, 2034 to October 1, 2035 | 1,913,498 | 1,810,397 |
|
| | | 313,067,313 |
| |
| Total U.S. government and agency mortgage | | |
| obligations (cost $1,076,554,467) | | $1,076,553,178 |
|
| |
| U.S. GOVERNMENT AGENCY | Principal | |
| OBLIGATIONS (2.1%)* | amount | Value |
|
| Fannie Mae 4 1/4s, August 15, 2010 | $5,850,000 | $5,976,179 |
|
| Freddie Mac | | |
| 6 7/8s, September 15, 2010 | 4,112,000 | 4,402,709 |
| 6 5/8s, September 15, 2009 | 14,600,000 | 15,040,289 |
|
| Total U.S. government agency obligations | | |
| (cost $25,115,765) | | $25,419,177 |
|
| |
| U.S. TREASURY | Principal | |
| OBLIGATIONS (4.4%)* | amount | Value |
|
| U.S. Treasury Notes | | |
| 4 1/4s, August 15, 2014 | $790,000 | $840,887 |
| 4 1/4s, September 30, 2012 | 34,538,000 | 36,606,232 |
| 4s, February 15, 2014 | 15,220,000 | 15,989,917 |
| Total U.S. treasury obligations (cost $50,274,237) | $53,437,036 |
|
| |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* | amount | Value |
|
| Banc of America Commercial Mortgage, Inc. | | |
| Ser. 07-2, Class A2, 5.634s, 2049 | $501,000 | $470,038 |
| FRB Ser. 05-1, Class A5, 5.239s, 2042 | 710,000 | 675,820 |
| Ser. 05-6, Class A2, 5.165s, 2047 | 1,093,000 | 1,065,913 |
| Ser. 04-4, Class A6, 4.877s, 2042 | 60,000 | 53,910 |
|
| Citigroup Mortgage Loan Trust, Inc. IFB | | |
| Ser. 07-6, Class 2A5, Interest only (IO), | | |
| 3.443s, 2037 | 3,750,886 | 259,047 |
|
| Commercial Mortgage Pass-Through | | |
| Certificates FRB Ser. 04-LB3A, | | |
| Class A5, 5.441s, 2037 | 40,000 | 37,948 |
|
| Countrywide Home Loans 144A | | |
| IFB Ser. 05-R1, Class 1AS, IO, | | |
| 3.523s, 2035 | 39,447,916 | 2,268,255 |
| IFB Ser. 05-R2, Class 1AS, IO, | | |
| 3.168s, 2035 | 30,584,359 | 1,567,448 |
|
| Credit Suisse Mortgage Capital Certificates | | |
| FRB Ser. 07-C4, Class A2, 6.004s, 2039 | 441,000 | 416,813 |
|
| CS First Boston Mortgage Securities Corp. | | |
| FRB Ser. 04-C3, Class A5, 5.113s, 2036 | 259,000 | 241,595 |
| FRB Ser. 05-C5, Class A4, 5.1s, 2038 | 99,000 | 89,169 |
| Ser. 04-C3, Class A3, 4.302s, 2036 | 555,000 | 544,279 |
|
| Fannie Mae | | |
| IFB Ser. 06-70, Class SM, 27.567s, 2036 | 329,971 | 423,916 |
| IFB Ser. 07-75, Class JS, 26.705s, 2037 | 1,563,223 | 2,012,386 |
| IFB Ser. 07-80, Class AS, 23.705s, 2037 | 347,613 | 419,797 |
| IFB Ser. 07-75, Class CS, 23.052s, 2037 | 1,052,422 | 1,323,472 |
| IFB Ser. 06-62, Class PS, 20.659s, 2036 | 1,985,492 | 2,431,013 |
| IFB Ser. 07-60, Class SB, 20.359s, 2037 | 463,656 | 531,446 |
19
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Fannie Mae | | |
| IFB Ser. 06-76, Class QB, 20.359s, 2036 | $2,330,872 | $2,829,544 |
| IFB Ser. 06-63, Class SP, 20.059s, 2036 | 2,548,887 | 3,047,620 |
| IFB Ser. 07-W7, Class 1A4, 19.939s, 2037 | 1,206,103 | 1,169,920 |
| IFB Ser. 07-81, Class SC, 18.559s, 2037 | 885,096 | 974,030 |
| IFB Ser. 07-1, Class NK, 18.112s, 2037 | 2,060,506 | 2,419,289 |
| IFB Ser. 06-104, Class GS, 17.994s, 2036 | 864,034 | 1,011,677 |
| IFB Ser. 06-104, Class ES, 17.416s, 2036 | 184,653 | 215,820 |
| IFB Ser. 06-49, Class SE, 16.172s, 2036 | 769,404 | 856,292 |
| IFB Ser. 06-60, Class AK, 15.972s, 2036 | 675,506 | 753,032 |
| IFB Ser. 06-60, Class TK, 15.772s, 2036 | 666,142 | 737,864 |
| IFB Ser. 06-104, Class CS, 15.269s, 2036 | 232,754 | 257,274 |
| IFB Ser. 07-30, Class FS, 14.974s, 2037 | 2,097,291 | 2,230,553 |
| IFB Ser. 07-96, Class AS, 14.116s, 2037 | 161,961 | 165,840 |
| IFB Ser. 05-25, Class PS, 14.05s, 2035 | 128,139 | 136,631 |
| IFB Ser. 06-115, Class ES, 13.732s, 2036 | 860,963 | 915,328 |
| IFB Ser. 05-74, Class CP, 12.991s, 2035 | 2,470,143 | 2,607,734 |
| IFB Ser. 05-115, Class NQ, 12.912s, 2036 | 678,387 | 677,553 |
| IFB Ser. 06-27, Class SP, 12.808s, 2036 | 1,869,811 | 2,028,528 |
| IFB Ser. 06-8, Class HP, 12.808s, 2036 | 2,010,434 | 2,173,120 |
| IFB Ser. 06-8, Class WK, 12.808s, 2036 | 3,190,347 | 3,411,607 |
| IFB Ser. 05-106, Class US, 12.808s, 2035 | 2,966,384 | 3,245,634 |
| IFB Ser. 05-99, Class SA, 12.808s, 2035 | 1,445,822 | 1,542,493 |
| IFB Ser. 05-74, Class DM, 12 5/8s, 2035 | 2,877,280 | 3,085,215 |
| IFB Ser. 06-60, Class CS, 12.331s, 2036 | 1,195,776 | 1,183,404 |
| IFB Ser. 05-74, Class CS, 11.201s, 2035 | 2,811,252 | 2,961,412 |
| IFB Ser. 05-114, Class SP, 10.761s, 2036 | 852,735 | 852,942 |
| IFB Ser. 05-95, Class CP, 10.35s, 2035 | 237,136 | 241,747 |
| IFB Ser. 05-106, Class JC, 10.18s, 2035 | 1,646,108 | 1,553,573 |
| FRB Ser. 03-W6, Class PT1, 9.998s, 2042 | 731,509 | 842,719 |
| IFB Ser. 05-83, Class QP, 9.056s, 2034 | 1,007,952 | 960,257 |
| IFB Ser. 05-72, Class SB, 8.858s, 2035 | 910,017 | 874,559 |
| IFB Ser. 05-57, Class MN, 8.756s, 2035 | 1,831,928 | 1,828,121 |
| Ser. 383, Class 90, IO, 8s, 2037 | 76,533 | 13,157 |
| Ser. 383, Class 91, IO, 8s, 2037 | 77,802 | 13,967 |
| Ser. 02-26, Class A2, 7 1/2s, 2048 | 323,716 | 339,801 |
| Ser. 04-T3, Class 1A4, 7 1/2s, 2044 | 2,437,332 | 2,601,614 |
| Ser. 04-T2, Class 1A4, 7 1/2s, 2043 | 703,061 | 737,994 |
| Ser. 02-T19, Class A3, 7 1/2s, 2042 | 443,964 | 472,053 |
| Ser. 02-14, Class A2, 7 1/2s, 2042 | 482,035 | 509,367 |
| Ser. 01-T10, Class A2, 7 1/2s, 2041 | 3,083,997 | 3,194,501 |
| Ser. 02-T4, Class A3, 7 1/2s, 2041 | 557,198 | 593,627 |
| Ser. 01-T12, Class A2, 7 1/2s, 2041 | 1,249,543 | 1,320,834 |
| Ser. 01-T3, Class A1, 7 1/2s, 2040 | 1,027,671 | 1,081,570 |
| Ser. 01-T1, Class A1, 7 1/2s, 2040 | 2,993,201 | 3,163,970 |
| Ser. 99-T2, Class A1, 7 1/2s, 2039 | 1,238,191 | 1,314,073 |
| Ser. 386, Class 26, IO, 7 1/2s, 2038 | 156,896 | 29,378 |
| Ser. 386, Class 27, IO, 7 1/2s, 2037 | 91,463 | 18,452 |
| Ser. 386, Class 28, IO, 7 1/2s, 2037 | 89,471 | 17,571 |
| Ser. 383, Class 88, IO, 7 1/2s, 2037 | 165,255 | 30,725 |
| Ser. 383, Class 89, IO, 7 1/2s, 2037 | 129,556 | 25,482 |
| Ser. 383, Class 87, IO, 7 1/2s, 2037 | 206,872 | 39,944 |
| Ser. 03-W10, Class 1A1, 7 1/2s, 2032 | 2,051,531 | 2,153,467 |
| Ser. 02-T1, Class A3, 7 1/2s, 2031 | 3,568,288 | 3,788,783 |
| Ser. 00-T6, Class A1, 7 1/2s, 2030 | 1,057,712 | 1,110,231 |
| Ser. 01-T5, Class A3, 7 1/2s, 2030 | 31,793 | 33,253 |
| Ser. 01-T4, Class A1, 7 1/2s, 2028 | 2,818,582 | 3,000,583 |
| Ser. 02-26, Class A1, 7s, 2048 | 2,457,739 | 2,599,902 |
| Ser. 04-W12, Class 1A3, 7s, 2044 | 1,456,378 | 1,527,397 |
| Ser. 04-T3, Class 1A3, 7s, 2044 | 1,437,072 | 1,529,923 |
| Ser. 04-T2, Class 1A3, 7s, 2043 | 922,986 | 993,279 |
| Ser. 03-W8, Class 2A, 7s, 2042 | 9,416,333 | 9,994,886 |
| Ser. 03-W3, Class 1A2, 7s, 2042 | 883,767 | 928,658 |
| Ser. 02-T16, Class A2, 7s, 2042 | 6,301,275 | 6,674,440 |
| Ser. 02-T19, Class A2, 7s, 2042 | 4,030,885 | 4,273,305 |
| Ser. 01-T10, Class A1, 7s, 2041 | 1,746,829 | 1,815,065 |
| Ser. 02-T4, Class A2, 7s, 2041 | 4,038,716 | 4,261,233 |
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Fannie Mae | | |
| Ser. 386, Class 24, IO, 7s, 2038 | $132,825 | $32,061 |
| Ser. 386, Class 25, IO, 7s, 2038 | 141,153 | 34,730 |
| Ser. 386, Class 22, IO, 7s, 2038 | 182,033 | 42,838 |
| Ser. 386, Class 21, IO, 7s, 2037 | 205,961 | 49,542 |
| Ser. 386, Class 23, IO, 7s, 2037 | 202,109 | 48,324 |
| Ser. 383, Class 84, IO, 7s, 2037 | 188,541 | 45,732 |
| Ser. 383, Class 85, IO, 7s, 2037 | 120,515 | 29,921 |
| Ser. 383, Class 86, IO, 7s, 2037 | 94,597 | 23,096 |
| Ser. 383, Class 79, IO, 7s, 2037 | 191,034 | 40,665 |
| Ser. 383, Class 80, IO, 7s, 2037 | 417,008 | 77,146 |
| Ser. 383, Class 81, IO, 7s, 2037 | 228,819 | 50,163 |
| Ser. 383, Class 82, IO, 7s, 2037 | 229,104 | 53,294 |
| Ser. 383, Class 83, IO, 7s, 2037 | 191,911 | 45,692 |
| Ser. 04-W1, Class 2A2, 7s, 2033 | 5,783,438 | 6,129,582 |
| Ser. 386, Class 14, IO, 6 1/2s, 2038 | 1,660,589 | 288,527 |
| Ser. 386, Class 19, IO, 6 1/2s, 2038 | 196,258 | 42,318 |
| Ser. 386, Class 17, IO, 6 1/2s, 2037 | 300,318 | 51,429 |
| Ser. 386, Class 16, IO, 6 1/2s, 2037 | 206,115 | 47,008 |
| Ser. 383, Class 60, IO, 6 1/2s, 2037 | 952,345 | 188,088 |
| Ser. 383, Class 62, IO, 6 1/2s, 2037 | 266,142 | 58,437 |
| Ser. 383, Class 69, IO, 6 1/2s, 2037 | 150,772 | 35,788 |
| Ser. 383, Class 63, IO, 6 1/2s, 2037 | 207,403 | 46,114 |
| Ser. 383, Class 64, IO, 6 1/2s, 2037 | 383,701 | 78,179 |
| Ser. 383, Class 67, IO, 6 1/2s, 2037 | 202,267 | 43,988 |
| Ser. 383, Class 68, IO, 6 1/2s, 2037 | 98,223 | 21,997 |
| Ser. 383, Class 58, IO, 6 1/2s, 2037 | 444,096 | 86,599 |
| Ser. 383, Class 59, IO, 6 1/2s, 2037 | 279,585 | 60,507 |
| Ser. 383, Class 61, IO, 6 1/2s, 2037 | 222,746 | 48,054 |
| Ser. 383, Class 65, IO, 6 1/2s, 2037 | 265,368 | 60,940 |
| Ser. 383, Class 66, IO, 6 1/2s, 2037 | 270,304 | 61,957 |
| Ser. 383, Class 72, IO, 6 1/2s, 2037 | 1,065,781 | 206,495 |
| Ser. 383, Class 77, IO, 6 1/2s, 2037 | 160,895 | 35,996 |
| Ser. 383, Class 78, IO, 6 1/2s, 2037 | 164,536 | 30,731 |
| Ser. 381, Class 14, IO, 6 1/2s, 2037 | 175,378 | 32,007 |
| Ser. 381, Class 15, IO, 6 1/2s, 2037 | 124,114 | 21,099 |
| Ser. 383, Class 73, IO, 6 1/2s, 2037 | 363,908 | 68,233 |
| Ser. 383, Class 76, IO, 6 1/2s, 2037 | 219,029 | 49,576 |
| Ser. 383, Class 70, IO, 6 1/2s, 2037 | 563,213 | 107,714 |
| Ser. 383, Class 74, IO, 6 1/2s, 2037 | 299,757 | 55,830 |
| Ser. 383, Class 71, IO, 6 1/2s, 2036 | 238,466 | 50,757 |
| Ser. 383, Class 75, IO, 6 1/2s, 2036 | 191,238 | 42,117 |
| Ser. 371, Class 2, IO, 6 1/2s, 2036 | 949,657 | 210,112 |
| Ser. 383, Class 101, IO, 6 1/2s, 2022 | 89,526 | 16,622 |
| Ser. 383, Class 102, IO, 6 1/2s, 2022 | 76,281 | 14,984 |
| Ser. 389, Class 6, IO, 6s, 2038 | 98,257 | 20,880 |
| Ser. 08-76, Class JI, IO, 6s, 2038 | 1,840,153 | 354,230 |
| Ser. 386, Class 10, IO, 6s, 2038 | 145,141 | 30,840 |
| Ser. 386, Class 11, IO, 6s, 2038 | 97,053 | 18,171 |
| Ser. 383, Class 41, IO, 6s, 2038 | 1,614,833 | 298,744 |
| Ser. 383, Class 42, IO, 6s, 2038 | 1,167,998 | 213,160 |
| Ser. 383, Class 43, IO, 6s, 2038 | 1,054,854 | 195,148 |
| Ser. 383, Class 44, IO, 6s, 2038 | 963,895 | 177,116 |
| Ser. 383, Class 45, IO, 6s, 2038 | 743,012 | 136,528 |
| Ser. 383, Class 46, IO, 6s, 2038 | 645,363 | 118,585 |
| Ser. 383, Class 47, IO, 6s, 2038 | 571,084 | 109,934 |
| Ser. 383, Class 48, IO, 6s, 2038 | 512,692 | 98,693 |
| Ser. 383, Class 52, IO, 6s, 2038 | 207,741 | 44,343 |
| Ser. 386, Class 9, IO, 6s, 2038 | 925,510 | 160,807 |
| Ser. 383, Class 28, IO, 6s, 2038 | 1,930,699 | 371,660 |
| Ser. 383, Class 29, IO, 6s, 2038 | 1,736,761 | 334,326 |
| Ser. 383, Class 30, IO, 6s, 2038 | 1,280,911 | 246,575 |
| Ser. 383, Class 31, IO, 6s, 2038 | 1,130,363 | 217,595 |
| Ser. 383, Class 32, IO, 6s, 2038 | 876,349 | 168,697 |
| Ser. 383, Class 33, IO, 6s, 2038 | 749,308 | 146,115 |
| Ser. 383, Class 37, IO, 6s, 2038 | 291,159 | 64,591 |
| Ser. 386, Class 7, IO, 6s, 2038 | 1,132,014 | 220,743 |
20
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Fannie Mae | | |
| Ser. 383, Class 34, IO, 6s, 2037 | $303,497 | $59,182 |
| Ser. 383, Class 35, IO, 6s, 2037 | 250,991 | 53,081 |
| Ser. 383, Class 36, IO, 6s, 2037 | 196,911 | 41,494 |
| Ser. 383, Class 38, IO, 6s, 2037 | 123,346 | 26,149 |
| Ser. 383, Class 50, IO, 6s, 2037 | 349,750 | 63,392 |
| Ser. 386, Class 6, IO, 6s, 2037 | 543,861 | 100,614 |
| Ser. 383, Class 39, IO, 6s, 2037 | 89,377 | 17,148 |
| Ser. 383, Class 49, IO, 6s, 2037 | 263,174 | 55,497 |
| Ser. 383, Class 51, IO, 6s, 2037 | 272,324 | 57,138 |
| Ser. 383, Class 53, IO, 6s, 2037 | 100,194 | 21,128 |
| Ser. 383, Class 54, IO, 6s, 2037 | 84,876 | 17,897 |
| Ser. 383, Class 57, IO, 6s, 2037 | 166,111 | 31,533 |
| Ser. 383, Class 100, IO, 6s, 2022 | 93,101 | 18,452 |
| Ser. 383, Class 98, IO, 6s, 2022 | 286,367 | 60,110 |
| Ser. 383, Class 99, IO, 6s, 2022 | 126,623 | 25,063 |
| Ser. 383, Class 18, IO, 5 1/2s, 2038 | 1,017,046 | 198,324 |
| Ser. 383, Class 19, IO, 5 1/2s, 2038 | 927,733 | 179,748 |
| Ser. 383, Class 25, IO, 5 1/2s, 2038 | 158,708 | 36,076 |
| Ser. 386, Class 4, IO, 5 1/2s, 2037 | 230,186 | 57,068 |
| Ser. 386, Class 5, IO, 5 1/2s, 2037 | 147,319 | 32,802 |
| Ser. 383, Class 15, IO, 5 1/2s, 2037 | 140,345 | 32,528 |
| Ser. 383, Class 4, IO, 5 1/2s, 2037 | 1,419,489 | 283,898 |
| Ser. 383, Class 5, IO, 5 1/2s, 2037 | 900,767 | 182,405 |
| Ser. 383, Class 6, IO, 5 1/2s, 2037 | 809,638 | 163,952 |
| Ser. 383, Class 7, IO, 5 1/2s, 2037 | 797,208 | 161,435 |
| Ser. 383, Class 8, IO, 5 1/2s, 2037 | 323,555 | 68,756 |
| Ser. 383, Class 9, IO, 5 1/2s, 2037 | 308,491 | 65,554 |
| Ser. 383, Class 20, IO, 5 1/2s, 2037 | 574,032 | 116,241 |
| Ser. 383, Class 21, IO, 5 1/2s, 2037 | 542,709 | 109,899 |
| Ser. 383, Class 22, IO, 5 1/2s, 2037 | 368,262 | 77,335 |
| Ser. 383, Class 23, IO, 5 1/2s, 2037 | 332,063 | 68,903 |
| Ser. 383, Class 24, IO, 5 1/2s, 2037 | 231,960 | 53,753 |
| Ser. 383, Class 26, IO, 5 1/2s, 2037 | 170,942 | 41,992 |
| Ser. 379, Class 2, IO, 5 1/2s, 2037 | 794,281 | 181,573 |
| Ser. 363, Class 2, IO, 5 1/2s, 2035 | 1,144,280 | 269,135 |
| Ser. 383, Class 95, IO, 5 1/2s, 2022 | 457,187 | 67,435 |
| Ser. 383, Class 97, IO, 5 1/2s, 2022 | 191,631 | 37,465 |
| Ser. 383, Class 94, IO, 5 1/2s, 2022 | 229,647 | 48,267 |
| Ser. 383, Class 96, IO, 5 1/2s, 2022 | 249,535 | 50,317 |
| Ser. 383, Class 2, IO, 5s, 2037 | 152,885 | 35,425 |
| Ser. 377, Class 2, IO, 5s, 2036 | 1,090,409 | 258,318 |
| Ser. 383, Class 92, IO, 5s, 2022 | 199,665 | 40,426 |
| Ser. 383, Class 93, IO, 5s, 2022 | 108,120 | 21,149 |
| IFB Ser. 07-W6, Class 6A2, IO, 4.593s, 2037 | 1,346,585 | 112,776 |
| IFB Ser. 06-90, Class SE, IO, 4.593s, 2036 | 1,308,935 | 157,868 |
| IFB Ser. 03-66, Class SA, IO, 4.443s, 2033 | 2,410,861 | 246,812 |
| IFB Ser. 07-W6, Class 5A2, IO, 4.083s, 2037 | 1,999,641 | 147,474 |
| IFB Ser. 07-W4, Class 4A2, IO, 4.073s, 2037 | 9,378,397 | 691,657 |
| IFB Ser. 07-W2, Class 3A2, IO, 4.073s, 2037 | 2,826,340 | 213,742 |
| IFB Ser. 06-115, Class BI, IO, 4.053s, 2036 | 2,381,653 | 164,365 |
| IFB Ser. 05-113, Class AI, IO, 4.023s, 2036 | 455,450 | 39,330 |
| IFB Ser. 05-113, Class DI, IO, 4.023s, 2036 | 3,471,445 | 302,741 |
| IFB Ser. 06-60, Class SI, IO, 3.943s, 2036 | 2,738,396 | 253,302 |
| IFB Ser. 06-60, Class UI, IO, 3.943s, 2036 | 1,105,318 | 94,005 |
| IFB Ser. 06-60, Class DI, IO, 3.863s, 2035 | 1,182,088 | 82,746 |
| IFB Ser. 05-65, Class KI, IO, 3.793s, 2035 | 5,186,889 | 363,082 |
| IFB Ser. 08-01, Class GI, IO, 3.753s, 2037 | 11,191,594 | 986,259 |
| FRB Ser. 07-103, Class HB, 3.607s, 2037 | 25,870,144 | 24,341,218 |
| IFB Ser. 07-54, Class CI, IO, 3.553s, 2037 | 1,634,137 | 147,782 |
| IFB Ser. 07-39, Class PI, IO, 3.553s, 2037 | 1,710,183 | 119,303 |
| IFB Ser. 07-30, Class WI, IO, 3.553s, 2037 | 10,247,283 | 789,051 |
| IFB Ser. 07-28, Class SE, IO, 3.543s, 2037 | 1,945,866 | 173,384 |
| IFB Ser. 06-128, Class SH, IO, 3.543s, 2037 | 2,195,980 | 146,874 |
| IFB Ser. 06-56, Class SM, IO, 3.543s, 2036 | 2,546,308 | 205,047 |
| IFB Ser. 05-90, Class SP, IO, 3.543s, 2035 | 4,407,499 | 389,599 |
| IFB Ser. 05-12, Class SC, IO, 3.543s, 2035 | 1,948,930 | 163,565 |
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Fannie Mae | | |
| IFB Ser. 07-W5, Class 2A2, IO, 3.533s, 2037 | $1,018,490 | $78,933 |
| IFB Ser. 07-30, Class IE, IO, 3.533s, 2037 | 5,349,366 | 555,270 |
| IFB Ser. 06-123, Class CI, IO, 3.533s, 2037 | 4,358,978 | 363,412 |
| IFB Ser. 06-123, Class UI, IO, 3.533s, 2037 | 1,880,709 | 146,930 |
| IFB Ser. 05-82, Class SY, IO, 3.523s, 2035 | 10,908,563 | 729,510 |
| IFB Ser. 07-15, Class BI, IO, 3.493s, 2037 | 3,029,089 | 246,986 |
| IFB Ser. 06-126, Class CS, IO, 3.493s, 2037 | 309,294 | 24,928 |
| IFB Ser. 06-16, Class SM, IO, 3.493s, 2036 | 1,429,312 | 122,333 |
| IFB Ser. 05-95, Class CI, IO, 3.493s, 2035 | 3,222,490 | 301,931 |
| IFB Ser. 05-84, Class SG, IO, 3.493s, 2035 | 5,293,537 | 449,951 |
| IFB Ser. 05-57, Class NI, IO, 3.493s, 2035 | 954,035 | 74,600 |
| IFB Ser. 05-83, Class QI, IO, 3.483s, 2035 | 877,334 | 71,844 |
| IFB Ser. 06-128, Class GS, IO, 3.473s, 2037 | 1,826,907 | 159,485 |
| FRB Ser. 07-95, Class A1, 3.457s, 2036 | 10,485,847 | 10,276,130 |
| FRB Ser. 07-95, Class A2, 3.457s, 2036 | 49,341,000 | 45,887,130 |
| FRB Ser. 07-95, Class A3, 3.457s, 2036 | 13,676,000 | 12,034,880 |
| FRB Ser. 07-101, Class A2, 3.457s, 2036 | 22,411,172 | 21,514,725 |
| IFB Ser. 06-114, Class IS, IO, 3.443s, 2036 | 2,190,543 | 177,381 |
| IFB Ser. 06-115, Class IE, IO, 3.433s, 2036 | 1,647,461 | 140,947 |
| IFB Ser. 06-117, Class SA, IO, 3.433s, 2036 | 2,441,393 | 187,702 |
| IFB Ser. 06-121, Class SD, IO, 3.433s, 2036 | 1,952,852 | 142,802 |
| IFB Ser. 06-109, Class SG, IO, 3.423s, 2036 | 1,527,629 | 114,572 |
| IFB Ser. 06-104, Class SY, IO, 3.413s, 2036 | 162,278 | 11,980 |
| IFB Ser. 06-109, Class SH, IO, 3.413s, 2036 | 2,250,517 | 201,372 |
| IFB Ser. 07-W6, Class 4A2, IO, 3.393s, 2037 | 8,068,156 | 605,112 |
| IFB Ser. 06-128, Class SC, IO, 3.393s, 2037 | 4,343,198 | 319,559 |
| IFB Ser. 06-43, Class SI, IO, 3.393s, 2036 | 461,838 | 36,916 |
| IFB Ser. 06-44, Class IS, IO, 3.393s, 2036 | 3,848,149 | 296,428 |
| IFB Ser. 06-8, Class JH, IO, 3.393s, 2036 | 7,678,381 | 645,982 |
| IFB Ser. 05-122, Class SG, IO, 3.393s, 2035 | 1,444,168 | 125,312 |
| IFB Ser. 05-95, Class OI, IO, 3.383s, 2035 | 562,384 | 46,500 |
| IFB Ser. 06-92, Class JI, IO, 3.373s, 2036 | 1,052,544 | 74,615 |
| IFB Ser. 06-92, Class LI, IO, 3.373s, 2036 | 2,414,057 | 192,806 |
| IFB Ser. 06-96, Class ES, IO, 3.373s, 2036 | 1,272,083 | 86,729 |
| IFB Ser. 06-99, Class AS, IO, 3.373s, 2036 | 142,846 | 11,160 |
| IFB Ser. 06-85, Class TS, IO, 3.353s, 2036 | 4,324,837 | 321,149 |
| IFB Ser. 06-61, Class SE, IO, 3.343s, 2036 | 4,366,362 | 294,162 |
| IFB Ser. 07-75, Class PI, IO, 3.333s, 2037 | 2,481,767 | 179,231 |
| IFB Ser. 07-76, Class SA, IO, 3.333s, 2037 | 1,310,407 | 93,919 |
| IFB Ser. 07-W7, Class 2A2, IO, 3.323s, 2037 | 6,875,010 | 536,447 |
| IFB Ser. 07-88, Class MI, IO, 3.313s, 2037 | 205,669 | 13,896 |
| IFB Ser. 08-10, Class AI, IO, 3.293s, 2038 | 56,280,425 | 2,873,425 |
| IFB Ser. 07-116, Class IA, IO, 3.293s, 2037 | 9,916,176 | 706,528 |
| IFB Ser. 07-103, Class AI, IO, 3.293s, 2037 | 11,914,051 | 863,769 |
| IFB Ser. 07-1, Class NI, IO, 3.293s, 2037 | 2,730,190 | 204,445 |
| IFB Ser. 03-124, Class ST, IO, 3.293s, 2034 | 1,625,124 | 115,163 |
| IFB Ser. 07-15, Class NI, IO, 3.293s, 2022 | 2,849,898 | 181,681 |
| IFB Ser. 08-3, Class SC, IO, 3.243s, 2038 | 216,776 | 16,707 |
| IFB Ser. 07-109, Class XI, IO, 3.243s, 2037 | 1,369,194 | 112,653 |
| IFB Ser. 07-109, Class YI, IO, 3.243s, 2037 | 2,667,969 | 192,043 |
| IFB Ser. 07-88, Class JI, IO, 3.243s, 2037 | 4,087,516 | 313,954 |
| IFB Ser. 07-54, Class KI, IO, 3.233s, 2037 | 1,338,565 | 77,622 |
| IFB Ser. 07-30, Class JS, IO, 3.233s, 2037 | 4,316,348 | 312,935 |
| IFB Ser. 07-30, Class LI, IO, 3.233s, 2037 | 3,244,570 | 266,749 |
| IFB Ser. 07-106, Class SN, IO, 3.203s, 2037 | 2,651,173 | 189,434 |
| IFB Ser. 07-54, Class IA, IO, 3.203s, 2037 | 2,407,166 | 191,201 |
| IFB Ser. 07-54, Class IB, IO, 3.203s, 2037 | 2,407,166 | 191,201 |
| IFB Ser. 07-54, Class IC, IO, 3.203s, 2037 | 2,407,166 | 191,201 |
| IFB Ser. 07-54, Class ID, IO, 3.203s, 2037 | 2,407,166 | 191,201 |
| IFB Ser. 07-54, Class IE, IO, 3.203s, 2037 | 2,407,166 | 191,201 |
| IFB Ser. 07-54, Class IF, IO, 3.203s, 2037 | 3,577,892 | 291,181 |
| IFB Ser. 07-54, Class NI, IO, 3.203s, 2037 | 1,021,944 | 85,193 |
| IFB Ser. 07-54, Class UI, IO, 3.203s, 2037 | 2,623,517 | 209,433 |
| IFB Ser. 07-109, Class AI, IO, 3.193s, 2037 | 1,081,568 | 75,034 |
| IFB Ser. 07-91, Class AS, IO, 3.193s, 2037 | 1,682,044 | 127,151 |
| IFB Ser. 07-91, Class HS, IO, 3.193s, 2037 | 1,792,882 | 126,832 |
21
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Fannie Mae | | |
| IFB Ser. 07-15, Class CI, IO, 3.173s, 2037 | $8,131,422 | $601,774 |
| IFB Ser. 06-123, Class BI, IO, 3.173s, 2037 | 9,907,860 | 724,007 |
| IFB Ser. 06-115, Class JI, IO, 3.173s, 2036 | 5,912,691 | 432,366 |
| IFB Ser. 07-109, Class PI, IO, 3.143s, 2037 | 1,414,678 | 106,461 |
| IFB Ser. 06-123, Class LI, IO, 3.113s, 2037 | 3,926,285 | 306,382 |
| IFB Ser. 08-1, Class NI, IO, 3.043s, 2037 | 4,997,758 | 315,483 |
| IFB Ser. 07-116, Class BI, IO, 3.043s, 2037 | 9,066,284 | 572,309 |
| IFB Ser. 08-01, Class AI, IO, 3.043s, 2037 | 13,584,563 | 895,019 |
| IFB Ser. 08-10, Class GI, IO, 3.023s, 2038 | 4,041,867 | 227,371 |
| IFB Ser. 08-1, Class HI, IO, 2.993s, 2037 | 6,341,999 | 392,075 |
| IFB Ser. 07-39, Class AI, IO, 2.913s, 2037 | 4,133,895 | 270,342 |
| IFB Ser. 07-32, Class SD, IO, 2.903s, 2037 | 2,813,202 | 198,682 |
| IFB Ser. 07-30, Class UI, IO, 2.893s, 2037 | 2,327,471 | 159,174 |
| IFB Ser. 07-32, Class SC, IO, 2.893s, 2037 | 3,732,871 | 261,152 |
| IFB Ser. 07-1, Class CI, IO, 2.893s, 2037 | 2,721,338 | 194,219 |
| IFB Ser. 05-74, Class SE, IO, 2.893s, 2035 | 3,437,276 | 202,638 |
| IFB Ser. 05-74, Class NI, IO, 2.873s, 2035 | 14,141,743 | 1,076,738 |
| IFB Ser. 05-14, Class SE, IO, 2.843s, 2035 | 416,175 | 24,579 |
| IFB Ser. 08-1, Class BI, IO, 2.703s, 2038 | 1,672,665 | 81,820 |
| IFB Ser. 07-75, Class ID, IO, 2.663s, 2037 | 2,070,099 | 134,399 |
| Ser. 03-W12, Class 2, IO, 2.221s, 2043 | 25,122,535 | 1,835,103 |
| Ser. 08-33, Principle only (PO), zero %, 2038 | 302,646 | 220,932 |
| Ser. 08-9, PO, zero %, 2038 | 217,379 | 161,948 |
| Ser. 07-112, Class EO, PO, zero %, 2037 | 262,676 | 181,816 |
| Ser. 07-89, Class PO, PO, zero %, 2037 | 496,954 | 385,684 |
| Ser. 07-64, Class LO, PO, zero %, 2037 | 131,778 | 92,472 |
| Ser. 07-47, Class B0, PO, zero %, 2037 | 79,655 | 62,931 |
| Ser. 07-14, Class KO, PO, zero %, 2037 | 121,136 | 95,528 |
| Ser. 06-125, Class MO, PO, zero %, 2037 | 215,622 | 173,440 |
| Ser. 06-125, Class OX, PO, zero %, 2037 | 83,805 | 59,032 |
| Ser. 06-116, Class OD, PO, zero %, 2036 | 81,094 | 66,158 |
| Ser. 06-117, Class OA, PO, zero %, 2036 | 228,759 | 185,735 |
| Ser. 06-81, Class OP, PO, zero %, 2036 | 115,868 | 93,283 |
| Ser. 06-84, Class OT, PO, zero %, 2036 | 70,869 | 57,234 |
| Ser. 06-56, Class XF, zero %, 2036 | 218,715 | 226,668 |
| Ser. 06-46, Class OC, PO, zero %, 2036 | 76,183 | 60,191 |
| Ser. 06-16, Class OG, PO, zero %, 2036 | 75,559 | 59,169 |
| Ser. 04-38, Class AO, PO, zero %, 2034 | 2,320,911 | 1,613,033 |
| Ser. 04-61, Class CO, PO, zero %, 2031 | 3,172,195 | 2,506,034 |
| Ser. 07-15, Class IM, IO, zero %, 2009 | 2,566,213 | 187 |
| Ser. 07-16, Class TS, IO, zero %, 2009 | 10,656,712 | 748 |
| FRB Ser. 07-76, Class SF, zero %, 2037 | 133,885 | 138,927 |
| FRB Ser. 06-115, Class SN, zero %, 2036 | 1,169,685 | 1,121,787 |
| FRB Ser. 06-104, Class EK, zero %, 2036 | 108,096 | 106,871 |
| FRB Ser. 05-117, Class GF, zero %, 2036 | 236,804 | 194,426 |
| FRB Ser. 05-79, Class FE, zero %, 2035 | 554,660 | 568,027 |
| FRB Ser. 05-45, Class FG, zero %, 2035 | 767,850 | 626,356 |
| FRB Ser. 05-81, Class DF, zero %, 2033 | 255,310 | 251,892 |
| FRB Ser. 06-1, Class HF, zero %, 2032 | 345,782 | 333,968 |
| IFB Ser. 06-75, Class FY, zero %, 2036 | 482,953 | 523,025 |
|
| Federal Home Loan Mortgage Corp. | | |
| Structured Pass-Through Securities | | |
| Ser. T-58, Class 4A, 7 1/2s, 2043 | 6,468,113 | 6,850,140 |
| Ser. T-42, Class A5, 7 1/2s, 2042 | 212,697 | 219,985 |
| Ser. T-60, Class 1A2, 7s, 2044 | 3,521,060 | 3,737,106 |
| Ser. T-59, Class 1A2, 7s, 2043 | 3,581,837 | 3,835,033 |
| Ser. T-55, Class 1A2, 7s, 2043 | 2,075,992 | 2,194,685 |
| IFB Ser. T-56, Class 2ASI, IO, | | |
| 4.893s, 2043 | 1,144,557 | 124,871 |
|
| Freddie Mac | | |
| IFB Ser. 3360, Class SB, 28.74s, 2037 | 544,887 | 679,052 |
| IFB Ser. 3339, Class WS, 27.947s, 2037 | 997,864 | 1,248,223 |
| IFB Ser. 3339, Class JS, 26.666s, 2037 | 866,049 | 1,027,971 |
| IFB Ser. 3202, Class PS, 24.315s, 2036�� | 1,620,094 | 1,904,379 |
| IFB Ser. 3349, Class SA, 24.075s, 2037 | 1,581,674 | 1,831,173 |
| IFB Ser. 3331, Class SE, 24.075s, 2037 | 382,905 | 426,009 |
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Freddie Mac | | |
| IFB Ser. 3153, Class SX, 20.813s, 2036 | $3,362,800 | $3,889,933 |
| IFB Ser. 3153, Class JS, 20.663s, 2036 | 111,230 | 127,846 |
| IFB Ser. 3081, Class DC, 17.966s, 2035 | 1,181,559 | 1,255,384 |
| IFB Ser. 3114, Class GK, 16.45s, 2036 | 802,261 | 853,773 |
| IFB Ser. 3360, Class SC, 16.407s, 2037 | 1,117,678 | 1,096,631 |
| IFB Ser. 3408, Class EK, 15.784s, 2037 | 268,622 | 271,186 |
| IFB Ser. 2979, Class AS, 15.152s, 2034 | 593,100 | 615,782 |
| IFB Ser. 3153, Class UT, 14.896s, 2036 | 2,072,442 | 2,101,794 |
| IFB Ser. 3149, Class SU, 12.822s, 2036 | 774,907 | 747,534 |
| IFB Ser. 3065, Class DC, 12.398s, 2035 | 1,956,308 | 1,890,967 |
| IFB Ser. 3012, Class GP, 12.368s, 2035 | 1,213,983 | 1,233,876 |
| IFB Ser. 3012, Class UP, 11.798s, 2035 | 89,002 | 91,267 |
| IFB Ser. 3012, Class FS, 10.656s, 2035 | 96,441 | 97,165 |
| IFB Ser. 3031, Class BS, 10.506s, 2035 | 2,547,509 | 2,398,959 |
| IFB Ser. 248, IO, 5 1/2s, 2037 | 1,333,953 | 302,432 |
| IFB Ser. 3184, Class SP, IO, 4.863s, 2033 | 2,559,349 | 212,193 |
| IFB Ser. 2882, Class LS, IO, 4.713s, 2034 | 314,524 | 27,994 |
| IFB Ser. 3203, Class SH, IO, 4.653s, 2036 | 1,453,325 | 148,681 |
| IFB Ser. 2594, Class SE, IO, 4.563s, 2030 | 2,937,047 | 224,598 |
| IFB Ser. 2828, Class TI, IO, 4.563s, 2030 | 1,647,860 | 124,028 |
| IFB Ser. 3397, Class GS, IO, 4.513s, 2037 | 1,490,511 | 113,871 |
| IFB Ser. 3297, Class BI, IO, 4.273s, 2037 | 6,905,404 | 601,488 |
| IFB Ser. 3287, Class SD, IO, 4.263s, 2037 | 2,762,858 | 231,467 |
| IFB Ser. 3281, Class BI, IO, 4.263s, 2037 | 1,326,875 | 122,024 |
| IFB Ser. 3281, Class CI, IO, 4.263s, 2037 | 152,834 | 14,076 |
| IFB Ser. 3249, Class SI, IO, 4.263s, 2036 | 1,163,754 | 93,901 |
| IFB Ser. 3028, Class ES, IO, 4.263s, 2035 | 8,775,871 | 785,985 |
| IFB Ser. 3042, Class SP, IO, 4.263s, 2035 | 1,942,397 | 141,932 |
| IFB Ser. 3045, Class DI, IO, 4.243s, 2035 | 5,349,460 | 402,675 |
| IFB Ser. 3136, Class NS, IO, 4.213s, 2036 | 5,125,266 | 397,259 |
| IFB Ser. 3107, Class DC, IO, 4.213s, 2035 | 4,554,668 | 405,274 |
| IFB Ser. 2950, Class SM, IO, 4.213s, 2016 | 1,010,014 | 84,474 |
| IFB Ser. 3256, Class S, IO, 4.203s, 2036 | 2,779,747 | 232,804 |
| IFB Ser. 3031, Class BI, IO, 4.202s, 2035 | 1,741,267 | 138,821 |
| IFB Ser. 3244, Class SB, IO, 4.173s, 2036 | 1,909,355 | 134,491 |
| IFB Ser. 3244, Class SG, IO, 4.173s, 2036 | 2,217,638 | 184,590 |
| IFB Ser. 3236, Class IS, IO, 4.163s, 2036 | 3,450,604 | 252,325 |
| IFB Ser. 3114, Class TS, IO, 4.163s, 2030 | 10,951,822 | 863,595 |
| IFB Ser. 3128, Class JI, IO, 4.143s, 2036 | 5,738,878 | 469,871 |
| IFB Ser. 3240, Class S, IO, 4.133s, 2036 | 6,826,324 | 574,940 |
| IFB Ser. 3153, Class JI, IO, 4.133s, 2036 | 3,044,061 | 194,059 |
| IFB Ser. 3065, Class DI, IO, 4.133s, 2035 | 1,358,039 | 106,064 |
| IFB Ser. 3145, Class GI, IO, 4.113s, 2036 | 4,691,283 | 407,555 |
| IFB Ser. 3114, Class GI, IO, 4.113s, 2036 | 1,922,697 | 140,591 |
| IFB Ser. 3339, Class JI, IO, 4.103s, 2037 | 2,941,596 | 185,688 |
| IFB Ser. 3218, Class AS, IO, 4.093s, 2036 | 2,298,911 | 179,384 |
| IFB Ser. 3221, Class SI, IO, 4.093s, 2036 | 2,801,160 | 209,244 |
| IFB Ser. 3202, Class PI, IO, 4.053s, 2036 | 7,731,897 | 620,392 |
| IFB Ser. 3355, Class MI, IO, 4.013s, 2037 | 1,722,084 | 128,798 |
| IFB Ser. 3201, Class SG, IO, 4.013s, 2036 | 3,535,840 | 267,433 |
| IFB Ser. 3203, Class SE, IO, 4.013s, 2036 | 3,162,946 | 242,422 |
| IFB Ser. 3171, Class PS, IO, 3.998s, 2036 | 560,356 | 43,778 |
| IFB Ser. 3152, Class SY, IO, 3.993s, 2036 | 3,525,248 | 321,771 |
| IFB Ser. 3284, Class BI, IO, 3.963s, 2037 | 2,167,276 | 155,474 |
| IFB Ser. 3260, Class SA, IO, 3.963s, 2037 | 2,020,171 | 133,875 |
| IFB Ser. 3199, Class S, IO, 3.963s, 2036 | 1,608,976 | 134,942 |
| IFB Ser. 3284, Class LI, IO, 3.953s, 2037 | 4,552,341 | 345,327 |
| IFB Ser. 3281, Class AI, IO, 3.943s, 2037 | 8,273,012 | 680,731 |
| IFB Ser. 3012, Class UI, IO, 3.933s, 2035 | 3,088,099 | 225,106 |
| IFB Ser. 3311, Class EI, IO, 3.923s, 2037 | 1,164,647 | 95,528 |
| IFB Ser. 3311, Class IA, IO, 3.923s, 2037 | 3,411,098 | 290,582 |
| IFB Ser. 3311, Class IB, IO, 3.923s, 2037 | 3,411,098 | 290,582 |
| IFB Ser. 3311, Class IC, IO, 3.923s, 2037 | 3,411,098 | 290,582 |
| IFB Ser. 3311, Class ID, IO, 3.923s, 2037 | 3,411,098 | 290,582 |
| IFB Ser. 3311, Class IE, IO, 3.923s, 2037 | 4,829,244 | 411,389 |
| IFB Ser. 3240, Class GS, IO, 3.893s, 2036 | 4,109,642 | 325,163 |
22
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Freddie Mac | | |
| IFB Ser. 3339, Class TI, IO, 3.653s, 2037 | $3,194,768 | $216,058 |
| IFB Ser. 3284, Class CI, IO, 3.633s, 2037 | 6,253,107 | 428,400 |
| IFB Ser. 3016, Class SQ, IO, 3.623s, 2035 | 3,507,877 | 191,797 |
| IFB Ser. 3012, Class IG, IO, 3.593s, 2035 | 11,796,842 | 907,637 |
| IFB Ser. 3397, Class SQ, IO, 3.483s, 2037 | 589,055 | 35,273 |
| Ser. 3403, PO, zero %, 2037 | 92,186 | 74,379 |
| Ser. 3369, Class BO, PO, zero %, 2037 | 87,490 | 61,102 |
| Ser. 3327, Class IF, IO, zero %, 2037 | 901,998 | 202,950 |
| Ser. 246, PO, zero %, 2037 | 343,860 | 279,440 |
| Ser. 3391, PO, zero %, 2037 | 163,353 | 129,049 |
| Ser. 3292, Class DO, PO, zero %, 2037 | 85,482 | 62,786 |
| Ser. 3292, Class OA, PO, zero %, 2037 | 175,663 | 122,017 |
| Ser. 3296, Class OK, PO, zero %, 2037 | 87,151 | 64,781 |
| Ser. 3300, PO, zero %, 2037 | 1,588,618 | 1,231,179 |
| Ser. 3252, Class LO, PO, zero %, 2036 | 150,951 | 120,316 |
| Ser. 3255, Class CO, PO, zero %, 2036 | 380,951 | 313,255 |
| Ser. 3218, Class AO, PO, zero %, 2036 | 81,447 | 66,248 |
| Ser. 3206, Class EO, PO, zero %, 2036 | 73,109 | 59,481 |
| Ser. 3175, Class MO, PO, zero %, 2036 | 642,571 | 510,475 |
| Ser. 3210, PO, zero %, 2036 | 76,235 | 60,405 |
| Ser. 3139, Class CO, PO, zero %, 2036 | 75,530 | 60,842 |
| Ser. 2587, Class CO, PO, zero %, 2032 | 287,316 | 237,380 |
| FRB Ser. 3349, Class DO, zero %, 2037 | 255,357 | 230,920 |
| FRB Ser. 3326, Class XF, zero %, 2037 | 1,306,900 | 1,148,750 |
| FRB Ser. 3326, Class YF, zero %, 2037 | 2,429,576 | 2,349,313 |
| FRB Ser. 3263, Class TA, zero %, 2037 | 334,479 | 342,322 |
| FRB Ser. 3241, Class FH, zero %, 2036 | 605,800 | 502,973 |
| FRB Ser. 3231, Class XB, zero %, 2036 | 447,935 | 441,738 |
| FRB Ser. 3283, Class HF, zero %, 2036 | 82,410 | 64,843 |
| FRB Ser. 3231, Class X, zero %, 2036 | 531,737 | 557,182 |
| FRB Ser. 3117, Class AF, zero %, 2036 | 144,324 | 153,437 |
| FRB Ser. 3326, Class WF, zero %, 2035 | 3,022,635 | 2,525,354 |
| FRB Ser. 3030, Class CF, zero %, 2035 | 877,803 | 709,916 |
| FRB Ser. 3036, Class AS, zero %, 2035 | 149,268 | 131,713 |
|
| Government National Mortgage Association | | |
| IFB Ser. 07-38, Class AS, 31.775s, 2037 | 2,019,261 | 2,543,023 |
| IFB Ser. 06-34, Class SA, 20.415s, 2036 | 4,586,163 | 5,281,865 |
| IFB Ser. 07-51, Class SP, 20.355s, 2037 | 707,860 | 816,411 |
| IFB Ser. 07-44, Class SP, 19.787s, 2036 | 859,533 | 1,014,542 |
| IFB Ser. 07-35, Class DK, 16.706s, 2035 | 324,224 | 367,789 |
| IFB Ser. 05-84, Class SL, 12.54s, 2035 | 4,951,342 | 4,701,307 |
| IFB Ser. 05-66, Class SP, 12.54s, 2035 | 2,263,589 | 2,226,460 |
| IFB Ser. 05-68, Class DP, 10.417s, 2035 | 6,872,708 | 6,826,483 |
| IFB Ser. 05-84, Class SB, 9.031s, 2035 | 3,927,164 | 3,776,752 |
| IFB Ser. 05-7, Class NP, 8.8s, 2033 | 605,628 | 588,921 |
| IFB Ser. 04-59, Class SC, IO, 4.712s, 2034 | 1,378,822 | 129,961 |
| IFB Ser. 07-26, Class SD, IO, 4.312s, 2037 | 3,765,200 | 256,504 |
| IFB Ser. 07-26, Class SL, IO, 4.312s, 2037 | 25,083,317 | 2,185,665 |
| IFB Ser. 07-26, Class SM, IO, 4.312s, 2037 | 20,519,566 | 1,670,711 |
| IFB Ser. 07-26, Class SN, IO, 4.312s, 2037 | 14,821,430 | 1,149,732 |
| IFB Ser. 06-62, Class SI, IO, 4.193s, 2036 | 2,482,188 | 203,415 |
| IFB Ser. 07-1, Class SL, IO, 4.173s, 2037 | 1,162,255 | 94,511 |
| IFB Ser. 07-1, Class SM, IO, 4.163s, 2037 | 1,162,255 | 94,260 |
| IFB Ser. 07-48, Class SB, IO, 4.162s, 2037 | 2,820,886 | 183,479 |
| IFB Ser. 07-17, Class AI, IO, 4.062s, 2037 | 7,443,310 | 550,835 |
| IFB Ser. 07-9, Class AI, IO, 4.012s, 2037 | 3,168,592 | 220,147 |
| IFB Ser. 07-49, Class NY, IO, 3.913s, 2035 | 17,292,536 | 1,312,607 |
| IFB Ser. 07-17, Class IC, IO, 3.762s, 2037 | 2,043,477 | 137,880 |
| IFB Ser. 07-36, Class SW, IO, 3.713s, 2035 | 21,105,760 | 1,442,684 |
| IFB Ser. 07-25, Class KS, IO, 3.712s, 2037 | 717,154 | 48,549 |
| IFB Ser. 07-21, Class S, IO, 3.712s, 2037 | 4,340,786 | 257,300 |
| IFB Ser. 07-31, Class AI, IO, 3.692s, 2037 | 2,023,959 | 165,483 |
| IFB Ser. 07-26, Class SG, IO, 3.663s, 2037 | 3,685,810 | 291,446 |
| IFB Ser. 07-9, Class BI, IO, 3.633s, 2037 | 7,555,340 | 512,920 |
| IFB Ser. 07-31, Class CI, IO, 3.623s, 2037 | 2,037,154 | 140,019 |
| IFB Ser. 07-25, Class SA, IO, 3.613s, 2037 | 2,635,079 | 182,827 |
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Government National Mortgage Association | | |
| IFB Ser. 07-25, Class SB, IO, 3.613s, 2037 | $5,195,728 | $357,259 |
| IFB Ser. 07-22, Class S, IO, 3.613s, 2037 | 2,068,713 | 180,452 |
| IFB Ser. 07-11, Class SA, IO, 3.613s, 2037 | 1,869,444 | 144,015 |
| IFB Ser. 07-14, Class SB, IO, 3.613s, 2037 | 331,626 | 24,459 |
| IFB Ser. 07-43, Class SC, IO, 3.612s, 2037 | 2,522,659 | 145,222 |
| IFB Ser. 07-51, Class SJ, IO, 3.563s, 2037 | 2,223,635 | 181,002 |
| IFB Ser. 07-58, Class PS, IO, 3.513s, 2037 | 2,252,576 | 175,462 |
| IFB Ser. 07-59, Class PS, IO, 3.483s, 2037 | 1,748,051 | 127,211 |
| IFB Ser. 07-59, Class SP, IO, 3.483s, 2037 | 15,996,742 | 1,188,174 |
| IFB Ser. 07-68, Class PI, IO, 3.463s, 2037 | 1,254,803 | 90,612 |
| IFB Ser. 06-38, Class SG, IO, 3.463s, 2033 | 7,727,095 | 476,648 |
| IFB Ser. 07-53, Class SG, IO, 3.413s, 2037 | 1,338,447 | 85,130 |
| IFB Ser. 08-3, Class SA, IO, 3.363s, 2038 | 4,428,641 | 270,994 |
| IFB Ser. 07-64, Class AI, IO, 3.363s, 2037 | 76,409,921 | 4,626,009 |
| IFB Ser. 07-53, Class ES, IO, 3.363s, 2037 | 1,888,425 | 104,968 |
| IFB Ser. 08-4, Class SA, IO, 3.329s, 2038 | 9,150,553 | 562,512 |
| IFB Ser. 07-67, Class SI, IO, 3.323s, 2037 | 27,453,848 | 1,559,269 |
| IFB Ser. 07-9, Class DI, IO, 3.323s, 2037 | 3,815,067 | 229,324 |
| IFB Ser. 07-57, Class QA, IO, 3.313s, 2037 | 4,502,777 | 283,121 |
| IFB Ser. 07-58, Class SA, IO, 3.313s, 2037 | 3,554,559 | 208,315 |
| IFB Ser. 07-58, Class SC, IO, 3.313s, 2037 | 3,264,328 | 178,932 |
| IFB Ser. 07-61, Class SA, IO, 3.313s, 2037 | 2,387,625 | 144,843 |
| IFB Ser. 07-53, Class SC, IO, 3.313s, 2037 | 2,144,322 | 114,841 |
| IFB Ser. 07-53, Class SE, IO, 3.313s, 2037 | 34,969,327 | 2,257,162 |
| IFB Ser. 06-28, Class GI, IO, 3.313s, 2035 | 2,426,794 | 152,935 |
| IFB Ser. 07-58, Class SD, IO, 3.303s, 2037 | 3,199,012 | 175,406 |
| IFB Ser. 07-59, Class SD, IO, 3.283s, 2037 | 26,235,638 | 1,496,533 |
| IFB Ser. 05-65, Class SI, IO, 3.163s, 2035 | 14,389,935 | 895,961 |
| IFB Ser. 06-7, Class SB, IO, 3.133s, 2036 | 9,634,481 | 574,678 |
| IFB Ser. 05-82, Class KS, IO, 3.113s, 2035 | 6,350,261 | 416,253 |
| IFB Ser. 07-17, Class IB, IO, 3.063s, 2037 | 1,493,675 | 79,204 |
| IFB Ser. 06-10, Class SM, IO, 3.063s, 2036 | 12,765,330 | 840,451 |
| IFB Ser. 06-14, Class S, IO, 3.063s, 2036 | 2,762,009 | 174,421 |
| IFB Ser. 06-20, Class S, IO, 3.063s, 2036 | 11,326,045 | 708,773 |
| IFB Ser. 06-11, Class ST, IO, 3.053s, 2036 | 1,680,734 | 99,418 |
| IFB Ser. 07-26, Class SW, IO, 3.013s, 2037 | 18,924,233 | 1,083,185 |
| IFB Ser. 07-27, Class SD, IO, 3.013s, 2037 | 1,833,807 | 106,656 |
| IFB Ser. 07-19, Class SJ, IO, 3.013s, 2037 | 3,203,003 | 175,432 |
| IFB Ser. 07-23, Class ST, IO, 3.013s, 2037 | 3,763,316 | 203,716 |
| IFB Ser. 07-8, Class SA, IO, 3.013s, 2037 | 1,349,848 | 78,563 |
| IFB Ser. 07-9, Class CI, IO, 3.013s, 2037 | 4,965,729 | 281,374 |
| IFB Ser. 07-7, Class EI, IO, 3.013s, 2037 | 1,927,463 | 107,658 |
| IFB Ser. 07-7, Class JI, IO, 3.013s, 2037 | 4,965,443 | 273,099 |
| IFB Ser. 07-1, Class S, IO, 3.013s, 2037 | 4,107,166 | 225,787 |
| IFB Ser. 07-3, Class SA, IO, 3.013s, 2037 | 3,925,837 | 219,655 |
| IFB Ser. 07-73, Class MI, IO, 2.813s, 2037 | 22,118,646 | 985,629 |
| IFB Ser. 07-67, Class EI, IO, 0.02s, 2037 | 14,849,535 | 11,446 |
| IFB Ser. 07-67, Class GI, IO, 0.02s, 2037 | 43,482,064 | 33,459 |
| Ser. 07-73, Class MO, PO, zero %, 2037 | 1,700,953 | 1,393,834 |
| FRB Ser. 07-73, Class KI, IO, zero %, 2037 | 17,013,443 | 259,047 |
| FRB Ser. 07-73, Class KM, zero %, 2037 | 1,701,735 | 1,724,988 |
| FRB Ser. 07-49, Class UF, zero %, 2037 | 218,107 | 216,095 |
| FRB Ser. 07-35, Class UF, zero %, 2037 | 355,701 | 358,086 |
| FRB Ser. 07-22, Class TA, zero %, 2037 | 291,951 | 300,013 |
|
| Greenwich Capital Commercial | | |
| Funding Corp. FRB Ser. 05-GG5, | | |
| Class A5, 5.224s, 2037 | 99,000 | 91,298 |
|
| GS Mortgage Securities Corp. II | | |
| Ser. 06-GG6, Class A2, 5.506s, 2038 | 1,254,000 | 1,223,528 |
| Ser. 05-GG4, Class A4, 4.761s, 2039 | 558,000 | 504,516 |
|
| GSR Mortgage Loan Trust | | |
| Ser. 05-AR2, Class 2A1, 4.836s, 2035 | 4,851,003 | 4,074,842 |
|
23
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| JPMorgan Chase Commercial Mortgage | | |
| Securities Corp. | | |
| FRB Ser. 07-LD12, Class AM, 6.261s, 2051 | $313,000 | $257,101 |
| FRB Ser. 07-LD12, Class A3, 6.189s, 2051 | 991,000 | 928,755 |
| FRB Ser. 07-LD11, Class AM, 6.007s, 2049 | 182,000 | 147,307 |
| FRB Ser. 04-PNC1, Class A4, 5.539s, 2041 | 214,000 | 203,150 |
| FRB Ser. 07-LDPX, Class AM, 5.464s, 2049 | 186,000 | 146,795 |
| Ser. 07-LDPX, Class A3, 5.42s, 2049 | 8,865,000 | 7,633,563 |
| Ser. 05-CB12, Class A4, 4.895s, 2037 | 562,000 | 509,959 |
| Ser. 04-C3, Class A5, 4.878s, 2042 | 532,000 | 485,610 |
|
| LB-UBS Commercial Mortgage Trust | | |
| Ser. 01-C3, Class A2, 6.365s, 2028 | 189,000 | 187,395 |
| Ser. 07-C6, Class A2, 5.845s, 2012 | 313,000 | 293,919 |
| FRB Ser. 04-C4, Class A4, 5.294s, 2029 | 103,000 | 95,728 |
|
| Lehman Mortgage Trust | | |
| IFB Ser. 07-5, Class 4A3, 20.839s, 2037 | 1,561,728 | 1,405,555 |
| IFB Ser. 07-5, Class 8A2, IO, 4.513s, 2036 | 3,019,105 | 269,428 |
| Ser. 07-1, Class 3A2, IO, 4.043s, 2037 | 3,588,525 | 377,093 |
| IFB Ser. 06-9, Class 3A2, IO, 4.023s, 2037 | 1,865,070 | 171,201 |
| IFB Ser. 07-4, Class 3A2, IO, 3.993s, 2037 | 2,721,018 | 226,438 |
| IFB Ser. 06-5, Class 2A2, IO, 3.943s, 2036 | 6,389,252 | 463,221 |
| IFB Ser. 07-4, Class 2A2, IO, 3.463s, 2037 | 9,931,183 | 715,045 |
| Ser. 06-9, Class 2A3, IO, 3.413s, 2036 | 5,760,655 | 458,489 |
| IFB Ser. 06-9, Class 2A2, IO, 3.413s, 2037 | 4,320,986 | 337,879 |
| IFB Ser. 06-8, Class 2A2, IO, 3.373s, 2036 | 19,789,674 | 1,385,277 |
| IFB Ser. 06-7, Class 2A4, IO, 3.343s, 2036 | 5,884,339 | 411,904 |
| IFB Ser. 06-7, Class 2A5, IO, 3.343s, 2036 | 6,450,290 | 451,520 |
| IFB Ser. 06-6, Class 1A2, IO, 3.293s, 2036 | 2,689,672 | 188,277 |
| IFB Ser. 06-6, Class 1A3, IO, 3.293s, 2036 | 4,757,756 | 333,043 |
| IFB Ser. 07-5, Class 10A2, IO, 3.133s, 2037 | 5,452,316 | 354,401 |
|
| Merrill Lynch Mortgage Trust | | |
| FRB Ser. 04-BPC1, Class A5, 4.855s, 2041 | 544,000 | 497,002 |
| FRB Ser. 05-MCP1, Class A4, 4.747s, 2043 | 528,000 | 476,362 |
|
| | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (39.8%)* cont. | amount | Value |
|
| Morgan Stanley Capital I | | |
| FRB Ser. 08-T29, Class A3, 6.458s, 2043 | $634,000 | $618,061 |
| FRB Ser. 07-IQ14, Class AM, 5.877s, 2049 | 69,000 | 54,727 |
| Ser. 05-HQ6, Class A4A, 4.989s, 2042 | 99,000 | 93,793 |
|
| Permanent Financing PLC 144A FRB | | |
| Ser. 9A, Class 3A, 2.917s, 2033 (United Kingdom) 815,000 | 737,745 |
|
| Permanent Master Issuer PLC FRB | | |
| Ser. 07-1, Class 4A, 2.871s, 2033 | | |
| (United Kingdom) | 981,000 | 935,629 |
|
| Structured Adjustable Rate Mortgage Loan Trust | | |
| FRB Ser. 07-8, Class 1A2, 6 1/4s, 2037 | 8,859,276 | 5,669,937 |
| FRB Ser. 05-18, Class 6A1, 5.256s, 2035 | 6,440,488 | 5,023,581 |
| Ser. 04-20, Class 1A2, 5.192s, 2035 | 261,812 | 189,391 |
|
| Structured Asset Securities Corp. | | |
| IFB Ser. 07-4, Class 1A3, IO, 2.541s, 2037 | 49,008,876 | 3,001,794 |
| Ser. 07-4, Class 1A4, IO, 1s, 2037 | 51,918,134 | 1,218,373 |
|
| Structured Asset Securities Corp. | | |
| 144A Ser. 07-RF1, Class 1A, IO, 3.317s, 2037 | 7,840,495 | 343,022 |
|
| Terwin Mortgage Trust 144A FRB | | |
| Ser. 06-9HGA, Class A1, 3.287s, 2037 | 1,440,960 | 1,341,822 |
|
| Wachovia Bank Commercial Mortgage | | |
| Trust Ser. 07-C30, Class A3, 5.246s, 2043 | 796,000 | 735,086 |
|
| Wells Fargo Mortgage Backed Securities Trust | | |
| Ser. 06-AR10, Class 3A1, 5.005s, 2036 | 827,898 | 676,742 |
| Ser. 05-AR2, Class 2A1, 4.548s, 2035 | 4,019,576 | 3,299,224 |
| Ser. 05-AR9, Class 1A2, 4.372s, 2035 | 172,261 | 89,576 |
| Ser. 04-R, Class 2A1, 4.363s, 2034 | 3,898,645 | 3,594,520 |
| Total collateralized mortgage obligations | | |
| (cost $462,915,657) | | $483,749,849 |
| | | |
| PURCHASED OPTIONS OUTSTANDING (6.8%)* | Expiration date/ | Contract | |
| | strike price | amount | Value |
|
| Option on an interest rate swap with Deutschbank for the right to pay a fixed rate of 5.385% | | | |
| versus the three month USD-LIBOR-BBA maturing April 16, 2019. | Apr-09/5.385 | $174,122,000 | $1,931,013 |
|
| Option on an interest rate swap with Deutschbank for the right to receive a fixed rate | | | |
| of 5.385% versus the three month USD-LIBOR-BBA maturing April 16, 2019. | Apr-09/5.385 | 174,122,000 | 12,951,194 |
|
| Option on an interest rate swap with Goldman Sachs International for the right to receive a | | | |
| fixed rate of 5.325% versus the three month USD-LIBOR-BBA maturing April 08, 2019. | Apr-09/5.325 | 164,692,000 | 11,628,902 |
|
| Option on an interest rate swap with Goldman Sachs International for the right to pay a fixed | | | |
| rate of 5.325% versus the three month USD-LIBOR-BBA maturing April 08, 2019. | Apr-09/5.325 | 164,692,000 | 1,636,528 |
|
| Option on an interest rate swap with Goldman Sachs International for the right to receive a | | | |
| fixed rate of 5.355% versus the three month USD-LIBOR-BBA maturing November 12, 2019. | Nov-09/5.355 | 84,411,000 | 5,961,949 |
|
| Option on an interest rate swap with Goldman Sachs International for the right to pay a fixed | | | |
| rate of 5.355% versus the three month USD-LIBOR-BBA maturing on November 12, 2019. | Nov-09/5.355 | 84,411,000 | 1,706,503 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to receive a | | | |
| fixed rate of 4.83% versus the three month USD-LIBOR-BBA maturing on November 10, 2018. | Nov-08/4.830 | 62,361,000 | 2,097,200 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to pay a fixed | | | |
| rate of 4.83% versus the three month USD-LIBOR-BBA maturing on November 10, 2018. | Nov-08/4.830 | 62,361,000 | 483,921 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to pay a fixed | | | |
| rate of 5.315% versus the three month USD-LIBOR-BBA maturing on April 08, 2019. | Apr-09/5.315 | 164,692,000 | 1,801,253 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to receive a | | | |
| fixed rate of 5.315% versus the three month USD-LIBOR-BBA maturing on April 08, 2019. | Apr-09/5.315 | 164,692,000 | 11,526,793 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to pay a fixed | | | |
| rate of 5.355% versus the three month USD-LIBOR-BBA maturing November 12, 2019. | Nov-09/5.355 | 84,411,000 | 1,817,369 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to receive a | | | |
| fixed rate of 5.355% versus the three month USD-LIBOR-BBA maturing on November 12, 2019. | Nov-09/5.355 | 84,411,000 | 5,961,949 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to receive a | | | |
| fixed rate of 5.355% versus the three month USD-LIBOR-BBA maturing on November 12, 2019. | Nov-09/5.355 | 213,467,000 | 15,068,636 |
|
24
| | | |
| PURCHASED OPTIONS OUTSTANDING (6.8%)* cont. | Expiration date/ | Contract | |
| | strike price | amount | Value |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to pay a fixed | | | |
| rate of 5.355% versus the three month USD-LIBOR-BBA maturing November 12, 2019. | Nov-09/5.355 | $213,467,000 | $4,589,541 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to pay a fixed | | | |
| rate of 5.03% versus the three month USD-LIBOR-BBA maturing on February 16, 2020. | Feb-10/5.03 | 34,320,000 | 1,203,602 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to receive a | | | |
| fixed rate of 5.03% versus the three month USD-LIBOR-BBA maturing on February 16, 2020. | Feb-10/5.03 | 34,320,000 | 1,888,630 |
|
| Total purchased options outstandings (cost $62,327,700) | | | $82,254,983 |
| | | |
| | |
| ASSET-BACKED | Principal | |
| SECURITIES (0.4%)* | amount | Value |
|
| Ace Securities Corp. FRB | | |
| Ser. 06-HE3, Class A2C, 3.357s, 2036 | $32,000 | $18,931 |
|
| Argent Securities, Inc. FRB | | |
| Ser. 06-W4, Class A2C, 3.367s, 2036 | 100,000 | 60,500 |
|
| Fremont Home Loan Trust FRB | | |
| Ser. 06-2, Class 2A3, 3.377s, 2036 | 131,000 | 95,630 |
|
| GSAMP Trust FRB Ser. 06-HE5, | | |
| Class A2C, 3.357s, 2036 | 196,000 | 120,089 |
|
| Lehman XS Trust | | |
| IFB Ser. 07-3, Class 4B, IO, 3.483s, 2037 | 3,853,198 | 251,694 |
| FRB Ser. 07-6, Class 2A1, 3.417s, 2037 | 407,481 | 263,563 |
|
| | |
| ASSET-BACKED | Principal | |
| SECURITIES (0.4%)* cont. | amount | Value |
|
| Long Beach Mortgage Loan Trust FRB | | |
| Ser. 06-1, Class 2A3, 3.397s, 2036 | $45,000 | $33,750 |
|
| Residential Asset Mortgage Products, Inc. | | |
| FRB Ser. 06-RZ2, Class A2, 3.377s, 2036 | 5,138,000 | 4,330,528 |
| FRB Ser. 07-RZ1, Class A2, 3.367s, 2037 | 49,000 | 37,608 |
|
| Securitized Asset Backed | | |
| Receivables, LLC FRB Ser. 07-NC2, | | |
| Class A2B, 3.347s, 2037 | 46,000 | 26,910 |
|
| Soundview Home Equity Loan Trust | | |
| FRB Ser. 06-3, Class A3, 3.367s, 2036 | 196,000 | 157,052 |
|
| |
| Total asset-backed securities (cost $6,402,618) | | $5,396,255 |
| | | |
| | |
| SHORT-TERM INVESTMENTS (31.5%)* | Principal amount/shares | Value |
|
| Federal Home Loan Bank, for an effective yield of 2.81%, July 14, 2009 | $17,000,000 | $16,631,298 |
|
| Federal Home Loan Bank, for an effective yield of 2.35%, October 22, 2008 | 85,000,000 | 84,883,479 |
|
| Federated Prime Obligations Fund | 138,516,539 | 138,516,539 |
|
| Interest in $194,500,000 joint triparty repurchase agreement dated September 30, 2008 | | |
| with Bank of America Sec. LLC. due October 1, 2008 — maturity value of $126,707,919 for an | | |
| effective yield of 2.25% (collateralized by various mortgage backed securities with a coupon rate | | |
| of 5.00% and a due date of August 1, 2033 valued at $198,390,000) | $126,700,000 | 126,700,000 |
|
| U.S. Treasury Bills 0.30%, October 30, 2008 # | 2,700,000 | 2,699,349 |
|
| U.S. Treasury Bills 0.10%, October 9, 2008 # | 14,000,000 | 13,999,689 |
|
| Total short-term investments (cost $383,430,354) | | $383,430,354 |
|
| |
| TOTAL INVESTMENTS | | |
|
| Total investments (cost $2,067,020,798) | | $2,110,240,832 |
* Percentages indicated are based on net assets of $1,215,743,376.
# These securities were pledged and segregated with the custodian to cover margin requirements for futures contracts at September 30, 2008.
At September 30, 2008, liquid assets totaling $668,038,867 have been designated as collateral for open forward commitments.
144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
TBA after the name of a security represents to be announced securities (Note 1).
The rates shown on Floating Rate Bonds (FRB) are the current interest rates at September 30, 2008.
The dates shown on debt obligations are the original maturity dates.
Inverse Floating Rate Bonds (IFB) are securities that pay interest rates that vary inversely to changes in the market interest rates. As interest rates rise, inverse floaters produce less current income. The interest rates shown are the current interest rates at September 30, 2008.
25
| | | | | |
| FUTURES CONTRACTS OUTSTANDING at 9/30/08 | Number of | | | Expiration | Unrealized appreciation/ |
| | contracts | Value | | date | (depreciation) |
|
| Euro-Dollar 90 day (Short) | 486 | $117,806,400 | | Jun-09 | $364,003 |
|
| Euro-Dollar 90 day (Short) | 1,511 | 365,945,313 | | Sep-09 | 562,653 |
|
| Euro-Dollar 90 day (Short) | 1,553 | 374,894,200 | | Dec-09 | 915,866 |
|
| Euro-Dollar 90 day (Short) | 82 | 19,762,000 | | Mar-10 | (16,286) |
|
| U.S. Treasury Bond 20 yr (Long) | 1,663 | 194,856,828 | | Dec-08 | 339,850 |
|
| U.S. Treasury Note 2 yr (Short) | 6,535 | 1,394,814,063 | | Dec-08 | (8,705,190) |
|
| U.S. Treasury Note 5 yr (Short) | 10,750 | 1,206,519,531 | | Dec-08 | (5,969,984) |
|
| U.S. Treasury Note 10 yr (Long) | 5,494 | 629,749,750 | | Dec-08 | (546,187) |
|
| Total | | | | | $(13,055,275) |
| | | |
| | | | |
| WRITTEN OPTIONS OUTSTANDING at 9/30/08 (premiums received $42,693,870) | Contract | | Expiration date/ | |
| | amount | | strike price | Value |
|
| Option on an interest rate swap with Bank of America, N.A. for the obligation to pay a fixed | | | | |
| rate of 5.89% versus the three month USD-LIBOR-BBA maturing on July 15, 2019. | $139,701,000 | | Jul-09/5.89 | $14,745,441 |
|
| Option on an interest rate swap with Bank of America, N.A. for the obligation to receive a fixed | | | | |
| rate of 5.89% versus the three month USD-LIBOR-BBA maturing on July 15, 2019. | 139,701,000 | | Jul-09/5.89 | 1,160,915 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to pay a fixed | | | | |
| rate of 5.00% versus the three month USD-LIBOR-BBA maturing on December 19, 2018. | 33,865,000 | | Dec-08/5.00 | 1,618,408 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to receive a | | | | |
| fixed rate of 5.00% versus the three month USD-LIBOR-BBA maturing on December 19, 2018. | 33,865,000 | | Dec-08/5.00 | 323,411 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to pay a | | | | |
| fixed rate of 5.32% versus the three month USD-LIBOR-BBA maturing on January 9, 2022. | 391,998,000 | | Jan-12/5.32 | 27,236,021 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to receive a | | | | |
| fixed rate of 5.32% versus the three month USD-LIBOR-BBA maturing on January 9, 2022. | 391,998,000 | | Jan-12/5.32 | 17,541,911 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to pay a fixed | | | | |
| rate of 5.51% versus the three month USD-LIBOR-BBA maturing on May 14, 2022. | 1,473,000 | | May-12/5.51 | 113,421 |
|
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to receive a | | | | |
| fixed rate of 5.51% versus the three month USD-LIBOR-BBA maturing on May 14, 2022. | 1,473,000 | | May-12/5.51 | 60,422 |
|
| Total | | | | $62,799,950 |
| | | |
| | | | |
| TBA SALE COMMITMENTS OUTSTANDING at 9/30/08 (proceeds receivable $110,344,844) | Principal | | Settlement | |
| Agency | amount | | date | Value |
|
| FNMA, 5s, October 1, 2038 | $21,000,000 | | 10/14/08 | $20,438,905 |
|
| FNMA, 5 1/2s, October 1, 2038 | 68,000,000 | | 10/14/08 | 67,723,751 |
|
| FNMA, 6s, October 1, 2038 | 21,000,000 | | 10/14/08 | 21,252,655 |
|
| Total | | | | $109,415,311 |
| | | |
INTEREST RATE SWAP CONTRACTS OUTSTANDING at 9/30/08
| | | | | | | | |
| | | | Upfront | | | | | |
| | | | premium | | | | | |
| Swap | Notional | | received | | Termination | Payments made by | Payments received by | Unrealized appreciation/ |
| counterparty | amount | | (paid) | | date | fund per annum | fund per annum | (depreciation) |
|
| Bank of America, N.A. | | | | | | |
| | $95,668,000 | | $— | | 5/23/10 | 3 month USD-LIBOR-BBA | 3.155% | $633,049 |
|
| | 59,300,000 | | — | | 7/18/13 | 4.14688% | 3 month USD-LIBOR-BBA | (348,498) |
|
| | 1,000,000 | | — | | 7/29/18 | 3 month USD-LIBOR-BBA | 4.75% | 25,105 |
|
| | 28,857,000 | | — | | 8/26/18 | 3 month USD-LIBOR-BBA | 4.54375% | 212,298 |
|
| | 429,688,000 | | — | | 9/10/10 | 3 month USD-LIBOR-BBA | 3.22969% | (824,655) |
|
| | 131,167,000 | | — | | 9/15/10 | 3.08% | 3 month USD-LIBOR-BBA | 635,358 |
|
| | 172,768,000 | | — | | 9/18/38 | 4.36125% | 3 month USD-LIBOR-BBA | 8,946,575 |
|
| | 2,000,000 | | — | | 9/19/18 | 3 month USD-LIBOR-BBA | 4.07% | (64,488) |
|
| | 107,524,000 | | 335,632 | | 10/1/18 | 3 month USD-LIBOR-BBA | 4.30% | (1,320,238) |
|
| | 261,042,000 | | — | | 9/24/09 | 3 month USD-LIBOR-BBA | 4.7375% | 3,889,381 |
|
| | 26,940,000 | | — | | 9/1/15 | 3 month USD-LIBOR-BBA | 4.53% | 443,030 |
|
| | 5,601,000 | | — | | 5/8/28 | 4.95% | 3 month USD-LIBOR-BBA | (281,387) |
|
26
INTEREST RATE SWAP CONTRACTS OUTSTANDING at 9/30/08 cont.
| | | | | | | | |
| | | | Upfront | | | | | |
| | | | premium | | | | | |
| Swap | Notional | | received | | Termination | Payments made by | Payments received by | Unrealized appreciation/ |
| counterparty | amount | | (paid) | | date | fund per annum | fund per annum | (depreciation) |
|
| Citibank, N.A. | | | | | | | |
| | $39,322,000 | | $— | | 4/3/18 | 4.18% | 3 month USD-LIBOR-BBA | $347,251 |
|
| | 116,000,000 | | — | | 6/28/15 | 3 month USD-LIBOR-BBA | 4.335% | 1,572,791 |
|
| | 108,000,000 | | — | | 7/21/18 | 4.80625% | 3 month USD-LIBOR-BBA | (3,220,883) |
|
| | 66,593,000 | | — | | 8/26/10 | 3 month USD-LIBOR-BBA | 3.34125% | 22,496 |
|
| | 131,500,000 | | — | | 4/6/09 | 3 month USD-LIBOR-BBA | 5.264% | 3,645,620 |
|
| | 36,333,000 | | — | | 9/8/18 | 3 month USD-LIBOR-BBA | 4.3152% | (417,885) |
|
| | 97,969,000 | | — | | 9/10/10 | 3 month USD-LIBOR-BBA | 3.1825% | (276,931) |
|
| | 112,563,000 | | — | | 9/16/10 | 3.175% | 3 month USD-LIBOR-BBA | 340,116 |
|
| | 5,189,000 | | — | | 9/16/18 | 3 month USD-LIBOR-BBA | 4.355% | (44,002) |
|
| | 320,651,000 | | — | | 9/17/13 | 3 month USD-LIBOR-BBA | 3.4975% | (7,998,661) |
|
| | 167,009,000 | | — | | 9/18/38 | 4.45155% | 3 month USD-LIBOR-BBA | 6,217,936 |
|
| | 78,761,000 | | — | | 10/26/12 | 4.6275% | 3 month USD-LIBOR-BBA | (3,124,476) |
|
| | 64,673,000 | | — | | 11/9/17 | 5.0825% | 3 month USD-LIBOR-BBA | (4,176,416) |
|
| | 97,880,000 | | — | | 11/23/17 | 4.885% | 3 month USD-LIBOR-BBA | (4,754,840) |
|
| | 20,090,000 | | — | | 11/9/17 | 3 month USD-LIBOR-BBA | 5.07641% | 1,287,637 |
|
| | 406,233,000 | | — | | 12/24/09 | 3 month USD-LIBOR-BBA | 3.8675% | 7,161,493 |
|
| | 76,462,000 | | — | | 12/24/27 | 4.9425% | 3 month USD-LIBOR-BBA | (3,456,507) |
|
| Credit Suisse International | | | | | | | |
| | 218,000 | | — | | 8/29/12 | 5.04556% | 3 month USD-LIBOR-BBA | (9,396) |
|
| | 97,902,000 | | — | | 9/18/38 | 4.41338% | 3 month USD-LIBOR-BBA | 4,246,492 |
|
| | 211,112,000 | | — | | 9/19/13 | 3.635% | 3 month USD-LIBOR-BBA | 4,099,619 |
|
| | 39,018,000 | | — | | 9/22/18 | 4.22% | 3 month USD-LIBOR-BBA | 804,002 |
|
| | 16,826,000 | F | — | | 9/23/10 | 3 month USD-LIBOR-BBA | 3.32% | (25,415) |
|
| | 22,435,000 | F | — | | 9/23/38 | 4.7375% | 3 month USD-LIBOR-BBA | (221,023) |
|
| | 4,935,000 | | — | | 9/28/16 | 5.10886% | 3 month USD-LIBOR-BBA | (242,775) |
|
| Deutsche Bank AG | | | | | | | |
| | 53,000,000 | | — | | 7/10/13 | 3 month USD-LIBOR-BBA | 4.149% | 321,856 |
|
| | 319,758,000 | | — | | 9/24/10 | 3 month USD-LIBOR-BBA | 3.395% | 41,058 |
|
| Goldman Sachs International | | | | | | | |
| | 20,776,000 | | — | | 3/11/38 | 5.029% | 3 month USD-LIBOR-BBA | (1,159,680) |
|
| | 232,062,000 | | — | | 3/14/13 | 3 month USD-LIBOR-BBA | 3.37125% | (5,719,039) |
|
| | 53,070,000 | | — | | 4/2/18 | 4.076% | 3 month USD-LIBOR-BBA | 923,331 |
|
| | 72,850,000 | | — | | 4/3/18 | 3 month USD-LIBOR-BBA | 4.19% | (582,911) |
|
| | 30,079,000 | | — | | 4/23/18 | 4.43% | 3 month USD-LIBOR-BBA | (341,589) |
|
| | 1,033,000 | | — | | 5/19/18 | 4.525% | 3 month USD-LIBOR-BBA | (18,963) |
|
| | 3,112,000 | | — | | 10/19/16 | 5.32413% | 3 month USD-LIBOR-BBA | (256,554) |
|
| | 23,700,000 | | — | | 7/25/09 | 5.327% | 3 month USD-LIBOR-BBA | (491,473) |
|
| | 263,665,000 | | — | | 11/20/08 | 5.16% | 3 month USD-LIBOR-BBA | (4,898,456) |
|
| | 59,363,000 | | — | | 11/20/26 | 3 month USD-LIBOR-BBA | 5.261% | 5,268,221 |
|
| | 256,010,000 | | — | | 11/21/08 | 5.0925% | 3 month USD-LIBOR-BBA | (4,669,080) |
|
| | 56,785,000 | | — | | 11/21/26 | 3 month USD-LIBOR-BBA | 5.2075% | 4,653,142 |
|
| | 8,486,000 | | — | | 12/20/16 | 3 month USD-LIBOR-BBA | 5.074% | 522,181 |
|
| | 80,460,000 | | — | | 1/8/12 | 3 month USD-LIBOR-BBA | 4.98% | 3,226,094 |
|
| | 150,000,000 | | — | | 11/6/09 | 4.365% | 3 month USD-LIBOR-BBA | (3,784,291) |
|
| | 2,510,000 | | — | | 11/9/17 | 3 month USD-LIBOR-BBA | 5.071% | 159,817 |
|
| | 5,187,000 | | — | | 5/3/16 | 5.565% | 3 month USD-LIBOR-BBA | (504,060) |
|
| | 63,528,600 | | — | | 9/19/09 | 3 month USD-LIBOR-BBA | 4.763% | 988,304 |
|
| | 122,399,100 | | — | | 9/21/09 | 3 month USD-LIBOR-BBA | 4.60% | 1,651,049 |
|
| | 34,089,300 | | — | | 9/21/17 | 5.149% | 3 month USD-LIBOR-BBA | (1,846,151) |
|
| | 1,370,000 | | — | | 11/9/17 | 3 month USD-LIBOR-BBA | 5.08% | 88,197 |
|
27
INTEREST RATE SWAP CONTRACTS OUTSTANDING at 9/30/08 cont.
| | | | | | | | |
| | | | Upfront | | | | | |
| | | | premium | | | | | |
| Swap | Notional | | received | | Termination | Payments made by | Payments received by | Unrealized appreciation/ |
| counterparty | amount | | (paid) | | date | fund per annum | fund per annum | (depreciation) |
|
| JPMorgan Chase Bank, N.A. | | | | | | | |
| | $12,154,000 | | $— | | 2/19/18 | 3 month USD-LIBOR-BBA | 4.585% | $150,883 |
|
| | 8,838,000 | | — | | 3/5/18 | 4.325% | 3 month USD-LIBOR-BBA | 70,670 |
|
| | 23,290,000 | | — | | 3/7/18 | 4.45% | 3 month USD-LIBOR-BBA | (37,837) |
|
| | 12,985,000 | | — | | 3/11/38 | 5.0025% | 3 month USD-LIBOR-BBA | (669,682) |
|
| | 46,257,000 | | — | | 3/11/38 | 5.03% | 3 month USD-LIBOR-BBA | (2,588,950) |
|
| | 22,877,000 | | — | | 3/14/18 | 4.775% | 3 month USD-LIBOR-BBA | (610,803) |
|
| | 522,558,000 | | — | | 3/22/10 | 3 month USD-LIBOR-BBA | 2.23% | (7,730,429) |
|
| | 172,502,000 | | — | | 3/26/10 | 3 month USD-LIBOR-BBA | 2.33375% | (2,414,800) |
|
| | 22,000,000 | | — | | 1/17/16 | 4.946% | 3 month USD-LIBOR-BBA | (944,418) |
|
| | 3,373,000 | | — | | 9/18/16 | 5.291% | 3 month USD-LIBOR-BBA | (216,587) |
|
| | 10,001,000 | | — | | 5/7/13 | 3.9325% | 3 month USD-LIBOR-BBA | (73,101) |
|
| | 156,701,000 | | — | | 5/16/18 | 4.53% | 3 month USD-LIBOR-BBA | (2,986,230) |
|
| | 159,447,000 | | — | | 5/23/10 | 3 month USD-LIBOR-BBA | 3.16% | 1,070,675 |
|
| | 31,000,000 | | — | | 6/13/13 | 4.47% | 3 month USD-LIBOR-BBA | (966,804) |
|
| | 14,100,000 | | — | | 6/27/17 | 3 month USD-LIBOR-BBA | 5.712% | 1,520,055 |
|
| | 53,690,000 | | — | | 10/10/13 | 5.054% | 3 month USD-LIBOR-BBA | (3,233,427) |
|
| | 74,700,000 | | — | | 10/10/13 | 5.09% | 3 month USD-LIBOR-BBA | (4,646,714) |
|
| | 24,000,000 | | — | | 6/27/18 | 3 month USD-LIBOR-BBA | 4.8305% | 955,766 |
|
| | 58,000,000 | | — | | 7/10/13 | 3 month USD-LIBOR-BBA | 4.176% | 423,603 |
|
| | 145,200,000 | | — | | 7/15/13 | 3 month USD-LIBOR-BBA | 4.012% | (38,708) |
|
| | 81,179,000 | | — | | 7/16/10 | 3 month USD-LIBOR-BBA | 3.384% | 97,508 |
|
| | 40,664,000 | | — | | 7/22/10 | 3 month USD-LIBOR-BBA | 3.565% | 191,900 |
|
| | 362,476,000 | | — | | 7/28/10 | 3 month USD-LIBOR-BBA | 3.5141% | 1,353,176 |
|
| | 315,948,000 | | — | | 8/28/18 | 5.395% | 3 month USD-LIBOR-BBA | (24,177,009) |
|
| | 406,381,000 | | — | | 9/15/10 | 3.11% | 3 month USD-LIBOR-BBA | 1,731,409 |
|
| | 59,195,000 | | — | | 11/20/26 | 3 month USD-LIBOR-BBA | 5.266% | 5,290,497 |
|
| | 94,588,000 | | — | | 9/15/18 | 4.2145% | 3 month USD-LIBOR-BBA | 1,876,594 |
|
| | 13,500,000 | | — | | 3/30/16 | 3 month USD-LIBOR-BBA | 5.2755% | 806,248 |
|
| | 7,464,000 | | — | | 12/19/16 | 5.0595% | 3 month USD-LIBOR-BBA | (453,172) |
|
| | 31,579,000 | | — | | 1/19/09 | 5.24% | 3 month USD-LIBOR-BBA | (276,202) |
|
| | 180,867,000 | | — | | 1/31/17 | 3 month USD-LIBOR-BBA | 5.415% | 13,701,642 |
|
| | 75,863,000 | | — | | 3/8/17 | 3 month USD-LIBOR-BBA | 5.28% | 4,926,153 |
|
| | 7,925,000 | | — | | 8/2/15 | 3 month USD-LIBOR-BBA | 4.6570% | 197,939 |
|
| | 19,300,000 | | — | | 8/13/12 | 3 month USD-LIBOR-BBA | 5.2% | 947,767 |
|
| | 430,000 | | — | | 8/29/17 | 5.263% | 3 month USD-LIBOR-BBA | (27,779) |
|
| | 48,000,000 | | — | | 9/11/09 | 3 month USD-LIBOR-BBA | 4.643% | 709,143 |
|
| | 26,000,000 | | — | | 9/11/17 | 3 month USD-LIBOR-BBA | 5.01% | 1,175,400 |
|
| | 38,670,000 | | — | | 9/11/27 | 5.27% | 3 month USD-LIBOR-BBA | (2,984,247) |
|
| | 122,399,100 | | — | | 9/21/09 | 3 month USD-LIBOR-BBA | 4.6125% | 1,666,120 |
|
| | 34,089,300 | | — | | 9/21/17 | 5.15% | 3 month USD-LIBOR-BBA | (1,848,886) |
|
| | 62,935,000 | | — | | 11/9/09 | 4.3975% | 3 month USD-LIBOR-BBA | (1,632,250) |
|
| | 64,673,000 | | — | | 11/9/17 | 5.0895% | 3 month USD-LIBOR-BBA | (4,212,479) |
|
| | 702,353,000 | | — | | 12/11/17 | 3 month USD-LIBOR-BBA | 4.65% | 20,596,024 |
|
| | 76,462,000 | | — | | 12/24/27 | 4.9675% | 3 month USD-LIBOR-BBA | (3,704,807) |
|
| | 15,900,000 | | — | | 8/4/16 | 3 month USD-LIBOR-BBA | 5.5195% | 1,295,249 |
|
| | 65,600,000 | | — | | 9/2/15 | 3 month USD-LIBOR-BBA | 4.4505% | 764,306 |
|
| | 65,000,000 | | — | | 10/21/15 | 4.916% | 3 month USD-LIBOR-BBA | (3,469,465) |
|
| | 59,064,000 | | — | | 1/18/18 | 4.27625% | 3 month USD-LIBOR-BBA | 635,576 |
|
| | 68,587,000 | | — | | 1/24/18 | 4.135% | 3 month USD-LIBOR-BBA | 1,512,603 |
|
| | 91,449,000 | | — | | 1/24/18 | 4.175% | 3 month USD-LIBOR-BBA | 1,731,069 |
|
| | 91,449,000 | | — | | 1/24/18 | 4.1625% | 3 month USD-LIBOR-BBA | 1,820,073 |
|
28
INTEREST RATE SWAP CONTRACTS OUTSTANDING at 9/30/08 cont.
| | | | | | | | |
| | | | Upfront | | | | | |
| | | | premium | | | | | |
| Swap | Notional | | received | | Termination | Payments made by | Payments received by | Unrealized appreciation/ |
| counterparty | amount | | (paid) | | date | fund per annum | fund per annum | (depreciation) |
|
| JPMorgan Chase Bank, N.A. cont. | | | | | | | |
| | $109,336,000 | | $— | | 1/31/18 | 3 month USD-LIBOR-BBA | 4.25% | $(1,425,597) |
|
| | 129,145,000 | | — | | 2/5/18 | 4.22% | 3 month USD-LIBOR-BBA | 2,021,810 |
|
| | 600,000 | | — | | 4/17/09 | 5.12% | 3 month USD-LIBOR-BBA | (15,705) |
|
| Merrill Lynch Capital Services, Inc. | | | | | | | |
| | 31,407,000 | | — | | 9/16/38 | 4.66% | 3 month USD-LIBOR-BBA | 107,186 |
|
| | 78,761,000 | | — | | 10/26/12 | 4.6165% | 3 month USD-LIBOR-BBA | (3,087,715) |
|
| | 50,776,000 | | — | | 7/22/10 | 3 month USD-LIBOR-BBA | 3.5375% | 212,572 |
|
| Morgan Stanley Capital Services, Inc. | | | | | | | |
| | 147,000 | | — | | 8/29/17 | 5.26021% | 3 month USD-LIBOR-BBA | (9,467) |
|
| | 2,915,000 | | — | | 2/20/17 | 5.192% | 3 month USD-LIBOR-BBA | (172,026) |
|
| Total | | | | | | | | $2,197,096 |
F Is valued at fair value following procedures approved by the Trustees.
TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 9/30/08
| | | | | | |
| | Termi- | | | |
| Swap | Notional | | nation | Fixed payments received (paid) | Total return received by | Unrealized |
| counterparty | amount | | date | by fund per annum | or paid by fund | depreciation |
|
| Goldman Sachs International | $33,040,000 | 1F | 12/2/08 | 20 bp plus change in spread of Banc of America | The spread return of Banc of | $(1,503,650) |
| | | | | Securities AAA 10 year Index multiplied by the | America Securities CMBS AAA | |
| | | | | modified duration factor | 10 year Index | |
|
| |
| |
| Merrill Lynch Capital Services | 643,813,457 | | 10/14/08 | (2.87%) 5.00% | FNMA 5.00% 30 YR TBA | (5,732,959) |
|
| |
| |
| |
| Total | | | | | | $(7,236,609) |
F Is valued at fair value following procedures approved by the Trustees.
1 Fund receives the net fixed and total return payment if positive and pays the net fixed and total return payment if negative.
The accompanying notes are an integral part of these financial statements.
29
Statement of assets and liabilities 9/30/08
| |
| ASSETS | |
|
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $2,067,020,798) | $2,110,240,832 |
|
| Cash | 17,965,910 |
|
| Interest and other receivables | 6,575,859 |
|
| Receivable for shares of the fund sold | 2,201,865 |
|
| Receivable for securities sold | 23,928,585 |
|
| Receivable for sales of delayed delivery securities (Note 1) | 110,563,316 |
|
| Receivable from Manager (Note 2) | 75,970 |
|
| Unrealized appreciation on swap contracts (Note 1) | 131,933,115 |
|
| Receivable for variation margin (Note 1) | 17,631,944 |
|
| Receivable for open swap contracts (Note 1) | 335,632 |
|
| Total assets | 2,421,453,028 |
|
| |
| LIABILITIES | |
|
| Payable for securities purchased | 42,249,816 |
|
| Payable for purchases of delayed delivery securities (Note 1) | 780,538,808 |
|
| Payable for shares of the fund repurchased | 8,978,495 |
|
| Payable for compensation of Manager (Notes 2 and 5) | 1,573,090 |
|
| Payable for investor servicing fees (Note 2) | 175,758 |
|
| Payable for Trustee compensation and expenses (Note 2) | 357,651 |
|
| Payable for administrative services (Note 2) | 2,505 |
|
| Payable for distribution fees (Note 2) | 804,084 |
|
| Payable for closed swap contracts (Note 1) | 60,856,798 |
|
| Payable for receivable purchase agreement (Note 2) | 515,966 |
|
| Written options outstanding, at value | |
| (premiums received $42,693,870) (Notes 1 and 3) | 62,799,950 |
|
| Unrealized depreciation on swap contracts (Note 1) | 136,972,628 |
|
| Premiums received on swap contracts (Note 1) | 335,632 |
|
| TBA sales commitments, at value | |
| (proceeds receivable $110,344,844) (Note 1) | 109,415,311 |
|
| Other accrued expenses | 133,160 |
|
| Total liabilities | 1,205,709,652 |
| |
| Net assets | $1,215,743,376 |
|
| |
| REPRESENTED BY | |
|
| Paid-in capital (Unlimited shares authorized) | |
| (Notes 1, 4 and 6) | $1,305,800,473 |
|
| Undistributed net investment income (Notes 1 and 6) | 32,588,826 |
|
| Accumulated net realized loss on investments (Notes 1 and 6) | (129,334,985) |
|
| Net unrealized appreciation of investments (Note 6) | 6,689,062 |
|
| Total — Representing net assets applicable to | |
| capital shares outstanding | $1,215,743,376 |
|
| |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE |
|
| Net asset value and redemption price per class A share | |
| ($1,057,520,108 divided by 83,413,633 shares) | $12.68 |
|
| Offering price per class A share (100/96.00 of $12.68)* | $13.21 |
|
| Net asset value and offering price per class B share | |
| ($85,571,263 divided by 6,782,831 shares)** | $12.62 |
|
| Net asset value and offering price per class C share | |
| ($29,634,867 divided by 2,341,456 shares)** | $12.66 |
|
| Net asset value and redemption price per class M share | |
| ($27,626,557 divided by 2,178,514 shares) | $12.68 |
|
| Offering price per class M share (100/96.75 of $12.68)*** | $13.11 |
|
| Net asset value, offering price and redemption price per class R share |
| ($2,650,855 divided by 209,698 shares) | $12.64 |
|
| Net asset value, offering price and redemption price per class Y share |
| ($12,739,726 divided by 1,007,790 shares) | $12.64 |
|
* On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
*** On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
30
Statement of operations Year ended 9/30/08
| |
| INVESTMENT INCOME | |
|
| Interest (including interest income of $3,658,695 from | |
| investments in affiliated issuers) (Note 5) | $82,977,168 |
|
| |
| EXPENSES | |
|
| Compensation of Manager (Note 2) | 6,488,143 |
|
| Investor servicing fees (Note 2) | 2,187,056 |
|
| Custodian fees (Note 2) | 94,668 |
|
| Trustee compensation and expenses (Note 2) | 59,229 |
|
| Administrative services (Note 2) | 38,208 |
|
| Distribution fees — Class A (Note 2) | 2,806,343 |
|
| Distribution fees — Class B (Note 2) | 982,883 |
|
| Distribution fees — Class C (Note 2) | 274,270 |
|
| Distribution fees — Class M (Note 2) | 148,912 |
|
| Distribution fees — Class R (Note 2) | 9,377 |
|
| Other | 499,273 |
|
| Non-recurring costs (Notes 2 and 7) | 2,203 |
|
| Costs assumed by Manager (Notes 2 and 7) | (2,203) |
|
| Fees waived and reimbursed by Manager (Notes 2 and 5) | (146,604) |
|
| Total expenses | 13,441,758 |
| | |
| Expense reduction (Note 2) | (300,425) |
|
| Net expenses | 13,141,333 |
| | |
| Net investment income | 69,835,835 |
|
| Net realized gain on investments (Notes 1 and 3) | 47,909,970 |
|
| Net increase from payments from affiliates (Note 2) | 1,946,961 |
|
| Net realized loss on swap contracts (Note 1) | (86,691,141) |
|
| Net realized loss on futures contracts (Note 1) | (30,969,174) |
|
| Net realized loss on written options (Notes 1 and 3) | (26,054,184) |
|
| Net unrealized appreciation of investments, futures contracts, | |
| swap contracts, written options, and TBA sale commitments | |
| during the year (Note 6) | 31,392,871 |
|
| Net loss on investments | (62,464,697) |
|
| Net increase in net assets resulting from operations | $7,371,138 |
Statement of changes in net assets
| | |
| INCREASE (DECREASE) IN NET ASSETS | | |
| | Year ended | Year ended |
| | 9/30/08 | 9/30/07 |
|
| Operations: | | |
|
| Net investment income | $69,835,835 | $49,883,086 |
|
| Net realized gain (loss) on investments | (93,857,568) | 18,650,241 |
|
| Net unrealized appreciation (depreciation) | | |
| of investments | 31,392,871 | (8,589,486) |
|
| Net increase in net assets resulting | | |
| from operations | 7,371,138 | 59,943,841 |
|
| Distributions to shareholders (Note 1): | | |
|
| From ordinary income | | |
|
| Net investment income | | |
|
| Class A | (48,767,107) | (42,302,837) |
|
| Class B | (3,652,048) | (3,666,625) |
|
| Class C | (984,611) | (515,157) |
|
| Class M | (1,249,682) | (1,140,914) |
|
| Class R | (77,156) | (20,982) |
|
| Class Y | (541,446) | (195,659) |
|
| Redemption fees (Note 1) | 23,606 | 6,485 |
|
| Increase (decrease) from capital share | | |
| transactions (Notes 4 and 6) | 162,007,820 | (163,528,008) |
|
| Total increase (decrease) in net assets | 114,130,514 | (151,419,856) |
|
| |
| NET ASSETS | | |
|
| Beginning of year | 1,101,612,862 | 1,253,032,718 |
|
| End of year (including undistributed net | | |
| investment income of $32,588,826 and | | |
| $18,419,564, respectively) | $1,215,743,376 | $1,101,612,862 |
The accompanying notes are an integral part of these financial statements.
31
Financial highlights (For a common share outstanding throughout the period)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| INVESTMENT OPERATIONS: | | | | | | LESS DISTRIBUTIONS: | | | | RATIOS AND SUPPLEMENTAL DATA: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Ratio of net | | |
| | | | | | | Net realized and | | Total from | | | | | | | | | | Total return | | Net assets, | | Ratio of expenses | | investment income | | |
| | | Net asset value, | | Net investment | | unrealized gain (loss) | | investment | | From net investment | | Total | | Redemption | | Net asset value, | | at net asset | | end of period | | to average | | (loss) to average | | Portfolio |
| Period ended | | beginning of period | | income (loss) a | | on investments | | operations | | income | | distributions | | fees b | | end of period | | value (%) c | | (in thousands) | | net assets (%) d | | net assets (%) | | turnover (%) e |
|
| Class A | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2008 | | $13.17 | | .73 f | | (.63) g | | .10 | | (.59) | | (.59) | | — | | $12.68 | | .60 g | | $1,057,520 | | .96 f | | 5.47 f | | 270.58 |
| September 30, 2007 | | 13.03 | | .57 f | | .12 | | .69 | | (.55) | | (.55) | | — | | 13.17 | | 5.41 | | 968,106 | | .99 f | | 4.37 f | | 252.54 |
| September 30, 2006 | | 13.15 | | .52 | | (.10) | | .42 | | (.54) | | (.54) | | — | | 13.03 | | 3.30 | | 1,068,197 | | .94 h | | 4.02 h | | 579.42 |
| September 30, 2005 | | 13.24 | | .37 | | (.05) | | .32 | | (.41) | | (.41) | | — | | 13.15 | | 2.43 | | 1,255,038 | | .94 | | 2.83 | | 781.82 |
| September 30, 2004 | | 13.20 | | .42 | | (.06) | | .36 | | (.32) | | (.32) | | — | | 13.24 | | 2.81 | | 1,441,252 | | .94 | | 3.24 | | 198.47 |
|
| Class B | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2008 | | $13.10 | | .63 f | | (.62) g | | .01 | | (.49) | | (.49) | | — | | $12.62 | | (.06) g | | $85,571 | | 1.67 f | | 4.78 f | | 270.58 |
| September 30, 2007 | | 12.96 | | .47 f | | .12 | | .59 | | (.45) | | (.45) | | — | | 13.10 | | 4.63 | | 84,146 | | 1.74 f | | 3.62 f | | 252.54 |
| September 30, 2006 | | 13.08 | | .42 | | (.10) | | .32 | | (.44) | | (.44) | | — | | 12.96 | | 2.52 | | 132,827 | | 1.69 h | | 3.29 h | | 579.42 |
| September 30, 2005 | | 13.17 | | .27 | | (.05) | | .22 | | (.31) | | (.31) | | — | | 13.08 | | 1.64 | | 205,275 | | 1.69 | | 2.07 | | 781.82 |
| September 30, 2004 | | 13.12 | | .32 | | (.05) | | .27 | | (.22) | | (.22) | | — | | 13.17 | | 2.12 | | 297,159 | | 1.69 | | 2.46 | | 198.47 |
|
| Class C | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2008 | | $13.15 | | .63 f | | (.63) g | | — b | | (.49) | | (.49) | | — | | $12.66 | | (.13) g | | $29,635 | | 1.71 f | | 4.73 f | | 270.58 |
| September 30, 2007 | | 13.01 | | .47 f | | .12 | | .59 | | (.45) | | (.45) | | — | | 13.15 | | 4.62 | | 16,713 | | 1.74 f | | 3.62 f | | 252.54 |
| September 30, 2006 | | 13.13 | | .43 | | (.11) | | .32 | | (.44) | | (.44) | | — | | 13.01 | | 2.50 | | 15,985 | | 1.69 h | | 3.28 h | | 579.42 |
| September 30, 2005 | | 13.22 | | .27 | | (.05) | | .22 | | (.31) | | (.31) | | — | | 13.13 | | 1.64 | | 19,784 | | 1.69 | | 2.08 | | 781.82 |
| September 30, 2004 | | 13.17 | | .32 | | (.05) | | .27 | | (.22) | | (.22) | | — | | 13.22 | | 2.08 | | 26,181 | | 1.69 | | 2.44 | | 198.47 |
|
| Class M | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2008 | | $13.16 | | .70 f | | (.63) g | | .07 | | (.55) | | (.55) | | — | | $12.68 | | .42 g | | $27,627 | | 1.20 f | | 5.23 f | | 270.58 |
| September 30, 2007 | | 13.02 | | .54 f | | .11 | | .65 | | (.51) | | (.51) | | — | | 13.16 | | 5.12 | | 27,563 | | 1.24 f | | 4.12 f | | 252.54 |
| September 30, 2006 | | 13.13 | | .49 | | (.10) | | .39 | | (.50) | | (.50) | | — | | 13.02 | | 3.10 | | 31,087 | | 1.19 h | | 3.78 h | | 579.42 |
| September 30, 2005 | | 13.23 | | .34 | | (.07) | | .27 | | (.37) | | (.37) | | — | | 13.13 | | 2.08 | | 39,845 | | 1.19 | | 2.58 | | 781.82 |
| September 30, 2004 | | 13.18 | | .39 | | (.05) | | .34 | | (.29) | | (.29) | | — | | 13.23 | | 2.61 | | 50,649 | | 1.19 | | 2.99 | | 198.47 |
|
| Class R | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2008 | | $13.16 | | .70 f | | (.67) g | | .03 | | (.55) | | (.55) | | — | | $12.64 | | .12 g | | $2,651 | | 1.21 f | | 5.22 f | | 270.58 |
| September 30, 2007 | | 13.02 | | .54 f | | .12 | | .66 | | (.52) | | (.52) | | — | | 13.16 | | 5.16 | | 627 | | 1.24 f | | 4.12 f | | 252.54 |
| September 30, 2006 | | 13.14 | | .48 | | (.09) | | .39 | | (.51) | | (.51) | | — | | 13.02 | | 3.04 | | 396 | | 1.19 h | | 3.73 h | | 579.42 |
| September 30, 2005 | | 13.24 | | .35 | | (.07) | | .28 | | (.38) | | (.38) | | — | | 13.14 | | 2.14 | | 166 | | 1.19 | | 2.60 | | 781.82 |
| September 30, 2004 | | 13.20 | | .39 | | (.06) | | .33 | | (.29) | | (.29) | | — | | 13.24 | | 2.54 | | 44 | | 1.19 | | 2.98 | | 198.47 |
|
| Class Y | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2008 | | $13.13 | | .77 f | | (.64) g | | .13 | | (.62) | | (.62) | | — | | $12.64 | | .87 g | | $12,740 | | .71 f | | 5.76 f | | 270.58 |
| September 30, 2007 | | 13.00 | | .60 f | | .11 | | .71 | | (.58) | | (.58) | | — | | 13.13 | | 5.64 | | 4,458 | | .74 f | | 4.62 f | | 252.54 |
| September 30, 2006 | | 13.12 | | .55 | | (.09) | | .46 | | (.58) | | (.58) | | — | | 13.00 | | 3.60 | | 4,542 | | .69 h | | 4.23 h | | 579.42 |
| September 30, 2005 | | 13.22 | | .40 | | (.06) | | .34 | | (.44) | | (.44) | | — | | 13.12 | | 2.64 | | 12,603 | | .69 | | 3.05 | | 781.82 |
| September 30, 2004 | | 13.18 | | .46 | | (.06) | | .40 | | (.36) | | (.36) | | — | | 13.22 | | 3.09 | | 26,829 | | .69 | | 3.45 | | 198.47 |
|
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Amount represents less than $0.01 per share.
c Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
d Includes amounts paid through expense offset arrangements (Note 2).
e Portfolio turnover excludes dollar roll transactions.
f Reflects an involuntary contractual expense limitation and/or waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund in effect during the period. As a result of such limitation and/ or waivers, the expenses of each class reflect a reduction of the following amounts (Notes 2 and 5):
| | |
| | Percentage of average net assets | |
| September 30, 2008 | 0.01% | |
| |
| September 30, 2007 | 0.01 | |
| |
g Reflects a non-recurring reimbursement from Putnam Management relating to the misidentification, in 2006, of the characteristics of certain securities in the fund’s portfolio, which amounted to $0.02 per share (Note 2).
h Reflects a non-recurring reimbursement from Putnam Investments relating to the calculation of certain amounts paid by the fund to Putnam in previous years for transfer agent services, which amounted to less than $0.01 per share and 0.02% of average net assets for the period ended September 30, 2006.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements 9/30/08
Note 1: Significant accounting policies
Putnam U.S. Government Income Trust (the “fund”), a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund’s investment objective is to seek as high a level of current income as is consistent with preservation of capital by investing mainly in securities which have short to long-term maturities and are backed by the full faith and credit of the United States or by the credit of the issuing U.S. government agency. The fund may invest a significant portion of their assets in securitized debt instruments, including mortgage-backed and asset-backed investments. The yields and values of these investments are sensitive to changes in interest rates, the rate of principal payments on the underlying assets and the market’s perception of the issuers. The market for these investments may be volatile and limited, which may make them difficult t o buy or sell.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are offered to qualified employee-benefit plans, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M an d class R shares, but do not bear a distribution fee. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 7 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments, including mortgage backed securities, are valued on the basis of valuations provided by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, a wholly-owned subsidiary of Putnam, LLC. Such service providers use information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. Certain investments, including certain restricted securities and derivatives, are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities i s generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.
B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the “SEC”), the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.
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. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the fund and the counterparty. 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 recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. All premiums/ discounts are amortized/accreted on a yield-to-maturity basis.
Securities purchased or sold on a delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
E) Stripped securities The fund may invest in stripped securities which represent a participation in securities that may be structured in classes with rights to receive different portions of the interest and principal. Interest-only securities receive all of the interest and principal-only securities receive all of the principal. If the interest-only securities experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, principal-only securities increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The market value of these securities is highly sensitive to changes in interest rates.
F) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns, owned or expects to purchase, or for other investment purposes. The fund may also write options on swaps or securities it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Risks may exceed amounts recognized on the Statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between
34
the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” Exchange traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Futures and written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.
G) Total return swap contracts The fund may enter into total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount. To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. Total return swap contracts are marked to market daily based upon quotations from market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain total return swap contracts may include extended effective dates. Payments related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes i n the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Total return swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.
H) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. An interest rate swap can be purchased or sold with an upfront premium. An upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. Interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain interest rate swap contracts may include extended effective dates. Payments related to these swap contracts is accrued based on the terms of the contract. The fund coul d be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.
I) TBA purchase commitments The fund may enter into “TBA” (to be announced) 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 significantly differ 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 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 fair value of the underlying securities, according to the procedures described under “Security valuation” above. The contract is marked to market daily and the change in market value is recorded by the fund as an unrealized gain or loss.
Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so.
J) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as “cover” for the transaction.
Unsettled TBA sale commitments are valued at the fair value of the underlying securities, generally according to the procedures described under “Security valuation” above. The contract is marked to market daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting TBA purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. TBA sale commitments outstanding at period end, if any, are listed after the fund’s portfolio.
K) Dollar rolls To enhance returns, the fund may enter into dollar rolls (principally using TBAs) in which the fund sells securities for delivery in the current month and simultaneously contracts to purchase similar securities on a specified future date. During the period between the sale and subsequent purchase, the fund will not be entitled to receive income and principal payments on the securities sold. The fund will, however, retain the difference between the initial sales price and the forward price for the future purchase. The fund will also be able to earn interest on the cash proceeds that are received from the initial sale, on settlement date. The fund may be exposed to market or credit risk if the price of the security changes unfavorably or the counterparty fails to perform under the terms of the agreement.
L) 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 of 1986, as amended (the “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 Code. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains.
At September 30, 2008, the fund had a capital loss carryover of $32,417,310 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:
| | | |
| Loss Carryover | | Expiration | |
| |
| $18,470,656 | | September 30, 2009 | |
| |
| 13,946,654 | | September 30, 2014 | |
| |
Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending September 30, 2009 $106,442,150 of losses recognized during the period November 1, 2007 to September 30, 2008 a portion of which could be limited by Section 381 of the Code.
M) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date.
35
Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least 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 temporary and/or permanent differences of losses on wash sale transactions, post-October loss deferrals, unrealized gains and losses on certain futures contracts, swaps and interest only 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 September 30, 2008, the fund reclassified $2,645,831 to decrease undistributed net investment income and $2,306,709 to increase paid-in-capital, with a decrease to accumulated net realized losses of $339,122.
The tax basis components of distributable earnings and the federal tax cost as of September 30, 2008 were as follows:
| | |
| Unrealized appreciation | $81,695,573 | |
| Unrealized depreciation | (42,007,755) | |
| |
| Net unrealized appreciation | 39,687,818 | |
| Undistributed ordinary income | 28,421,939 | |
| Capital loss carryforward | (32,417,310) | |
| Post-October loss | (106,442,150) | |
| |
| Cost for federal income tax purposes | $2,070,553,014 | |
Note 2: Management fee, administrative services
and other transactions
The fund pays Putnam Management for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.57% of the first $500 million of average net assets, 0.475% of the next $500 million, 0.4275% of the next $500 million and 0.38% thereafter.
Putnam Management has agreed to waive fees and reimburse expenses of the fund through June 30, 2009 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage/service arrangements that may reduce fund expenses.
Putnam Management has further agreed to waive fees and reimburse expenses of the fund for the period from July 1, 2008 through June 30, 2009 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of a custom group of competitive funds selected by Lipper Inc. based on the size of the fund. The expense reimbursement is based on a comparison of the fund’s total expenses with the average operating expenses of the funds in this Lipper custom peer group for their respective 2007 fiscal years , excluding 12b-1 fees and after adjustment for certain expense offset and brokerage/service arrangements that reduced expenses of the fund.
For the year ended September 30, 2008, the fund’s expenses were limited to the lower of the limits specified above and accordingly, Putnam Management waived $38,875 of its management fee from the fund.
For the year ended September 30, 2008, Putnam Management has assumed $2,203 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 7).
In October 2007, Putnam Management agreed to reimburse the fund in the amount of $1,946,961 in connection with the misidentification in 2006 of the characteristics of certain securities in the fund’s portfolio.
The fund reimburses Putnam Management an allocated amount 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.
On September 26, 2008, the fund entered into an Agreement with another registered investment company (each a “Seller”) managed by Putnam Management. Under the Agreements, the Seller sold to the fund the right to receive, in the aggregate, $2,002,118 in net payments from Lehman Brothers Special Financing, Inc. in connection with certain terminated derivatives transactions (the “Receivable”), in exchange for an initial payment plus (or minus) additional amounts based on the fund’s ultimate realized gain (or loss) with respect to the Receivable. The Receivable will be offset against the fund’s net payable to Lehman Brothers Special Financing, Inc. The Agreement, which is included in the statement of assets and liabilities, is valued at fair value following procedures approved by the Trustees. All remaining payments under the agreement will be recorded as realized gain or loss.
Custodial services for the fund’s assets were provided by Putnam Fiduciary Trust Company (“PFTC”), an affiliate of Putnam Management, and by State Street Bank and Trust Company (“State Street”). Custody fees are based on the fund’s asset level, the number of its security holdings, transaction volumes and with respect to PFTC, certain fees related to the transition of assets to State Street. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund. Putnam Investor Services received fees for investor servicing, subject to certain limitations, based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the year ended September 30, 2008, the fund incurred $2,205,530 for custody and investor servicing agent functions provided by PFTC.
The fund has entered into expense offset arrangements with PFTC and State Street whereby PFTC’s and State Street’s fees are reduced by credits allowed on cash balances. For the year ended September 30, 2008, the fund’s expenses were reduced by $300,425 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $577, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings and industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the “Deferral 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 invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the “Plans”) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for
36
payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, and 0.50% of the average net assets attributable to class A, class C and class R shares, respectively. For class B shares, the annual payment rate will equal the weighted average of (i) 0.85% on the net assets of Putnam Limited Duration Government Income Fund attributable to class B shares existing on November 9, 2007; and (ii) 1.00% on all other net assets of Putnam U.S. Government Income Trust attributable to class B shares. For class M shares, the annual payment rate will equal the weighted average of (i) 0.40% on the net assets of Putnam Limited Duration Government Income Fund attributable to class M shares existing on November 9, 2007; and ( ii) 0.50% on all other net assets of Putnam U.S. Government Income Trust attributable to class M shares.
For the year ended September 30, 2008, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $58,486 and $788 from the sale of class A and class M shares, respectively, and received $86,382 and $5,379 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the year ended September 30, 2008, Putnam Retail Management Limited Partnership, acting as underwriter, received $10,207 and no monies on class A and class M redemptions, respectively.
Note 3: Purchases and sales of securities
During the year ended September 30, 2008, cost of purchases and proceeds from sales of U.S. government securities and agency obligations other than short-term investments aggregated $2,886,388,370 and $3,310,891,921, respectively.
Written option transactions during the year ended September 30, 2008 are summarized as follows:
| | | | |
| | | Contract | Premiums | |
| | | Amounts | Received | |
| |
| Written options outstanding | | | | |
| at beginning of year | | $2,679,622,000 | $75,232,905 | |
| |
| Options opened | | 1,620,706,000 | 53,140,272 | |
| |
| Options exercised | | — | — | |
| |
| Options expired | | (912,504,000) | (22,792,103) | |
| |
| Options closed | | (2,253,750,000) | (62,887,204) | |
| |
| Written options outstanding | | | | |
| at end of year | | $1,134,074,000 | $42,693,870 | |
| |
Note 4: Capital shares
At September 30, 2008, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| | | | | |
| | Year ended 9/30/08 | Year ended 9/30/07 | |
| |
| Class A | Shares | Amount | Shares | Amount | |
| |
| Shares sold | 12,320,876 | $164,379,155 | 7,522,436 | $98,198,517 | |
| |
| Shares issued in | 3,074,412 | 40,853,991 | 2,670,274 | 34,760,524 | |
| connection with | | | | | |
| reinvestment of | | | | | |
| distributions | | | | | |
| |
| Shares issued | 14,353,931 | 190,464,106 | — | — | |
| in connection | | | | | |
| with the merger | | | | | |
| of Putnam | | | | | |
| Limited Duration | | | | | |
| Government | | | | | |
| Income Fund | | | | | |
| |
| | 29,749,219 | 395,697,252 | 10,192,710 | 132,959,041 | |
| |
| Shares | (19,867,682) | (264,563,396) | (18,666,904) | (243,608,170) | |
| repurchased | | | | | |
| |
| Net increase | 9,881,537 | $131,133,856 | (8,474,194) | $(110,649,129) | |
| (decrease) | | | | | |
| |
| | |
| | |
| | Year ended 9/30/08 | Year ended 9/30/07 | |
| |
| Class B | Shares | Amount | Shares | Amount | |
| |
| Shares sold | 1,437,626 | $19,150,863 | 611,325 | $7,938,334 | |
| |
| Shares issued in | 242,106 | 3,203,994 | 243,819 | 3,158,599 | |
| connection with | | | | | |
| reinvestment of | | | | | |
| distributions | | | | | |
| |
| Shares issued | 2,993,258 | 39,516,692 | — | — | |
| in connection | | | | | |
| with the merger | | | | | |
| of Putnam | | | | | |
| Limited Duration | | | | | |
| Government | | | | | |
| Income Fund | | | | | |
| |
| | 4,672,990 | 61,871,549 | 855,144 | 11,096,933 | |
| |
| Shares | (4,315,887) | (57,376,266) | (4,681,450) | (60,799,676) | |
| repurchased | | | | | |
| |
| Net increase | 357,103 | $4,495,283 | (3,826,306) | $(49,702,743) | |
| (decrease) | | | | | |
| |
| | |
| | |
| | Year ended 9/30/08 | Year ended 9/30/07 | |
| |
| Class C | Shares | Amount | Shares | Amount | |
| |
| Shares sold | 1,062,851 | $14,140,949 | 377,398 | $4,921,471 | |
| |
| Shares issued in | 57,242 | 759,916 | 30,334 | 394,493 | |
| connection with | | | | | |
| reinvestment of | | | | | |
| distributions | | | | | |
| |
| Shares issued | 719,197 | 9,531,515 | — | — | |
| in connection | | | | | |
| with the merger | | | | | |
| of Putnam | | | | | |
| Limited Duration | | | | | |
| Government | | | | | |
| Income Fund | | | | | |
| |
| | 1,839,290 | 24,432,380 | 407,732 | 5,315,964 | |
| |
| Shares | (769,055) | (10,243,688) | (365,494) | (4,761,466) | |
| repurchased | | | | | |
| |
| Net increase | 1,070,235 | $14,188,692 | 42,238 | $554,498 | |
| |
37
| | | | | |
| | Year ended 9/30/08 | Year ended 9/30/07 | |
| |
| Class M | Shares | Amount | Shares | Amount | |
| |
| Shares sold | 120,965 | $1,616,644 | 117,122 | $1,528,045 | |
| |
| Shares issued in | 24,180 | 321,482 | 13,810 | 179,738 | |
| connection with | | | | | |
| reinvestment of | | | | | |
| distributions | | | | | |
| |
| Shares issued | 392,770 | 5,209,943 | — | — | |
| in connection | | | | | |
| with the merger | | | | | |
| of Putnam | | | | | |
| Limited Duration | | | | | |
| Government | | | | | |
| Income Fund | | | | | |
| |
| | 537,915 | 7,148,069 | 130,932 | 1,707,783 | |
| |
| Shares | (453,873) | (6,046,001) | (424,856) | (5,535,878) | |
| repurchased | | | | | |
| |
| Net increase | 84,042 | $1,102,068 | (293,924) | $(3,828,095) | |
| (decrease) | | | | | |
| |
| | |
| | |
| | Year ended 9/30/08 | Year ended 9/30/07 | |
| |
| Class R | Shares | Amount | Shares | Amount | |
| |
| Shares sold | 173,439 | $2,317,351 | 26,436 | $344,828 | |
| |
| Shares issued in | 5,793 | 76,827 | 1,612 | 20,976 | |
| connection with | | | | | |
| reinvestment of | | | | | |
| distributions | | | | | |
| |
| Shares issued | 30,271 | 401,462 | — | — | |
| in connection | | | | | |
| with the merger | | | | | |
| of Putnam | | | | | |
| Limited Duration | | | | | |
| Government | | | | | |
| Income Fund | | | | | |
| |
| | 209,503 | 2,795,640 | 28,048 | 365,804 | |
| |
| Shares | (47,462) | (633,214) | (10,795) | (140,767) | |
| repurchased | | | | | |
| |
| Net increase | 162,041 | $2,162,426 | 17,253 | $225,037 | |
| |
| | |
| | |
| | Year ended 9/30/08 | Year ended 9/30/07 | |
| |
| Class Y | Shares | Amount | Shares | Amount | |
| |
| Shares sold | 655,227 | $8,769,529 | 52,842 | $688,357 | |
| |
| Shares issued in | 40,800 | 540,729 | 15,069 | 195,659 | |
| connection with | | | | | |
| reinvestment of | | | | | |
| distributions | | | | | |
| |
| Shares issued | 318,258 | 4,211,379 | — | — | |
| in connection | | | | | |
| with the merger | | | | | |
| of Putnam | | | | | |
| Limited Duration | | | | | |
| Government | | | | | |
| Income Fund | | | | | |
| |
| | 1,014,285 | 13,521,637 | 67,911 | 884,016 | |
| |
| Shares | (345,995) | (4,596,142) | (77,904) | (1,011,592) | |
| repurchased | | | | | |
| |
| Net increase | 668,290 | $8,925,495 | (9,993) | $(127,576) | |
| (decrease) | | | | | |
| |
Note 5: Investment in Putnam Prime Money Market Fund
The fund invested in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Prime Money Market Fund were valued at its closing net asset value each business day. Management fees paid by the fund were reduced by an amount equal to the management fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the year ended September 30, 2008, management fees paid were reduced by $107,729 relating to the fund’s investment in Putnam Prime Money Market Fund. Income distributions earned by the fund were recorded as interest income in the Statement of operations and totaled $3,658,695 for the year ended September 30, 2008. During the year ended September 30, 2008, cost of purchases and proceeds of sales of investments in Putnam Prime Money Market Fund aggregated $159,149,708 and $202,751,975, respectively.
On September 17, 2008, the Trustees of the Putnam Prime Money Market Fund voted to close that fund effective September 17, 2008. On September 24, 2008 the fund received shares of Federated Prime Obligations Fund, an unaffiliated management investment company registered under the Investment Company Act of 1940, in liquidation of its shares of Putnam Prime Money Market Fund.
Note 6: Acquisition of Putnam Limited Duration Government Income Fund
On November 12, 2007, the fund issued 14,353,931, 2,993,258, 719,197, 392,770, 30,271 and 318,258 of class A, class B, class C, class M, class R and class Y shares, respectively, to acquire Putnam Limited Duration Government Income Fund net assets in a tax-free exchange approved by the Trustees and shareholders. The net assets of the fund and Putnam Limited Duration Government Income Fund on November 12, 2007, the valuation date, were $1,102,795,519 and $249,335,097, respectively. On November 12, 2007, Putnam Limited Duration Government Income Fund had net investment income of $2,251,308, accumulated net realized gains of $174,509 and unrealized depreciation of $8,306,662. The aggregate net assets of the fund immediately following the acquisition were $1,352,130,616.
Information presented in the Statement of operations and changes in net assets reflect only operations of Putnam U.S. Government Income Trust.
Note 7: Regulatory matters and litigation
In late 2003 and 2004, Putnam Management settled charges brought by the SEC and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. Distribution of payments from Putnam Management to certain open-end Putnam funds and their shareholders is expected to be completed in the next several months. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.
Note 8: New accounting pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. Upon adoption, the Interpretation did not have a material effect on the fund’s financial statements. However, the conclusions regarding the Interpretation may be subject to review and adjustment at a later date based on factors including,
38
but not limited to, further implementation guidance expected from the FASB, and on-going analysis of tax laws, regulations and interpretations thereof. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (the “Standard”). The Standard defines fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. The Standard applies to fair value measurements already required or permitted by existing standards. The Standard is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Putnam Management does not believe the adoption of the Standard will impact the amounts reported in the financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value.
In March 2008, Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”) — an amendment of FASB Statement No. 133, was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments and how derivative instruments affect an entity’s financial position. Putnam Management is currently evaluating the impact the adoption of SFAS 161 will have on the fund’s financial statement disclosures.
In September 2008, FASB Staff Position FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (“Amendment”) was issued and is effective for annual and interim reporting periods ending after November 15, 2008. The Amendment requires enhanced disclosures regarding a fund’s credit derivatives holdings and hybrid financial instruments containing embedded credit derivatives. Management is currently evaluating the impact the adoption of the Amendment will have on the Funds’ financial statement disclosures.
Note 9: Market conditions
Recent events in the financial sector have resulted in an unusually high degree of volatility in the financial markets. The fund’s investments in the financial sector , as reflected in the fund’s schedule of investments, exposes investors to the negative (or positive) performance resulting from these events.
Federal tax information (unaudited)
The Form 1099 you receive in January 2009 will show the tax status of all distributions paid to your account in calendar 2008.
39
About the Trustees
Jameson A. Baxter
Born 1943, Trustee since 1994,
Vice Chairman since 2005
Ms. Baxter is the President of Baxter Associates, Inc., a private investment firm.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., and the Mutual Fund Directors Forum. Until 2007, she was a Director of Banta Corporation (a printing and supply chain management company), Ryerson, Inc. (a metals service corporation), and Advocate Health Care. Until 2004, she was a Director of BoardSource (formerly the National Center for Nonprofit Boards); and until 2002, she was a Director of Intermatic Corporation (a manufacturer of energy control products). She is Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having served as Chairman for five years.
Ms. Baxter has held various positions in investment banking and corporate finance, including Vice President of and Consultant to First Boston Corporation and Vice President and Principal of the Regency Group. She is a graduate of Mount Holyoke College.
Charles B. Curtis
Born 1940, Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat Initiative (a private foundation dealing with national security issues), and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and serves as Director of Edison International and Southern California Edison. Until 2006, Mr. Curtis served as a member of the Trustee Advisory Council of the Applied Physics Laboratory, Johns Hopkins University. Until 2003, Mr. Curtis was a member of the Electric Power Research Institute Advisory Council and the University of Chicago Board of Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a member of the Board of Directors of the Gas Technology Institute and the Board of Directors of the Environment and Natural Resources Program Steering Committee, John F. Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis was a member of the Department of Defense Policy Board and Director of EG&G Technical Services, Inc. (a fossil energy research and development support company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan & Hartson LLP, an international law firm headquartered in Washington, D.C. Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy and Under Secretary of the U.S. Department of Energy. He served as Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and has held positions on the staff of the U.S. House of Representatives, the U.S. Treasury Department, and the SEC.
Robert J. Darretta
Born 1946, Trustee since 2007
Mr. Darretta serves as Director of United-Health Group, a diversified health-care company.
Until April 2007, Mr. Darretta was Vice Chairman of the Board of Directors of Johnson & Johnson, one of the world’s largest and most broadly based health-care companies. Prior to 2007, he had responsibility for Johnson & Johnson’s finance, investor relations, information technology, and procurement function. He served as Johnson & Johnson Chief Financial Officer for a decade, prior to which he spent two years as Treasurer of the corporation and over ten years leading various Johnson & Johnson operating companies.
Mr. Darretta received a B.S. in Economics from Villanova University.
Myra R. Drucker
Born 1948, Trustee since 2004
Ms. Drucker is Chair of the Board of Trustees of Commonfund (a not-for-profit firm specializing in managing assets for educational endowments and foundations), Vice Chair of the Board of Trustees of Sarah Lawrence College, and a member of the Investment Committee of the Kresge Foundation (a charitable trust). She is also a Director of New York Stock Exchange LLC (a wholly-owned subsidiary of NYSE Euronext), and a Director of Interactive Data Corporation (a provider of financial market data and analytics to financial institutions and investors).
Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee, having served as Chair for seven years. She serves as an advisor to RCM Capital Management (an investment management firm) and to the Employee Benefits Investment Committee of The Boeing Company (an aerospace firm).
From November 2001 until August 2004, Ms. Drucker was Managing Director and a member of the Board of Directors of General Motors Asset Management and Chief Investment Officer of General Motors Trust Bank. From December 1992 to November 2001, Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a document company). Prior to December 1992, Ms. Drucker was Staff Vice President and Director of Trust Investments for International Paper (a paper and packaging company).
Ms. Drucker received a B.A. degree in Literature and Psychology from Sarah Lawrence College and pursued graduate studies in economics, statistics, and portfolio theory at Temple University.
Charles E. Haldeman, Jr.*
Born 1948, Trustee since 2004 and
President of the Funds since 2007
Mr. Haldeman is Chairman of Putnam Investment Management, LLC and President of the Putnam Funds. Prior to July 2008, he was President and Chief Executive Officer of Putnam, LLC (“Putnam Investments”). Prior to November 2003, Mr. Haldeman served as Co-Head of Putnam Investments’ Investment Division.
Prior to joining Putnam in 2002, he held executive positions in the investment management industry. He previously served as Chief Executive Officer of Delaware Investments and President and Chief Operating Officer of United Asset Management. Mr. Haldeman was also a
40
Partner and Director of Cooke & Bieler, Inc. (an investment management firm).
Mr. Haldeman currently serves on the Board of Governors of the Investment Company Institute and as Chair of the Board of Trustees of Dartmouth College. He also serves on the Partners HealthCare Investment Committee, the Tuck School of Business Overseers, and the Harvard Business School Board of Dean’s Advisors. He is a graduate of Dartmouth College, Harvard Law School, and Harvard Business School. Mr. Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
John A. Hill
Born 1942, Trustee since 1985 and
Chairman since 2000
Mr. Hill is founder and Vice-Chairman of First Reserve Corporation, the leading private equity buyout firm specializing in the worldwide energy industry, with offices in Greenwich, Connecticut; Houston, Texas; London, England; and Shanghai, China. The firm’s investments on behalf of some of the nation’s largest pension and endowment funds are currently concentrated in 26 companies with annual revenues in excess of $13 billion, which employ over 100,000 people in 23 countries.
Mr. Hill is Chairman of the Board of Trustees of the Putnam Mutual Funds, a Director of Devon Energy Corporation and various private companies owned by First Reserve, and serves as a Trustee of Sarah Lawrence College where he chairs the Investment Committee.
Prior to forming First Reserve in 1983, Mr. Hill served as President of F. Eberstadt and Company, an investment banking and investment management firm. Between 1969 and 1976, Mr. Hill held various senior positions in Washington, D.C. with the federal government, including Deputy Associate Director of the Office of Management and Budget and Deputy Administrator of the Federal Energy Administration during the Ford Administration.
Born and raised in Midland, Texas, he received his B.A. in Economics from Southern Methodist University and pursued graduate studies as a Woodrow Wilson Fellow.
Paul L. Joskow
Born 1947, Trustee since 1997
Dr. Joskow is an economist and President of the Alfred P. Sloan Foundation (a philanthropic institution focused primarily on research and education on issues related to science, technology, and economic performance). He is on leave from his position as the Elizabeth and James Killian Professor of Economics and Management at the Massachusetts Institute of Technology (MIT), where he has been on the faculty since 1972. Dr. Joskow was the Director of the Center for Energy and Environmental Policy Research at MIT from 1999 through 2007.
Dr. Joskow serves as a Trustee of Yale University, as a Director of TransCanada Corporation (an energy company focused on natural gas transmission and power services) and of Exelon Corporation (an energy company focused on power services), and as a member of the Board of Overseers of the Boston Symphony Orchestra. Prior to August 2007, he served as a Director of National Grid (a UK-based holding company with interests in electric and gas transmission and distribution and telecommunications infrastructure). Prior to July 2006, he served as President of the Yale University Council and continues to serve as a member of the Council. Prior to February 2005, he served on the board of the Whitehead Institute for Biomedical Research (a non-profit research institution). Prior to February 2002, he was a Director of State Farm Indemnity Company (an automobile insurance company), and prior to March 2000, he was a Director of New England Electric System (a public utility holding comp any).
Dr. Joskow has published six books and numerous articles on industrial organization, government regulation of industry, and competition policy. He is active in industry restructuring, environmental, energy, competition, and privatization policies — serving as an advisor to governments and corporations worldwide. Dr. Joskow holds a Ph.D. and MPhil from Yale University and a B.A. from Cornell University.
Elizabeth T. Kennan
Born 1938, Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast Utilities. She is a Trustee of the National Trust for Historic Preservation, of Centre College, and of Midway College in Midway, Kentucky. Until 2006, she was a member of The Trustees of Reservations. Prior to 2001, Dr. Kennan served on the oversight committee of the Folger Shakespeare Library. Prior to June 2005, she was a Director of Talbots, Inc., and she has served as Director on a number of other boards, including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life Insurance. Dr. Kennan has also served as President of Five Colleges Incorporated and as a Trustee of Notre Dame University, and is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years, until 1978, Dr. Kennan directed the post-doctoral program in Patristic and Medieval Studies, taught history, and published numerous articles and two books. Dr. Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S. from St. Hilda’s College at Oxford University, and an A.B. from Mount Holyoke College. She holds several honorary doctorates.
Kenneth R. Leibler
Born 1949, Trustee since 2006
Mr. Leibler is a founder and former Chairman of the Boston Options Exchange, an electronic marketplace for the trading of derivative securities.
Mr. Leibler currently serves as a Trustee of Beth Israel Deaconess Hospital in Boston. He is also Lead Director of Ruder Finn Group, a global communications and advertising firm, and a Director of Northeast Utilities, which operates New England’s largest energy delivery system. Prior to December 2006, he served as a Director of the Optimum Funds group. Prior to October 2006, he served as a Director of ISO New England, the
41
organization responsible for the operation of the electric generation system in the New England states. Prior to 2000, Mr. Leibler was a Director of the Investment Company Institute in Washington, D.C.
Prior to January 2005, Mr. Leibler served as Chairman and Chief Executive Officer of the Boston Stock Exchange. Prior to January 2000, he served as President and Chief Executive Officer of Liberty Financial Companies, a publicly traded diversified asset management organization. Prior to June 1990, Mr. Leibler served as President and Chief Operating Officer of the American Stock Exchange (AMEX), and at the time was the youngest person in AMEX history to hold the title of President. Prior to serving as AMEX President, he held the position of Chief Financial Officer, and headed its management and marketing operations. Mr. Leibler graduated magna cum laude with a degree in Economics from Syracuse University, where he was elected Phi Beta Kappa.
Robert E. Patterson
Born 1945, Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, LP and Chairman of Cabot Properties, Inc. (a private equity firm investing in commercial real estate).
Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes Center. Prior to June 2003, he was a Trustee of Sea Education Association. Prior to December 2001, Mr. Patterson was President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Prior to February 1998, he was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership (a registered investment adviser involved in institutional real estate investments). Prior to 1990, he served as Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot Partners).
Mr. Patterson practiced law and held various positions in state government, and was the founding Executive Director of the Massachusetts Industrial Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard Law School.
George Putnam, III
Born 1951, Trustee since 1984
Mr. Putnam is Chairman of New Generation Research, Inc. (a publisher of financial advisory and other research services), and President of New Generation Advisers, Inc. (a registered investment adviser to private funds). Mr. Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered investment adviser). He is a Trustee of St. Mark’s School and a Trustee of the Marine Biological Laboratory in Woods Hole, Massachusetts. Until 2006, he was a Trustee of Shore Country Day School, and until 2002, was a Trustee of the Sea Education Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate of Harvard College, Harvard Business School, and Harvard Law School.
Robert L. Reynolds*
Born 1952, Trustee since 2008
Mr. Reynolds is President and Chief Executive Officer of Putnam Investments, and a member of Putnam Investments’ Executive Board of Directors. He has more than 30 years of investment and financial services experience.
Prior to joining Putnam Investments in 2008, Mr. Reynolds was Vice Chairman and Chief Operating Officer of Fidelity Investments from 2000 to 2007. During this time, he served on the Board of Directors for FMR Corporation, Fidelity Investments Insurance Ltd., Fidelity Investments Canada Ltd., and Fidelity Management Trust Company. He was also a Trustee of the Fidelity Family of Funds. From 1984 to 2000, Mr. Reynolds served in a number of increasingly responsible leadership roles at Fidelity.
Mr. Reynolds serves on several not-for-profit boards, including those of the West Virginia University Foundation, Concord Museum, Dana-Farber Cancer Institute, Lahey Clinic, and Initiative for a Competitive Inner City in Boston. He is a member of the Chief Executives Club of Boston, the National Innovation Initiative, and the Council on Competitiveness.
Mr. Reynolds received a B.S. in Business Administration/Finance from West Virginia University.
Richard B.Worley
Born 1945, Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital LLC, an investment management firm.
Mr. Worley serves as a Trustee of the University of Pennsylvania Medical Center, The Robert Wood Johnson Foundation (a philanthropic organization devoted to health-care issues), and the National Constitution Center. He is also a Director of The Colonial Williamsburg Foundation (a historical preservation organization), and the Philadelphia Orchestra Association. Mr. Worley also serves on the investment committees of Mount Holyoke College and World Wildlife Fund (a wildlife conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as President, Chief Executive Officer, and Chief Investment Officer of Morgan Stanley Dean Witter Investment Management and as a Managing Director of Morgan Stanley, a financial services firm. Mr. Worley also was the Chairman of Miller Anderson & Sherrerd, an investment management firm that was acquired by Morgan Stanley in 1996.
Mr. Worley holds a B.S. degree from the University of Tennessee and pursued graduate studies in economics at the University of Texas.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of September 30, 2008, there were 99 Putnam funds. All Trustees serve as Trustees of all Putnam funds. Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, death, or removal.
* Trustee who is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. Mr. Reynolds is President and Chief Executive Officer of Putnam Investments. Mr. Haldeman is the President of your fund and each of the other Putnam funds and Chairman of Putnam Investment Management, LLC, and prior to July 2008 was President and Chief Executive Officer of Putnam Investments.
42
Officers
In addition to Charles E. Haldeman, Jr., the other officers of the fund are shown below:
| | |
| Charles E. Porter (Born 1938) | James P. Pappas (Born 1953) | Wanda M. McManus (Born 1947) |
| Executive Vice President, Principal Executive | Vice President | Vice President, Senior Associate Treasurer |
| Officer, Associate Treasurer, and | Since 2004 | and Assistant Clerk |
| Compliance Liaison | Managing Director, Putnam Investments and | Since 2005 |
| Since 1989 | Putnam Management. During 2002, Chief | |
| | Operating Officer, Atalanta/Sosnoff | Nancy E. Florek (Born 1957) |
| Jonathan S. Horwitz (Born 1955) | Management Corporation | Vice President, Assistant Clerk, Assistant |
| Senior Vice President and Treasurer | | Treasurer and Proxy Manager |
| Since 2004 | Francis J. McNamara, III (Born 1955) | Since 2005 |
| Prior to 2004, Managing Director, | Vice President and Chief Legal Officer | |
| Putnam Investments | Since 2004 | |
| | Senior Managing Director, Putnam | |
| Steven D. Krichmar (Born 1958) | Investments, Putnam Management | |
| Vice President and Principal Financial Officer | and Putnam Retail Management. Prior | |
| Since 2002 | to 2004, General Counsel, State Street | |
| Senior Managing Director, | Research & Management Company | |
| Putnam Investments | | |
| | Robert R. Leveille (Born 1969) | |
| Janet C. Smith (Born 1965) | Vice President and Chief Compliance Officer | |
| Vice President, Principal Accounting Officer | Since 2007 | |
| and Assistant Treasurer | Managing Director, Putnam Investments, | |
| Since 2007 | Putnam Management, and Putnam Retail | |
| Managing Director, Putnam Investments and | Management. Prior to 2004, member of | |
| Putnam Management | Bell Boyd & Lloyd LLC. Prior to 2003, | |
| | Vice President and Senior Counsel, | |
| Susan G. Malloy (Born 1957) | Liberty Funds Group LLC | |
| Vice President and Assistant Treasurer | | |
| Since 2007 | Mark C. Trenchard (Born 1962) | |
| Managing Director, Putnam Investments | Vice President and BSA Compliance Officer | |
| | Since 2002 | |
| Beth S. Mazor (Born 1958) | Managing Director, Putnam Investments | |
| Vice President | | |
| Since 2002 | Judith Cohen (Born 1945) | |
| Managing Director, Putnam Investments | Vice President, Clerk and Assistant Treasurer | |
| | Since 1993 | |
The address of each Officer is One Post Office Square, Boston, MA 02109.
43
The Putnam Family of Funds
The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.
Growth funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund*
Vista Fund
Voyager Fund
Blend funds
Capital Appreciation Fund
Capital Opportunities Fund*
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund®
Utilities Growth and Income Fund
Value funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund*
Income funds
American Government Income Fund
Diversified Income Trust
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*
High Yield Trust*
Income Fund
Money Market Fund†
U.S. Government Income Trust
Tax-free income funds
AMT-Free Insured Municipal Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund†
Tax-Free High Yield Fund
State tax-free income funds:
Arizona, California, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio, and Pennsylvania
Asset allocation funds
Income Strategies Fund
Putnam Asset Allocation Funds — three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
Putnam RetirementReady® Funds
Putnam RetirementReady Funds — 10 investment portfolios that offer diversification among stocks, bonds, and money market instruments and adjust to become more conservative over time based on a target date for withdrawing assets.
The 10 funds:
Putnam RetirementReady 2050 Fund
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund
* A 1% redemption fee on total assets redeemed or exchanged within 90 days of purchase may be imposed for all share classes of these funds.
†An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
With the exception of money market funds, a 1% redemption fee may be applied to shares exchanged or sold within 7 days of purchase (90 days, for certain funds).
Check your account balances and the most recent month-end performance in the Individual Investors section at www.putnam.com.
44
Fund information
Founded over 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage nearly 100 mutual funds in growth, value, blend, fixed income, and international.
| | |
| Investment Manager | Officers | Wanda M. McManus |
| Putnam Investment | Charles E. Haldeman, Jr. | Vice President, Senior Associate Treasurer |
| Management, LLC | President | and Assistant Clerk |
| One Post Office Square | | |
| Boston, MA 02109 | Charles E. Porter | Nancy E. Florek |
| | Executive Vice President, Principal | Vice President, Assistant Clerk, Assistant |
| Marketing Services | Executive Officer, Associate Treasurer | Treasurer and Proxy Manager |
| Putnam Retail Management | and Compliance Liaison | |
| One Post Office Square | | |
| Boston, MA 02109 | Jonathan S. Horwitz | |
| | Senior Vice President and Treasurer | |
| Custodian | | |
| State Street Bank and Trust Company | Steven D. Krichmar | |
| | Vice President and Principal Financial Officer | |
| Legal Counsel | | |
| Ropes & Gray LLP | Janet C. Smith | |
| Vice President, Principal Accounting Officer | |
| Independent Registered Public | and Assistant Treasurer | |
| Accounting Firm |
| KPMG LLP | Susan G. Malloy | |
| | Vice President and Assistant Treasurer | |
| Trustees | | |
| John A. Hill, Chairman | Beth S. Mazor | |
| Jameson A. Baxter, Vice Chairman | Vice President | |
| Charles B. Curtis |
| Robert J. Darretta | James P. Pappas | |
| Myra R. Drucker | Vice President | |
| Charles E. Haldeman, Jr. | | |
| Paul L. Joskow | Francis J. McNamara, III | |
| Elizabeth T. Kennan | Vice President and Chief Legal Officer | |
| Kenneth R. Leibler |
| Robert E. Patterson | Robert R. Leveille | |
| George Putnam, III | Vice President and Chief Compliance Officer | |
| Robert L. Reynolds |
| Richard B. Worley | Mark C. Trenchard | |
| | Vice President and BSA Compliance Officer | |
| | | |
| | Judith Cohen | |
| | Vice President, Clerk and Assistant Treasurer | |
This report is for the information of shareholders of Putnam U.S. Government Income Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.
Item 2. Code of Ethics:
(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.
(c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes.
Item 3. Audit Committee Financial Expert:
The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Patterson, Mr. Leibler, Mr. Hill and Mr. Darretta meets the financial literacy requirements of the New York Stock Exchange's rules and qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on their review of his pertinent experience and education. Certain other Trustees, although not on the Audit and Compliance Committee, would also quali fy as "audit committee financial experts." The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:
| | | | | |
| Fiscal | | | Audit- | | |
| year | | Audit | Related | Tax | All Other |
| ended | | Fees | Fees | Fees | Fees |
|
| September 30, 2008 | | $90,725 | $-- | $4,450 | $- |
|
| September 30, 2007 | | $85,073 | $15,818* | $4,050 | $ - |
|
*Fees billed to the fund for services relating to a fund merger.
For the fiscal years ended September 30, 2008 and September 30, 2007, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $ 73,183 and $19,868 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.
Audit Fees represent fees billed for the fund's last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other
services that are normally provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.
Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.
The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm.
The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
| | | | |
| Fiscal | Audit- | | All | Total |
| year | Related | Tax | Other | Non-Audit |
| ended | Fees | Fees | Fees | Fees |
|
| September 30, 2008 | $ - | $ - | $ - | $ - |
|
| September 30, 2007 | $ - | $ - | $ - | $ - |
|
Item 5. Audit Committee of Listed Registrants
Not applicable
Item 6. Schedule of Investments:
The registrant’s schedule of investments in unaffiliated issuers is included in the report to
shareholders in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management
Investment Companies:
Not applicable
Item 8. Portfolio Managers of Closed-End Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:
Not applicable
Item 10. Submission of Matters to a Vote of Security Holders:
Not applicable
Item 11. Controls and Procedures:
(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting: Not applicable
Item 12. Exhibits:
(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.
(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.
(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Putnam U.S. Government Income Trust
By (Signature and Title):
/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer
Date: November 26, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title):
/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer
Date: November 26, 2008
By (Signature and Title):
/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer
Date: November 26, 2008
