U.S. Government Income Trust 43
Financial highlights (For a common share outstanding throughout the period)
INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | | RATIOS AND SUPPLEMENTAL DATA: |
Period ended | Net asset value, beginning of period | Net investment income (loss)a | Net realized and unrealized gain (loss) on investments | Total from investment operations | From
net investment income | From
net realized gain on investments | Total
distributions | Redemption
fees | Non-recurring reimbursements | Net asset value, end of period | Total return at net asset value (%)c | Net assets, end of period (in thousands) | Ratio of expenses to average net assets (%)d | Ratio of net investment income (loss) to average net assets (%) | Portfolio turnover (%) |
Class A | | | | | | | | | | | | | | | |
March 31, 2015** | $13.70 | .14 | —b | .14 | (.15) | — | (.15) | — | — | $13.69 | 1.00* | $867,027 | .42* | 1.00* | 790 e* |
September 30, 2014 | 13.30 | .26 | .37 | .63 | (.23) | — | (.23) | — | — | 13.70 | 4.80 | 863,612 | .86 | 1.95 | 1,346e |
September 30, 2013 | 13.69 | .16 | (.28) | (.12) | (.27) | — | (.27) | — | — | 13.30 | (.89) | 983,687 | .87 | 1.22 | 1,441f |
September 30, 2012 | 14.25 | .20 | .28 | .48 | (.54) | (.50) | (1.04) | — | — | 13.69 | 3.54 | 1,250,546 | .86 | 1.43 | 512f |
September 30, 2011 | 15.00 | .46 | .31 | .77 | (.52) | (1.00) | (1.52) | — | —b,j | 14.25 | 5.60 | 1,290,113 | .84 | 3.16 | 496f |
September 30, 2010 | 14.50 | .76 | .54 | 1.30 | (.75) | (.05) | (.80) | —b | —b,g | 15.00 | 9.10 | 1,305,668 | .86h,i | 5.03h | 515f |
Class B | | | | | | | | | | | | | | | |
March 31, 2015** | $13.63 | .09 | —b | .09 | (.10) | — | (.10) | — | — | $13.62 | .64* | $19,627 | .78* | .64* | 790 e* |
September 30, 2014 | 13.23 | .17 | .36 | .53 | (.13) | — | (.13) | — | — | 13.63 | 4.05 | 21,352 | 1.59 | 1.23 | 1,346e |
September 30, 2013 | 13.62 | .06 | (.28) | (.22) | (.17) | — | (.17) | — | — | 13.23 | (1.64) | 27,553 | 1.60 | .48 | 1,441f |
September 30, 2012 | 14.18 | .09 | .29 | .38 | (.44) | (.50) | (.94) | — | — | 13.62 | 2.83 | 44,352 | 1.59 | .65 | 512f |
September 30, 2011 | 14.93 | .34 | .33 | .67 | (.42) | (1.00) | (1.42) | — | —b,j | 14.18 | 4.84 | 37,213 | 1.56 | 2.40 | 496f |
September 30, 2010 | 14.44 | .66 | .52 | 1.18 | (.64) | (.05) | (.69) | —b | —b,g | 14.93 | 8.27 | 50,676 | 1.57h,i | 4.44h | 515f |
Class C | | | | | | | | | | | | | | | |
March 31, 2015** | $13.58 | .09 | —b | .09 | (.10) | — | (.10) | — | — | $13.57 | .64* | $71,357 | .79* | .63* | 790 e* |
September 30, 2014 | 13.18 | .16 | .37 | .53 | (.13) | — | (.13) | — | — | 13.58 | 4.05 | 73,828 | 1.61 | 1.21 | 1,346e |
September 30, 2013 | 13.57 | .06 | (.28) | (.22) | (.17) | — | (.17) | — | — | 13.18 | (1.66) | 99,052 | 1.62 | .46 | 1,441f |
September 30, 2012 | 14.13 | .09 | .29 | .38 | (.44) | (.50) | (.94) | — | — | 13.57 | 2.81 | 170,247 | 1.61 | .63 | 512f |
September 30, 2011 | 14.90 | .34 | .30 | .64 | (.41) | (1.00) | (1.41) | — | —b,j | 14.13 | 4.71 | 143,059 | 1.59 | 2.40 | 496f |
September 30, 2010 | 14.44 | .62 | .53 | 1.15 | (.64) | (.05) | (.69) | —b | —b,g | 14.90 | 8.06 | 134,365 | 1.61h,i | 4.10h | 515f |
Class M | | | | | | | | | | | | | | | |
March 31, 2015** | $13.75 | .12 | —b | .12 | (.13) | — | (.13) | — | — | $13.74 | .87* | $15,818 | .54* | .88* | 790 e* |
September 30, 2014 | 13.34 | .23 | .38 | .61 | (.20) | — | (.20) | — | — | 13.75 | 4.58 | 16,562 | 1.10 | 1.71 | 1,346e |
September 30, 2013 | 13.74 | .13 | (.30) | (.17) | (.23) | — | (.23) | — | — | 13.34 | (1.22) | 19,102 | 1.11 | .98 | 1,441f |
September 30, 2012 | 14.29 | .17 | .28 | .45 | (.50) | (.50) | (1.00) | — | — | 13.74 | 3.34 | 22,555 | 1.10 | 1.21 | 512f |
September 30, 2011 | 15.03 | .42 | .33 | .75 | (.49) | (1.00) | (1.49) | — | —b,j | 14.29 | 5.40 | 25,907 | 1.08 | 2.92 | 496f |
September 30, 2010 | 14.49 | .73 | .57 | 1.30 | (.71) | (.05) | (.76) | —b | —b,g | 15.03 | 9.13 | 28,380 | 1.10h,i | 4.83h | 515f |
Class R | | | | | | | | | | | | | | | |
March 31, 2015** | $13.56 | .12 | —b | .12 | (.13) | — | (.13) | — | — | $13.55 | .88* | $28,287 | .54* | .88* | 790 e* |
September 30, 2014 | 13.16 | .23 | .37 | .60 | (.20) | — | (.20) | — | — | 13.56 | 4.57 | 32,104 | 1.11 | 1.68 | 1,346e |
September 30, 2013 | 13.55 | .13 | (.29) | (.16) | (.23) | — | (.23) | — | — | 13.16 | (1.17) | 33,159 | 1.12 | .98 | 1,441f |
September 30, 2012 | 14.11 | .14 | .30 | .44 | (.50) | (.50) | (1.00) | — | — | 13.55 | 3.32 | 36,900 | 1.11 | 1.06 | 512f |
September 30, 2011 | 14.88 | .42 | .30 | .72 | (.49) | (1.00) | (1.49) | — | —b,j | 14.11 | 5.25 | 24,466 | 1.09 | 2.95 | 496f |
September 30, 2010 | 14.40 | .69 | .55 | 1.24 | (.71) | (.05) | (.76) | —b | —b,g | 14.88 | 8.77 | 12,358 | 1.11h,i | 4.57h | 515f |
Class Y | | | | | | | | | | | | | | | |
March 31, 2015** | $13.58 | .16 | —b | .16 | (.17) | — | (.17) | — | — | $13.57 | 1.15* | $94,658 | .29* | 1.15* | 790 e* |
September 30, 2014 | 13.19 | .29 | .37 | .66 | (.27) | — | (.27) | — | — | 13.58 | 5.04 | 69,154 | .61 | 2.19 | 1,346e |
September 30, 2013 | 13.58 | .19 | (.28) | (.09) | (.30) | — | (.30) | — | — | 13.19 | (.63) | 54,316 | .62 | 1.45 | 1,441f |
September 30, 2012 | 14.14 | .21 | .30 | .51 | (.57) | (.50) | (1.07) | — | — | 13.58 | 3.85 | 98,575 | .61 | 1.56 | 512f |
September 30, 2011 | 14.90 | .50 | .30 | .80 | (.56) | (1.00) | (1.56) | — | —b,j | 14.14 | 5.83 | 65,227 | .59 | 3.47 | 496f |
September 30, 2010 | 14.42 | .77 | .55 | 1.32 | (.79) | (.05) | (.84) | —b | —b,g | 14.90 | 9.28 | 51,845 | .61h,i | 5.10h | 515f |
See notes to financial highlights at the end of this section.
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Financial highlights (Continued)
* Not annualized.
** Unaudited.
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 and/or brokerage service arrangements, if any (Note 2). Also excludes acquired fund fees and expenses, if any.
e Portfolio turnover includes TBA purchase and sale commitments.
f Portfolio turnover excludes TBA purchase and sale commitments. Including TBA purchase and sale commitments to conform with current year presentation, the portfolio turnover would have been the following:
| Portfolio turnover % |
September 30, 2013 | 1,876% |
September 30, 2012 | 1,361 |
September 30, 2011 | 1,184 |
September 30, 2010 | 1,081 |
g Reflects a non-recurring reimbursement pursuant to a settlement between the Securities and Exchange Commission (SEC) and Prudential Securities, Inc., which amounted to less than $0.01 per share outstanding as of March 30, 2010.
h Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of 0.02% of average net assets for the period ended September 30, 2010.
i Excludes the impact of a reduction to interest expense related to the resolution of certain terminated derivatives contracts, which amounted to 0.06% of average net assets as of September 30, 2010.
j Reflects a non-recurring reimbursement related to restitution amounts in connection with a distribution plan approved by the SEC which amounted to less than $0.01 per share outstanding on July 21, 2011. Also reflects a non-recurring reimbursement related to short-term trading related lawsuits, which amounted to less than $0.01 per share outstanding on May 11, 2011.
The accompanying notes are an integral part of these financial statements.
46 U.S. Government Income Trust
Notes to financial statements 3/31/15 (Unaudited)
Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from October 1, 2014 through March 31, 2015.
Putnam U.S. Government Income Trust (the fund) is 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 goal of the fund is to seek as high a level of current income as Putnam Management believes is consistent with preservation of capital. The fund invests mainly in bonds and securitized debt instruments (such as mortgage-backed investments) that are obligations of the U.S. government, its agencies and instrumentalities and accordingly are backed by the full faith and credit of the United States (e.g., U.S. Treasury bonds and Ginnie Mae mortgage-backed bonds) or by only the credit of a federal agency or government-sponsored entity (e.g., Fannie Mae and Freddie Mac mortgage-backed bonds), and that have short- to long-term maturities. Putnam Management may consider, among other factors, credit, interest rate and prepayment risks, as well as general market conditions, when deciding whether to buy or sell investments.
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 not available to all investors, 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 and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
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.
Note 1: Significant accounting policies
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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.
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.
Security valuation Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.
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 Management. Such service
U.S. Government Income Trust 47
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. These securities will generally be categorized as Level 2. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value, and are classified as Level 2 securities.
Investments in open-end investment companies (excluding exchange-traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.
Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures, recovery rates, sales and other multiples and resale restrictions. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
To assess the continuing appropriateness of fair valuations, the Valuation Committee reviews and affirms the reasonableness of such valuations on a regular basis after considering all relevant information that is reasonably available. 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 is 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 in a current sale and does not reflect an actual market price, which may be different by a material amount.
Joint trading account Pursuant to an exemptive order from the SEC, the fund may transfer uninvested cash balances 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 90 days.
Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the fair 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. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings.
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, net of any applicable withholding taxes, is recorded on the accrual basis. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.
Securities purchased or sold on a forward commitment or delayed delivery basis may be settled at a future date beyond customary settlement time; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the fair value of the underlying securities or if the counterparty does not perform under the contract.
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 fair value of these securities is highly sensitive to changes in interest rates.
Options contracts The fund uses options contracts to hedge duration and convexity, to isolate prepayment risk and to manage downside risks.
The potential risk to the fund is that the change in value of 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, if interest or exchange rates move
48 U.S. Government Income Trust
unexpectedly or if the counterparty to the contract is unable to perform. 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.
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. OTC traded options are valued using prices supplied by dealers.
Options on swaps are similar to options on securities except that the premium paid or received is to buy or grant the right to enter into a previously agreed upon interest rate or credit default contract. Forward premium swap option contracts include premiums that have extended settlement dates. The delayed settlement of the premiums is factored into the daily valuation of the option contracts. In the case of interest rate cap and floor contracts, in return for a premium, ongoing payments between two parties are based on interest rates exceeding a specified rate, in the case of a cap contract, or falling below a specified rate in the case of a floor contract.
Written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.
Futures contracts The fund uses futures contracts to hedge treasury term structure risk and for yield curve positioning.
The potential risk to the fund is that the change in value of futures 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, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. With futures, there is minimal counterparty credit risk to the fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. 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 the value of the contract at the time it was opened and the value at the time it was closed.
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.”
Futures contracts outstanding at period end, if any, are listed after the fund’s portfolio.
Interest rate swap contracts The fund entered into OTC and/or centrally cleared interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to hedge term structure risk and for yield curve positioning.
An OTC and centrally cleared interest rate swap can be purchased or sold with an upfront premium. For OTC interest rate swap contracts, 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. OTC and centrally cleared interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers. Any change is recorded as an unrealized gain or loss on OTC interest rate swaps. Daily fluctuations in the value of centrally cleared interest rate swaps are settled through a central clearing agent and are recorded in variation margin on the Statement of assets and liabilities and recorded as unrealized gain or loss. Payments, including upfront premiums, received or made are recorded as realized gains or losses at the reset date or the closing of the contract. Certain OTC and centrally cleared interest rate swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract.
The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults, in the case of OTC interest rate contracts, or the central clearing agency or a clearing member defaults, in the case of centrally cleared interest rate swap contracts, on its respective obligation to perform under the contract. The fund’s maximum risk of loss from counterparty risk or central clearing risk is the fair value of the contract. This risk may be mitigated for OTC interest rate swap contracts by having a master netting arrangement between the fund and the counterparty and for centrally cleared interest rate swap contracts through the daily exchange of variation margin. There is minimal counterparty risk with respect to centrally cleared interest rate swap contracts due to the clearinghouse guarantee fund and other resources that are available in the event of a clearing member default. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
OTC and centrally cleared interest rate swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
U.S. Government Income Trust 49
Total return swap contracts The fund entered into OTC 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 hedge sector exposure and to gain exposure to specific sectors.
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. OTC total return 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 OTC total return swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in 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. The fund’s maximum risk of loss from counterparty risk is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
OTC total return swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
TBA 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 and par amount have been established, the actual securities have not been specified. However, it is anticipated that 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.
The fund may also enter into TBA sale commitments to hedge its portfolio positions, to sell mortgage-backed securities it owns under delayed delivery arrangements or to take a short position in mortgage-backed securities. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, either equivalent deliverable securities or an offsetting TBA purchase commitment deliverable on or before the sale commitment date are held as “cover” for the transaction, or other liquid assets in an amount equal to the notional value of the TBA sale commitment are segregated. 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 commitments, which are accounted for as purchase and sale transactions, may be considered securities themselves, and involve a risk of loss due to changes in the value of the security prior to the settlement date as well as the risk that the counterparty to the transaction will not perform its obligations. Counterparty risk is mitigated by having a master agreement between the fund and the counterparty.
Unsettled TBA commitments are valued at their fair value according to the procedures described under “Security valuation” above. The contract is marked to market daily and the change in fair value is recorded by the fund as an unrealized gain or loss. Based on market circumstances, Putnam Management will determine whether to take delivery of the underlying securities or to dispose of the TBA commitments prior to settlement.
TBA purchase commitments outstanding at period end, if any, are listed within the fund’s portfolio and TBA sale commitments outstanding at period end, if any, are listed after the fund’s portfolio.
Master agreements The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements that govern OTC derivative and foreign exchange contracts and Master Securities Forward Transaction Agreements that govern transactions involving mortgage backed and other asset backed securities that may result in delayed delivery (Master Agreements) with certain counterparties entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and, with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral posted to the fund which cannot be sold or repledged totaled $350,722 at the close of the reporting period.
50 U.S. Government Income Trust
Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty.
With respect to ISDA Master Agreements, termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term or short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $1,410,563 on open derivative contracts subject to the Master Agreements. Collateral posted by the fund at period end for these agreements totaled $1,290,000 and may include amounts related to unsettled agreements.
Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
Lines of credit The fund participates, along with other Putnam funds, in a $392.5 million unsecured committed line of credit and a $235.5 million unsecured uncommitted line of credit, both provided by State Street. Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.04% of the committed line of credit and 0.04% of the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.11% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period 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.
The fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
Under the Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred for an unlimited period and the carry forwards will retain their character as either short-term or long-term capital losses. At September 30, 2014, the fund had the following capital loss carryovers available, to the extent allowed by the Code, to offset future net capital gain, if any:
Loss carryover |
Short-term | Long-term | Total |
$69,986,920 | $12,160,257 | $82,147,177 |
Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer certain capital losses of $1,520,001 recognized during the period between November 1, 2013 and September 30, 2014 to its fiscal year ending September 30, 2015.
The aggregate identified cost on a tax basis is $2,371,384,505, resulting in gross unrealized appreciation and depreciation of $39,597,347 and $22,917,272, respectively, or net unrealized appreciation of $16,680,075.
U.S. Government Income Trust 51
Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. 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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations.
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
0.550% | of the first $5 billion, |
0.500% | of the next $5 billion, |
0.450% | of the next $10 billion, |
0.400% | of the next $10 billion, |
0.350% | of the next $50 billion, |
0.330% | of the next $50 billion, |
0.320% | of the next $100 billion and |
0.315% | of any excess thereafter. |
Putnam Management has contractually agreed, through June 30, 2015, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses, acquired fund fees and expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.25% of the average net assets of the portion of the fund managed by PIL.
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.
Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing that included (1) a per account fee for each direct and underlying non-defined contribution account (“retail account”) of the fund and each of the other funds in its specified category, which was totaled and then allocated to each fund in the category based on its average daily net assets; (2) a specified rate of the fund’s assets attributable to defined contribution plan accounts; and (3) for the portion of the fund’s fiscal year beginning after January 1, 2015, a specified rate based on the average net assets in retail accounts. Putnam Investor Services has agreed that the aggregate investor servicing fees for each fund’s retail and defined contribution accounts will not exceed an annual rate of 0.320% of the fund’s average assets attributable to such accounts. During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:
Class A | $663,399 |
Class B | 15,441 |
Class C | 55,141 |
Class M | 12,225 |
Class R | 22,021 |
Class Y | 70,309 |
Total | $838,536 |
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $1,512 under the expense offset arrangements.
52 U.S. Government Income Trust
Each Independent Trustee of the fund receives an annual Trustee fee, of which $629, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. 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, an indirect wholly-owned subsidiary of Putnam Investments, LLC, for services provided and expenses incurred in distributing shares of the fund. The Plans provide for 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% of the net assets of Putnam Limited Duration Government Income Fund attributable to class B shares existing on November 9, 2007; and (ii) 1.00% of 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% of the net assets of Putnam Limited Duration Government Income Fund attributable to class M shares existing on November 9, 2007; and (ii) 0.50% of all other net assets of Putnam U.S. Government Income Trust attributable to class M shares. During the reporting period, the class specific expenses related to distribution fees were as follows:
Class A | $1,090,571 |
Class B | 99,668 |
Class C | 362,849 |
Class M | 39,408 |
Class R | 72,468 |
Total | $1,664,964 |
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $19,129 and $47 from the sale of class A and class M shares, respectively, and received $2,342 and $978 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 reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $3 and no monies on class A and class M redemptions, respectively.
Note 3: Purchases and sales of securities
During the reporting period, the cost of purchases and the proceeds from sales, excluding short-term investments, were as follows:
| Cost of purchases | Proceeds from sales |
Investments in securities, including TBA commitments (Long-term) | $12,162,849,157 | $11,967,018,269 |
U.S. government securities (Long-term) | — | — |
Total | $12,162,849,157 | $11,967,018,269 |
U.S. Government Income Trust 53
Written option transactions during the reporting period are summarized as follows:
| Written swap option contract amounts | Written swap option premiums | Written option contract amounts | Written option premiums |
Written options outstanding at the beginning of the reporting period | $1,062,601,200 | $6,942,866 | $312,000,000 | $2,352,188 |
Options opened | 4,991,715,925 | 29,929,581 | 962,000,000 | 5,876,641 |
Options exercised | (286,554,900) | (1,815,541) | — | — |
Options expired | (253,115,100) | (2,717,426) | (534,000,000) | (2,589,219) |
Options closed | (3,382,562,800) | (20,329,025) | (592,000,000) | (4,457,344) |
Written options outstanding at the end of the reporting period | $2,132,084,325 | $12,010,455 | $148,000,000 | $1,182,266 |
Note 4: Capital shares
At the close of the reporting period, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Six months ended 3/31/15 | Year ended 9/30/14 |
Class A | Shares | Amount | Shares | Amount |
Shares sold | 7,929,989 | $108,875,198 | 6,792,071 | $92,046,571 |
Shares issued in connection with reinvestment of distributions | 584,679 | 8,005,317 | 1,017,107 | 13,796,146 |
| 8,514,668 | 116,880,515 | 7,809,178 | 105,842,717 |
Shares repurchased | (8,238,428) | (113,018,440) | (18,722,405) | (253,377,737) |
Net increase (decrease) | 276,240 | $3,862,075 | (10,913,227) | $(147,535,020) |
| Six months ended 3/31/15 | Year ended 9/30/14 |
Class B | Shares | Amount | Shares | Amount |
Shares sold | 43,548 | $593,446 | 88,084 | $1,189,674 |
Shares issued in connection with reinvestment of distributions | 10,076 | 137,297 | 16,210 | 218,753 |
| 53,624 | 730,743 | 104,294 | 1,408,427 |
Shares repurchased | (179,493) | (2,449,248) | (619,904) | (8,327,576) |
Net decrease | (125,869) | $(1,718,505) | (515,610) | $(6,919,149) |
| Six months ended 3/31/15 | Year ended 9/30/14 |
Class C | Shares | Amount | Shares | Amount |
Shares sold | 519,033 | $7,054,803 | 531,507 | $7,146,377 |
Shares issued in connection with reinvestment of distributions | 31,603 | 428,935 | 51,496 | 692,365 |
| 550,636 | 7,483,738 | 583,003 | 7,838,742 |
Shares repurchased | (729,944) | (9,913,162) | (2,658,754) | (35,591,297) |
Net decrease | (179,308) | $(2,429,424) | (2,075,751) | $(27,752,555) |
54 U.S. Government Income Trust
| Six months ended 3/31/15 | Year ended 9/30/14 |
Class M | Shares | Amount | Shares | Amount |
Shares sold | 30,750 | $423,536 | 5,450 | $73,957 |
Shares issued in connection with reinvestment of distributions | 4,364 | 59,975 | 7,297 | 99,325 |
| 35,114 | 483,511 | 12,747 | 173,282 |
Shares repurchased | (88,934) | (1,225,253) | (239,508) | (3,258,705) |
Net decrease | (53,820) | $(741,742) | (226,761) | $(3,085,423) |
| Six months ended 3/31/15 | Year ended 9/30/14 |
Class R | Shares | Amount | Shares | Amount |
Shares sold | 519,155 | $7,042,759 | 899,582 | $12,087,564 |
Shares issued in connection with reinvestment of distributions | 15,791 | 214,025 | 26,916 | 361,652 |
| 534,946 | 7,256,784 | 926,498 | 12,449,216 |
Shares repurchased | (815,587) | (11,053,270) | (1,077,485) | (14,460,691) |
Net decrease | (280,641) | $(3,796,486) | (150,987) | $(2,011,475) |
| Six months ended 3/31/15 | Year ended 9/30/14 |
Class Y | Shares | Amount | Shares | Amount |
Shares sold | 4,189,832 | $57,061,663 | 3,714,054 | $49,977,825 |
Shares issued in connection with reinvestment of distributions | 77,559 | 1,052,354 | 73,730 | 991,282 |
| 4,267,391 | 58,114,017 | 3,787,784 | 50,969,107 |
Shares repurchased | (2,384,629) | (32,200,397) | (2,813,226) | (37,672,800) |
Net increase | 1,882,762 | $25,913,620 | 974,558 | $13,296,307 |
Note 5: Affiliated transactions
Transactions during the reporting period with Putnam Money Market Liquidity Fund, which is under common ownership and control, were as follows:
Name of affiliate | Fair value at the beginning of the reporting period | Purchase cost | Sale proceeds | Investment income | Fair value at the end of the reporting period |
Putnam Money Market Liquidity Fund* | $156,832,736 | $298,106,118 | $424,261,905 | $40,589 | $30,676,949 |
Totals | $156,832,736 | $298,106,118 | $424,261,905 | $40,589 | $30,676,949 |
*Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 6: Market, credit and other risks
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default. The fund may invest a significant portion of its 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 to buy or sell.
U.S. Government Income Trust 55
Note 7: Summary of derivative activity
The volume of activity for the reporting period for any derivative type that was held during the period is listed below and was as follows based on an average of the holdings at the end of each fiscal quarter:
Purchased TBA commitment option contracts (contract amount) | $152,300,000 |
Purchased swap option contracts (contract amount) | $1,869,500,000 |
Written TBA commitment option contracts (contract amount) (Note 3) | $298,300,000 |
Written swap option contracts (contract amount) (Note 3) | $1,501,800,000 |
Futures contracts (number of contracts) | 400 |
Centrally cleared interest rate swap contracts (notional) | $2,823,800,000 |
OTC total return swap contracts (notional) | $536,900,000 |
The following is a summary of the fair value of derivative instruments as of the close of the reporting period:
Fair value of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives |
Derivatives not accounted for as hedging instruments under ASC 815 | Statement of
assets and
liabilities location | Fair value | Statement of
assets and
liabilities location | Fair value |
Interest rate contracts | Investments, Receivables, Net assets — Unrealized appreciation | $37,006,172* | Payables, Net assets — Unrealized depreciation | $37,917,349* |
Total | | $37,006,172 | | $37,917,349 |
*Includes cumulative appreciation/depreciation of futures contracts and centrally cleared swaps as reported in the fund’s portfolio. Only the current day’s variation margin is reported within the Statement of assets and liabilities.
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
Derivatives not accounted for as hedging instruments under ASC 815 | Options | Futures | Swaps | Total |
Interest rate contracts | $162,839 | $(1,647,163) | $(9,685,528) | $(11,169,852) |
Total | $162,839 | $(1,647,163) | $(9,685,528) | $(11,169,852) |
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
Derivatives not accounted for as hedging instruments under ASC 815 | Options | Futures | Swaps | Total |
Interest rate contracts | $5,442,715 | $(927,053) | $(1,556,416) | $2,959,246 |
Total | $5,442,715 | $(927,053) | $(1,556,416) | $2,959,246 |
56 U.S. Government Income Trust
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U.S. Government Income Trust 57
Note 8: Offsetting of financial and derivative assets and liabilities
The following table summarizes any derivatives, repurchase agreements and reverse repurchase agreements, at the end of the reporting period, that are subject to an enforceable master netting agreement or similar agreement. For securities lending transactions or borrowing transactions associated with securities sold short, if any, see Note 1. For financial reporting purposes, the fund does not offset financial assets and financial liabilities that are subject to the master netting agreements in the Statement of assets and liabilities.
| Bank of America N.A. | Barclays Bank PLC | Barclays Capital Inc. (clearing broker) | Citibank, N.A. | Credit Suisse International | Deutsche Bank AG | Goldman Sachs International | JPMorgan Chase Bank N.A. | Merrill Lynch, Pierce, Fenner & Smith, Inc. | Total |
Assets: | | | | | | | | | | |
Centrally cleared interest rate swap contracts§ | $— | $— | $3,804,298 | $— | $— | $— | $— | $— | $— | $3,804,298 |
OTC Total return swap contracts*# | — | 1,253,168 | — | — | 79,540 | 27,272 | 433,583 | 59,050 | — | 1,852,613 |
Futures contracts§ | — | — | — | — | — | — | — | — | — | — |
Forward premium swap option contracts# | — | — | — | — | — | — | — | 445,332 | — | 445,332 |
Purchased swap options**# | 2,333,942 | 1,340,044 | — | 3,573,774 | 4,014,305 | — | 2,404,103 | — | — | 13,666,168 |
Purchased options**# | — | — | — | — | — | — | — | 619,306 | — | 619,306 |
Total Assets | $2,333,942 | $2,593,212 | $3,804,298 | $3,573,774 | $4,093,845 | $27,272 | $2,837,686 | $1,123,688 | $— | $20,387,717 |
Liabilities: | | | | | | | | | | |
Centrally cleared interest rate swap contracts§ | — | — | 4,726,244 | — | — | — | — | — | — | 4,726,244 |
OTC Total return swap contracts*# | 95,119 | 569,555 | — | 297 | 854,313 | 2,640 | 503,117 | 73,099 | — | 2,098,140 |
Futures contracts§ | — | — | — | — | — | — | — | — | 52,613 | 52,613 |
Forward premium swap option contracts# | — | — | — | — | — | — | 32,446 | 439,157 | — | 471,603 |
Written swap options# | 1,651,628 | 636,571 | — | 1,936,543 | 434,027 | — | 2,000,864 | 1,710,307 | — | 8,369,940 |
Written options# | — | — | — | — | — | — | — | 311,688 | — | 311,688 |
Total Liabilities | $1,746,747 | $1,206,126 | $4,726,244 | $1,936,840 | $1,288,340 | $2,640 | $2,536,427 | $2,534,251 | $52,613 | $16,030,228 |
Total Financial and Derivative Net Assets | $587,195 | $1,387,086 | $(921,946) | $1,636,934 | $2,805,505 | $24,632 | $301,259 | $(1,410,563) | $(52,613) | $4,357,489 |
Total collateral received (pledged)†## | $420,000 | $1,139,000 | $— | $1,590,000 | $2,805,505 | $— | $301,259 | $(1,290,000) | $— | |
Net amount | $167,195 | $248,086 | $(921,946) | $46,934 | $— | $24,632 | $— | $(120,563) | $(52,613) | |
* | Excludes premiums, if any. Included in unrealized appreciation and depreciation on OTC swap contracts on the Statement of assets and liabilities. |
** | Included with Investments in securities on the Statement of assets and liabilities. |
† | Additional collateral may be required from certain brokers based on individual agreements. |
# | Covered by master netting agreement (Note 1). |
## | Any over-collateralization of total financial and derivative net assets is not shown. Collateral may include amounts related to unsettled agreements. |
§ | Includes current day’s variation margin only as reported on the Statement of assets and liabilities, which is not collateralized. Cumulative appreciation/(depreciation) for futures contracts and centrally cleared swap contracts is represented in the tables listed after the fund’s portfolio. |
58 | U.S. Government Income Trust | U.S. Government Income Trust | 59 |
Services for shareholders
Investor services
Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.
Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.
Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.
Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.
Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.
Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.
Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.
Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.
For more information
Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.
Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.
60 U.S. Government Income Trust
Founded over 75 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 over 100 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Investment Sub-Manager
Putnam Investments Limited
57–59 St James’s Street
London, England SW1A 1LD
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
State Street Bank
and Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
Jameson A. Baxter, Chair
Liaquat Ahamed
Ravi Akhoury
Barbara M. Baumann
Charles B. Curtis
Robert J. Darretta
Katinka Domotorffy
John A. Hill
Paul L. Joskow
Kenneth R. Leibler
Robert E. Patterson
George Putnam, III
Robert L. Reynolds
W. Thomas Stephens
Officers
Robert L. Reynolds
President
Jonathan S. Horwitz
Executive Vice President,
Principal Executive Officer, and
Compliance Liaison
Steven D. Krichmar
Vice President and
Principal Financial Officer
Robert T. Burns
Vice President and
Chief Legal Officer
Robert R. Leveille
Vice President and
Chief Compliance Officer
Michael J. Higgins
Vice President, Treasurer,
and Clerk
Janet C. Smith
Vice President,
Principal Accounting Officer,
and Assistant Treasurer
Susan G. Malloy
Vice President and
Assistant Treasurer
James P. Pappas
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
Nancy E. Florek
Vice President, Director of
Proxy Voting and Corporate
Governance, Assistant Clerk,
and Associate 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 putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary 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.
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| Item 3. Audit Committee Financial Expert: |
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| Item 4. Principal Accountant Fees and Services: |
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| Item 5. Audit Committee of Listed Registrants |
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| Item 6. Schedule of Investments: |
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| The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above. |
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| Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies: |
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| Item 8. Portfolio Managers of Closed-End Investment Companies |
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| Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers: |
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| Item 10. Submission of Matters to a Vote of Security Holders: |
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| Item 11. Controls and Procedures: |
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| (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. |
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| (b) Changes in internal control over financial reporting: Not applicable |
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| (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. |
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| (b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith. |
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| Putnam U.S. Government Income Trust |
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| By (Signature and Title): |
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| /s/ Janet C. Smith
Janet C. Smith
Principal Accounting Officer
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| 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. |
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| By (Signature and Title): |
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| /s/ Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer
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| By (Signature and Title): |
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| /s/ Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer
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