Putnam
U.S. Government
Income Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
We are pleased to report further progress in Putnam's reforms on behalf of
shareholders. The most significant news is the settlement that has been
reached with the Securities and Exchange Commission and with regulatory
authorities in the Commonwealth of Massachusetts regarding market timing in
Putnam funds. Putnam President and Chief Executive Officer Ed Haldeman has
sent a letter to all shareholders describing the terms of the settlement.
Most of the $110 million to be paid by Putnam Investment Management, LLC
will be distributed to the funds as restitution to shareholders, thereby
fulfilling an important element of the initial settlement that Putnam
reached with the SEC in November 2003.
Over the past several months, Putnam has also introduced a number of
voluntary reforms. We would like to call your attention to two of them.
Expense comparisons and a risk comparison can be found following the
performance tables in the Performance Summary of this report. The
expense comparison information enables you to estimate the amount you
have actually paid for ongoing expenses such as management fees and
distribution (or 12b-1) fees and to compare these expenses with the
average expenses of funds in the same Lipper peer group. The risk
comparison shows the fund's risk relative to similar funds as tracked by
Morningstar, an independent fund-rating company. We believe the expense
and risk information will provide valuable tools for you and your
financial advisor when you make decisions about your financial program.
We are pleased to report that Putnam U.S. Government Income Trust posted
positive returns at net asset value for the six-month period ended March
31, 2004. However, the fund slightly underperformed its Lipper category
average during the period and trailed its benchmark index, due to
conservative positioning intended to protect the fund from the impact of
an anticipated increase in interest rates. The management team believes
that this positioning may prove beneficial to fund results in coming
months.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 19, 2004
Report from Fund Management
Fund highlights
* Putnam U.S. Government Income Trust class A shares returned 1.82% at
net asset value (NAV) and -3.04% at public offering price (POP) for the
six months ended March 31, 2004.
* Due to its defensive positioning, which helped protect the portfolio's
value but limited its upside potential, the fund lagged its benchmark,
the Lehman GNMA Index, which returned 2.62% during the same period.
* The fund's performance at NAV slightly lagged the 1.93% average return
for its Lipper category, GNMA Funds, for the same reason.
* The fund adjusted its dividend upward in January 2004. See page 5
for details.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
The positioning of your fund's portfolio during the first half of fiscal
2004 was in accordance with both parts of the fund's objective -- it
seeks high current income consistent with capital preservation. Because
bond prices fall when interest rates rise, we generally kept the
portfolio structured defensively to protect its value in the event that
interest rates rose amid the U.S. economy's ongoing strong rebound.
FUND PROFILE
Putnam U.S. Government Income Trust seeks current income by investing in
obligations of the U.S. government and its agencies and
instrumentalities, such as Government National Mortgage Association
certificates (Ginnie Maes), Federal National Mortgage Association
certificates (Fannie Maes), Federal Home Loan Mortgage Corporation
certificates (Freddie Macs), and U.S. Treasury securities. Ginnie Maes,
Fannie Maes, and Freddie Macs are generally high quality and typically
provide higher yields than Treasury securities of similar maturities.
The fund is designed primarily for investors seeking income, but it can
also lower volatility in a well-diversified portfolio.
However, while interest rates moved within a narrow range during the
semiannual period, they actually trended lower rather than higher. This
was due primarily to the Federal Reserve Board's loose monetary policy
amid continued mild inflation and slow job creation. In addition,
overseas demand for U.S. bonds remained robust, putting continuous
downward pressure on yields. In such an environment, the portfolio's
conservative positioning caused the fund to lag its benchmark and
slightly trail its peer group. However, such positioning may benefit
relative performance should the upward trend in rates that began toward
the period's end persist in coming months.
Market overview
Bond markets during the period were focused on conflicting signals about
the strength and sustainability of the U.S. economic recovery. Though
many indicators pointed to continued robust expansion, capacity
utilization remained low and reported job creation, especially later in
the period, was disappointing. Prices of consumer goods barely rose over
the period, a remarkable phenomenon considering the weak U.S. dollar and
rising prices for raw materials.
With inflation apparently under control, many investors concluded that
the Federal Reserve Board would maintain its bond-friendly loose
monetary policy through year-end 2004 and perhaps beyond. Massive
purchases of U.S. bonds, especially Treasuries, by foreign central banks
seeking to manage their currencies, also helped support prices of these
securities. As a result, bond markets advanced, though not as much as
equity markets, and interest rates trended generally lower.
Because of their high credit quality, Treasuries carry lower yields than
other types of fixed-income securities of comparable maturity. In this
low-interest-rate environment, the higher yields available outside the
Treasury sector proved more attractive to investors and Treasuries
underperformed during the period. In the mortgage-backed securities
(MBS) sector, investors seeking the yield advantages of these securities
boosted demand and helped offset concerns about proposed legislation to
tighten the regulation of quasi-governmental bond issuers such as the
Government National Mortgage Association.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 3/31/04
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Bonds
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Lehman GNMA Index (Government National Mortgage Association
bonds) 2.62%
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Lehman Aggregate Bond Index (broad bond market) 2.98%
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Lehman Municipal Bond Index (tax-exempt bonds) 3.12%
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JP Morgan Chase Global High Yield Index (global high-yield
corporate bonds) 8.78%
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Equities
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S&P 500 Index (broad stock market) 14.08%
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Russell 1000 Growth Index (large-company growth stocks) 11.28%
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Russell 1000 Value Index (large-company value stocks) 17.65%
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These indexes provide an overview of performance in different market
sectors for the six months ended 3/31/04.
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Strategy overview
The period was marked by generally narrowing yield spreads, i.e.,
decreasing differences in yields between shorter- and longer-term bonds,
along with limited interest-rate volatility. Such an environment is not
rich in opportunities for a bond manager to add value, particularly for
a fund such as this with a large allocation to mortgage-backed
securities. As in the past, our investment selection process is to first
decide if MBSs or other comparable-maturity instruments such as
Treasuries are more attractive, given relative valuations and our
outlook for the economy and interest rates. Then, we analyze relative
valuations and yields within these sectors to choose investments for the
portfolio. This helps us identify opportunities offered by securities
that are not included in the benchmark.
As already noted, the portfolio was positioned defensively at various
times during the period so as to minimize the loss of principal value if
interest rates rose. For example, the fund's average maturity and
duration (a measure of interest-rate sensitivity) were kept shorter than
that of the benchmark early and late in the period. For similar reasons,
we continued to hold small positions in classes of securities outside
the benchmark. Early in the period, we emphasized securities with
relatively high stated, or coupon, yields, which tend to do better in
times of rising rates. We then favored lower-coupon instruments as
relative valuations shifted. By the period's end, as higher interest
rates became, in our view, increasingly likely, we returned to many of
these defensive strategies.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
9/30/03 12/31/03 3/31/04
Average effective
maturity in years 3.4 5.1 3.6
Duration in years 1.9 2.6 2.1
Footnote reads:
This chart compares changes in the fund's duration (a measure of its
sensitivity to interest-rate changes) and its average effective maturity
(a weighted average of the holdings' maturities).
Average effective maturity also takes into account put and call
features, where applicable, and reflects prepayments for mortgage-backed
securities.
How sector allocations and fund holdings affected performance
Within the portfolio's allocation to mortgage-backed securities (MBSs),
we continued our focus on Ginnie Maes (issued by the Government National
Mortgage Association (GNMA)), your fund's traditional investments. We
also maintained our position in another type of MBS -- Fannie Maes
(issued by the Federal National Mortgage Association (FNMA)) -- which
are not represented in the fund's benchmark. Fannie Maes differ from
Ginnie Maes in that they are backed only by the credit of the issuing
government agency. Ginnie Maes, on the other hand, are backed by the
full faith and credit of the U.S. government. We chose investments
within these sectors by issuer or coupon rate by analyzing relative
valuation and yields.
Early in the period, we maintained an emphasis on higher-coupon
securities: GNMA 5s, FNMA 6.5s, 30-year GNMA 6.5s, and reperforming
mortgages originally issued by the Federal Housing
Administration/Veterans Administration (FHA/VA). (This last category
comprises credit-impaired loans pulled out of GNMA pools and then
resecuritized by FNMA and the Federal Home Loan Mortgage Corporation
(FHLMC)).
We continued to hold a type of collateralized mortgage obligation (CMO)
known as interest-only strips. Issued by Fannie Mae, Ginnie Mae, or private
issuers, CMOs are high-quality investments that typically offer slightly
lower yields than conventional mortgage-backed securities but provide a
more stable stream of income. Payment sources from these securities are
limited to the interest paid on mortgages, a characteristic that enabled
us to use them as a hedge against rising rates.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION AS OF 3/31/04]
PORTFOLIO COMPOSITION AS OF 3/31/04
U.S. government and agency obligations
Ginnie Mae 69.2%
Fannie Mae 21.1%
Short-term investments 13.2%
Collateralized mortgage obligations 9.4%
Footnote reads:
Weightings are shown as a percentage of net assets. Holdings will vary
over time. A portion of short-term investments reflects amounts used to
settle TBA purchase commitments.
The portfolio's largest single position throughout the period was in
30-year GNMA 5% obligations. The portfolio was also generally
overweighted in GNMA 15-year paper. In November and December, we began
to buy FNMA 15-year securities, which we then held through the period's
end. We began to favor lower-coupon securities in the middle of the
period based on valuation relative to higher-coupon instruments.
However, when relative valuation in higher coupons once again became
more attractive in the last few months of the period, we began building
a position in FNMA 30-year 7% paper and added some interest-only strips.
These strategies generally benefited returns.
Please note that all allocations and holdings discussed in this report
are subject to review in accordance with the fund's investment strategy
and may vary in the future.
OF SPECIAL INTEREST
Between June 13, 2000, and January 8, 2004, the yield on the 10-year
Treasury note increased roughly 37%, from 3.11% to 4.25%. As a result,
your fund, which holds a combination of government bonds and
mortgage-backed securities, increased its dividend by 55.56% in January
2004 -- from $0.018 to $0.028 per share. Investors should note that
future dividends will continue to reflect the fund's earnings and may be
reduced when necessary.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income Team. The members of
the team are Kevin Cronin (Portfolio Leader), Rob Bloemker (Portfolio
Member), Carl Bell, Andrea Burke, Steve Horner, D. William Kohli,
Michael Salm, John Van Tassel, and David Waldman.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
We believe the economy is on track for sustained growth in coming
months. There are tentative signs that job creation, which has lagged
other areas of the economy, is beginning to rebound and come into line
with other key economic barometers. Evidence of more robust job growth
would in turn have an important effect on bond markets; the Fed appears
poised to begin lifting short-term interest rates from today's extremely
low levels once it becomes convinced that the economic recovery is
sustainable. Longer-term rates were already rising in early April in
response to signs of sustained economic expansion and inflationary
pressures.
We continue to conservatively position the portfolio to preserve
principal value. The main way we are seeking to add value is through
security selection. For example, currently we prefer lower-coupon
securities, which typically have less volatile returns than
higher-coupon instruments. We also retain positions in securities not in
the benchmark that we believe are attractively priced, such as FNMA- and
Freddie Mac-issued obligations. We expect to become more aggressive in
employing other performance-enhancing strategies once we become more
confident about the timing of a change in Fed monetary policy.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Mutual funds that
invest in government securities are not guaranteed. Mortgage-backed
securities are subject to prepayment risk.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended March 31, 2004. 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. For the most recent month-end
performance, please visit www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 3/31/04
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Class A Class B Class C Class M Class R
(inception dates) (2/8/84) (4/27/92) (7/26/99) (2/6/95) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 1.82% -3.04% 1.52% -3.49% 1.41% 0.41% 1.68% -1.61% 1.65%
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1 year 2.71 -2.18 1.92 -3.08 1.91 0.91 2.43 -0.87 2.45
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5 years 31.12 24.85 26.33 24.33 26.26 26.26 29.52 25.35 29.48
Annual average 5.57 4.54 4.79 4.45 4.77 4.77 5.31 4.62 5.30
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10 years 84.79 76.01 71.37 71.37 71.37 71.37 80.03 74.20 80.24
Annual average 6.33 5.82 5.53 5.53 5.53 5.53 6.06 5.71 6.07
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Annual average
(life of fund) 7.72 7.46 6.82 6.82 6.91 6.91 7.36 7.18 7.45
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 4.75% and 3.25%, respectively (which
for class A shares does not reflect a reduction in sales charges that
went into effect on January 28, 2004; if this reduction had been in
place for all periods indicated, returns would have been higher). 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 the
first year that is eliminated thereafter. Class R share returns have no
initial sales charge or CDSC. Performance for class B, C, M, and R
shares before their inception is derived from the historical performance
of class A shares, adjusted for the applicable sales charge (or CDSC)
and higher operating expenses for such shares.
A 2% redemption fee will be applied to shares exchanged or sold within 5
days of purchase.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/04
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Lipper
GNMA Funds
Lehman category
GNMA Index average*
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6 months 2.62% 1.93%
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1 year 3.62 2.72
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5 years 37.80 32.67
Annual average 6.62 5.81
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10 years 103.25 88.40
Annual average 7.35 6.53
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Annual average
(life of fund) 9.35 8.29
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 3/31/04, there
were 66, 66, 46, and 27 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 6 6 6 6 6
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Income $0.138 $0.088 $0.085 $0.120 $0.117
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Capital gains -- -- -- -- --
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Total $0.138 $0.088 $0.085 $0.120 $0.117
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Share value: NAV POP NAV NAV NAV POP NAV
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9/30/03 $13.20 $13.86 $13.12 $13.17 $13.18 $13.62 $13.20
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3/31/04 13.30 13.93* 13.23 13.27 13.28 13.73 13.30
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Current return
(end of period)
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Current dividend
rate 1 2.53% 2.41% 1.81% 1.72% 2.26% 2.19% 2.35%
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Current 30-day
SEC yield 2 3.27 3.13 2.52 2.53 3.02 2.96 3.01
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* Reflects a reduction in sales charges that took effect on January 28,
2004.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
Understanding 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. Using the
information below, 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 advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam U.S. Government Income Trust from September 30,
2003, to March 31, 2004. It also shows how much a $1,000 investment
would be worth at the close of the period, assuming actual returns and
expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 3/31/04
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Class A Class B Class C Class M Class R
Expenses paid
per $1,000* $5 $8 $8 $6 $6
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Ending value
(after expenses) $1,018 $1,015 $1,014 $1,017 $1,017
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* 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 net assets for the six months ended 3/31/04. The expense
ratio may differ for each share class (see the table at the bottom of the
next page). 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 reporting period; and then dividing that result by
365 (or 366, for leap years).
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended March
31, 2004, use the calculation method below. See your September 30, 2003,
Putnam statement or call Putnam at 1-800-225-1581 to find the value of
your investment in the fund on September 30, 2003.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 9/30/03 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $5 (see table above) = $50
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below 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.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 3/31/04
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Class A Class B Class C Class M Class R
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Expenses paid
per $1,000* $5 $8 $8 $6 $6
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Ending value
(after expenses) $1,041 $1,033 $1,033 $1,038 $1,038
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* 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 net assets for the six months ended 3/31/04. The expense
ratio may differ for each share class (see the table at the bottom of this
page). 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 reporting period; and then dividing that result by
365 (or 366, for leap years).
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined 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 below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's
annualized
expense ratio 0.92% 1.67% 1.67% 1.17% 1.17%
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Average annualized
expense ratio for
Lipper peer group+ 0.97% 1.72% 1.72% 1.22% 1.22%
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+ For class A shares, expenses shown represent the average of the expenses
of front-end load funds viewed by Lipper as having the same investment
classification or objective as the fund, calculated in accordance with
Lipper's standard reporting methodology for comparing expenses within a
given universe. All Lipper data are for the most recent fiscal periods
available as of March 31, 2004. For class B, C, M, and R shares, Putnam has
adjusted the Lipper total expense average to reflect higher 12b-1 fees
incurred by these classes of shares. The peer group may include funds that
are significantly larger or smaller than the fund, which may limit the
comparability of the fund's expenses to the Lipper average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison 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 Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.07
Taxable bond
fund average 0.32
0% INCREASING RISK 100%
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of 3/31/04. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
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 Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
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.
Terms and definitions
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. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
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 4.75% maximum sales charge for class A
shares (since reduced to 4.50%) and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is 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.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge 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 sales charge on redemption (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.
Comparative indexes
JP Morgan Chase Global High Yield Index is an unmanaged index used to
mirror the investable universe of the U.S. dollar global high-yield
corporate debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman GNMA Index is an unmanaged index of Government National Mortgage
Association bonds.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 Index chosen for their growth orientation.
Russell 1000 Value Index is an unmanaged index of those companies in the
Russell 1000 Index chosen for their value orientation.
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 funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
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 net assets allocated to
remarketed 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 period.
Statement of changes in net assets shows how the fund's net assets were
affected 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 semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
March 31, 2004 (Unaudited)
U.S. government and agency mortgage obligations (95.7%) (a)
Principal amount Value
U.S. Government Guaranteed Mortgage Obligations (69.2%)
- -------------------------------------------------------------------------------
Government National Mortgage
Association
$28,140 13 1/2s, April 15, 2011 $32,905
1,413 12 3/4s, November 15, 2013 1,648
14,025 12 1/2s, June 15, 2010 16,087
78,819 12 1/4s, with due dates from
September 15, 2013 to February 15,
2014 91,173
110,639 10s, with due dates from October 15,
2009 to December 15, 2009 122,488
Government National Mortgage
Association Graduated Payment
Mortgages
10,400 13 3/4s, November 20, 2014 12,243
19,620 13 1/4s, December 20, 2014 22,933
37,540 12 3/4s, with due dates from June
20, 2014 to December 20, 2014 43,552
Government National Mortgage
Association Pass-Through
Certificates
22,262 12 3/4s, with due dates from
November 15, 2013 to May 15, 2014 25,963
100,387 12 1/4s, with due dates from January
20, 2014 to January 15, 2015 115,967
240,686 11 1/4s, with due dates from
September 15, 2015 to January 15,
2016 275,906
38,102 10 3/4s, with due dates from January
15, 2016 to February 15, 2016 43,342
8,485 10 1/4s, April 15, 2016 9,569
153,156 9 1/4s, with due dates from April
15, 2016 to May 15, 2016 170,961
20 9s, January 15, 2005 20
802,101 8 1/2s, with due dates from December
15, 2004 to December 15, 2019 852,176
528 8 1/2s, with due dates from
September 15, 2004 to November 15,
2004 535
92,162,184 8s, with due dates from May 15, 2024
to August 15, 2032 100,801,189
5,435,568 8s, with due dates from January 15,
2008 to November 15, 2009 5,824,105
85,460,818 7 1/2s, with due dates from October
15, 2021 to November 15, 2032 92,246,391
63,784 7 1/2s, with due dates from March
15, 2017 to May 15, 2017 69,142
108,456,954 7s, with due dates from March 15,
2022 to May 15, 2032 115,814,252
4,687,112 7s, with due dates from October 15,
2007 to August 15, 2012 5,033,322
162,001,862 6 1/2s, with due dates from May 15,
2023 to November 15, 2033 171,169,299
1,759,792 6s, with due dates from November 15,
2023 to September 15, 2032 1,850,131
124,015,586 5 1/2s, with due dates from January
15, 2032 to January 15, 2034 127,676,229
832,860,012 5s, with due dates from January 15,
2033 to October 15, 2033 839,822,879
--------------
1,462,144,407
U.S. Government Agency Mortgage Obligations (26.5%)
- -------------------------------------------------------------------------------
Federal National Mortgage
Association Pass-Through
Certificates
99,978,715 7s, with due dates from January 1,
2024 to March 1, 2033 106,110,772
13,626,835 6 1/2s, with due dates from
September 1, 2023 to November 1,
2033 14,322,568
99,448 6 1/2s, March 1, 2016 104,761
540,980 6s, November 1, 2017 570,192
2,883 5s, August 1, 2033 2,898
278,250,000 5s, TBA, April 1, 2034 279,467,344
155,973,000 5s, TBA, April 1, 2018 160,310,921
--------------
560,889,456
--------------
Total U.S. government and agency
mortgage obligations
(cost $1,979,902,862) $2,023,033,863
Collateralized mortgage obligations (9.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
Fannie Mae
$1,175,093 Ser. 02-26, Class A2, 7 1/2s, 2048 $1,294,072
12,925,635 Ser. 02-T18, Class A4, 7 1/2s, 2042 14,244,460
14,053,580 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 15,487,492
16,942,184 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 18,670,825
48,603 Ser. 02-W6, Class 2A, 7 1/2s, 2042 53,562
401,593 Ser. 02-W1, Class 2A, 7 1/2s, 2042 442,568
1,271,348 Ser. 02-14, Class A2, 7 1/2s, 2042 1,401,066
9,070,576 Ser. 01-T10, Class A2, 7 1/2s, 2041 9,996,063
671,334 Ser. 02-T4, Class A3, 7 1/2s, 2041 739,831
542,548 Ser. 01-T12, Class A2, 7 1/2s, 2041 597,905
2,448,057 Ser. 01-T8, Class A1, 7 1/2s, 2041 2,697,836
22,506,113 Ser. 01-T7, Class A1, 7 1/2s, 2041 24,802,451
3,216,718 Ser. 01-T3, Class A1, 7 1/2s, 2040 3,544,926
9,623,573 Ser. 01-T1, Class A1, 7 1/2s, 2040 10,605,483
3,849,405 Ser. 99-T2, Class A1, 7 1/2s, 2039 4,242,166
908,742 Ser. 03-W10, Class 1A1, 7 1/2s, 2032 1,001,463
9,374,579 Ser. 02-T1, Class A3, 7 1/2s, 2031 10,331,084
2,052,573 Ser. 00-T6, Class A1, 7 1/2s, 2030 2,262,001
323,475 Ser. 02-W7, Class A5, 7 1/2s, 2029 356,479
9,412,220 Ser. 01-T4, Class A1, 7 1/2s, 2028 10,372,566
804,088 Ser. 02-W3, Class A5, 7 1/2s, 2028 886,130
8,198,089 Ser. 332, Class 2, Interest Only
(IO), 6s, 2033 1,368,056
47,171,649 Ser. 338, Class 2, 5 1/2s, 2033 9,574,371
92,723,320 Ser. 329, Class 2, IO, 5 1/2s, 2033 17,472,551
11,086,631 Ser. 03-W10, Class 1A1, 1.701s, 2032 11,083,167
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
22,213,379 Ser. T-58, Class 4A, 7 1/2s, 2043 24,479,865
266,741 Ser. T-42, Class A5, 7 1/2s, 2042 293,957
--------------
Total Collateralized mortgage
obligations (cost $204,090,121) $198,302,396
Short-term investments (13.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$48,000,000 Federal Home Loan Mortgage Corp. for
an effective yield of 1.03%, April
27, 2004 $47,964,293
31,318,000 Federal National Mortgage
Association for an effective yield
of 1.00%, May 5, 2004 31,287,552
100,027,000 Interest in $524,000,000 joint
repurchase agreement dated March 31,
2004 with Goldman Sachs & Co. due
April 1, 2004 with respect to
various U.S. Government obligations
-- maturity value of $100,030,001
for an effective yield of 1.08% 100,027,000
100,478,000 Interest in $231,000,000 joint
repurchase agreement dated March 31,
2004 with UBS Securities LLC due
April 1, 2004 with respect to
various U.S. Government obligations
-- maturity value of $100,480,986
for an effective yield of 1.07% 100,478,000
--------------
Total Short-term investments
(cost $279,756,845) $279,756,845
- -------------------------------------------------------------------------------
Total Investments
(cost $2,463,749,828) $2,501,093,104
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,114,708,237.
TBA after the name of a security represents to be announced securities
(Note 1).
TBA sale commitments at March 31, 2004 (Unaudited)
(proceeds receivable $115,325,000)
Principal Settlement
Agency amount date Value
--------------------------------------------------------------------------
FNMA 5s, April 1, 2019 $112,000,000 4/20/04 $115,114,944
--------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
March 31, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$2,463,749,828) (Note 1) $2,501,093,104
- -------------------------------------------------------------------------------
Cash 17,361
- -------------------------------------------------------------------------------
Interest and other receivables 9,810,513
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 662,557
- -------------------------------------------------------------------------------
Receivable for securities sold 171,752,094
- -------------------------------------------------------------------------------
Total assets 2,683,335,629
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 440,957,801
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 7,356,062
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,484,897
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 912,143
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 214,962
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,023
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,400,935
- -------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable
$115,325,000) (Note 1) 115,114,944
- -------------------------------------------------------------------------------
Other accrued expenses 180,625
- -------------------------------------------------------------------------------
Total liabilities 568,627,392
- -------------------------------------------------------------------------------
Net assets $2,114,708,237
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,164,228,269
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 10,592,990
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (97,666,354)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 37,553,332
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $2,114,708,237
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,608,168,948 divided by 120,905,340 shares) $13.30
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.50 of $13.30)* $13.93
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($368,363,533 divided by 27,848,344 shares)** $13.23
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($32,878,476 divided by 2,476,770 shares)** $13.27
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($56,674,365 divided by 4,266,896 shares) $13.28
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $13.28)* $13.73
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($1,132 divided by 85 shares) $13.30
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($48,621,783 divided by 3,661,003 shares) $13.28
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended March 31, 2004 (Unaudited)
Interest income: $45,190,479
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,292,964
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,362,630
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 30,515
- -------------------------------------------------------------------------------
Administrative services (Note 2) 11,497
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,202,037
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,182,767
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 203,605
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 157,071
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 3
- -------------------------------------------------------------------------------
Other 225,282
- -------------------------------------------------------------------------------
Non-recurring costs (Note 5) 39,207
- -------------------------------------------------------------------------------
Costs assumed by Manager (Note 5) (39,207)
- -------------------------------------------------------------------------------
Total expenses 12,668,371
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (117,559)
- -------------------------------------------------------------------------------
Net expenses 12,550,812
- -------------------------------------------------------------------------------
Net investment income 32,639,667
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 17,914,894
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments and TBA sale
commitments during the period (12,464,672)
- -------------------------------------------------------------------------------
Net gain on investments 5,450,222
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $38,089,889
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
Decrease in net assets 2004* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $32,639,667 $62,295,542
- -------------------------------------------------------------------------------
Net realized gain on investments 17,914,894 46,234,630
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (12,464,672) (39,553,805)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 38,089,889 68,976,367
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (18,181,419) (61,194,325)
- -------------------------------------------------------------------------------
Class B (2,848,057) (12,773,580)
- -------------------------------------------------------------------------------
Class C (252,672) (1,145,143)
- -------------------------------------------------------------------------------
Class M (562,799) (3,223,065)
- -------------------------------------------------------------------------------
Class R (9) (14)
- -------------------------------------------------------------------------------
Class Y (587,360) (1,748,493)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (631,649,600) (679,849,720)
- -------------------------------------------------------------------------------
Total decrease in net assets (615,992,027) (690,957,973)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 2,730,700,264 3,421,658,237
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $10,592,990 and
$385,639, respectively) $2,114,708,237 $2,730,700,264
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
March 31
Per-share (Unaudited) Year ended September 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.20 $13.22 $13.10 $12.55 $12.57 $13.28
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 .28 .62 .75 .79 .76
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 .05 .19 .56 (.02) (.66)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .24 .33 .81 1.31 .77 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.35) (.69) (.76) (.79) (.76)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.35) (.69) (.76) (.79) (.81)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.30 $13.20 $13.22 $13.10 $12.55 $12.57
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.82* 2.52 6.41 10.74 6.43 .76
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,608,169 $2,022,134 $2,432,891 $2,256,218 $1,929,653 $1,986,980
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .46* .88 .85 .86 .87 .85
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.47* 2.12 4.74 5.87 6.40 5.94
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.57* 331.95 (d) 277.25 (d) 156.53 (d) 133.29 123.04
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
March 31
Per-share (Unaudited) Year ended September 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.12 $13.15 $13.04 $12.49 $12.51 $13.22
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .14 .18 .51 .65 .70 .67
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .06 .04 .20 .56 (.02) (.67)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .20 .22 .71 1.21 .68 --
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.25) (.60) (.66) (.70) (.67)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.25) (.60) (.66) (.70) (.71)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.23 $13.12 $13.15 $13.04 $12.49 $12.51
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.52* 1.67 5.59 9.98 5.65 .01
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $368,364 $529,386 $691,467 $500,366 $574,087 $1,082,048
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .84* 1.63 1.60 1.61 1.62 1.60
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.09* 1.38 3.96 5.15 5.64 5.18
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.57* 331.95 (d) 277.25 (d) 156.53 (d) 133.29 123.04
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
Six months For the
ended period
March 31 July 26, 1999+
Per-share (Unaudited) Year ended September 30 to Sept. 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.17 $13.20 $13.08 $12.53 $12.55 $12.54
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .14 .18 .50 .64 .70 .12
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 .04 .21 .58 (.02) .02
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .19 .22 .71 1.22 .68 .14
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.25) (.59) (.67) (.70) (.12)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.25) (.59) (.67) (.70) (.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.27 $13.17 $13.20 $13.08 $12.53 $12.55
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.41* 1.70 5.64 9.99 5.67 1.12*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $32,878 $53,235 $54,880 $27,512 $7,329 $2,577
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .84* 1.63 1.60 1.61 1.62 .29*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.08* 1.34 3.93 5.07 5.67 .99*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.57* 331.95 (d) 277.25 (d) 156.53 (d) 133.29 123.04
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
March 31
Per-share (Unaudited) Year ended September 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.18 $13.20 $13.08 $12.52 $12.55 $13.25
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .18 .27 .57 .71 .76 .72
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .02 .21 .57 (.03) (.66)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .22 .29 .78 1.28 .73 .06
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.31) (.66) (.72) (.76) (.72)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.31) (.66) (.72) (.76) (.76)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.28 $13.18 $13.20 $13.08 $12.52 $12.55
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.68* 2.25 6.14 10.56 6.09 .56
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $56,674 $73,355 $171,975 $144,285 $95,090 $133,362
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .59* 1.13 1.10 1.11 1.12 1.10
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.34* 2.03 4.47 5.60 6.15 5.68
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.57* 331.95 (d) 277.25 (d) 156.53 (d) 133.29 123.04
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- -----------------------------------------------------------------------------
Six months For the
ended period
March 31 Jan. 21, 2003+
Per-share (Unaudited) to Sept. 30
operating performance 2004 2003
- -----------------------------------------------------------------------------
Net asset value,
beginning of period $13.20 $13.22
- -----------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------
Net investment income (a) .17 .18
- -----------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 (.02)
- -----------------------------------------------------------------------------
Total from
investment operations .22 .16
- -----------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------
From net
investment income (.12) (.18)
- -----------------------------------------------------------------------------
Total distributions (.12) (.18)
- -----------------------------------------------------------------------------
Net asset value,
end of period $13.30 $13.20
- -----------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.65* 1.23*
- -----------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1 $1
- -----------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .59* .78*
- -----------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.35* 1.30*
- -----------------------------------------------------------------------------
Portfolio turnover (%) 75.57* 331.95 (d)
- -----------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions executed
in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
March 31
Per-share (Unaudited) Year ended September 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.18 $13.21 $13.09 $12.54 $12.56 $13.27
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .21 .31 .62 .78 .82 .79
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 .04 .23 .56 (.02) (.66)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .26 .35 .85 1.34 .80 .13
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) (.38) (.73) (.79) (.82) (.79)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.38) (.73) (.79) (.82) (.84)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.28 $13.18 $13.21 $13.09 $12.54 12.56
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.96* 2.73 6.71 11.05 6.71 1.04
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $48,622 $52,590 $70,445 $43,306 $31,871 $28,087
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .34* .63 .60 .61 .62 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.60* 2.39 4.92 6.11 6.66 6.19
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.57* 331.95 (d) 277.25 (d) 156.53 (d) 133.29 123.04
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
March 31, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam U.S. Government Income Trust (the "fund") 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. The fund also invests in repurchase
agreements and forward commitments relating to those investments.
The fund offers class A, class B, class C, class M, class R and class Y
shares. Class A shares are sold with a maximum front-end sales charge of
4.50%. Prior to January 28, 2004, the maximum front-end sales charge for
class A shares was 4.75%. Class B shares, which convert to class A
shares after approximately eight years, do not pay a front-end sales
charge but pay a higher ongoing distribution fee than class A, class M
and class R shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
C shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front-end sales charge of 3.25% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C shares. Class R shares are sold without a front-end sales
charge and pay an ongoing distribution fee that is higher than class A
shares, but lower than class B and class C shares. Class R shares are
offered to qualified employee-benefit plans. 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 sold to certain eligible purchasers
including certain defined contribution plans (including corporate IRAs),
bank trust departments and trust companies.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The 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 at fair value on the basis of valuations provided by an
independent pricing service, approved by the Trustees. 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. Restricted
securities are valued at fair value following procedures approved by the
Trustees. Such valuations and procedures are reviewed periodically by the
Trustees. Short-term investments having remaining maturities of 60 days or
less are valued at amortized cost, which approximates fair value.
B) Joint trading account 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
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade 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 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 (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.
E) 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.
F) 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 fair 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
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.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986 (the "Code"), as amended.
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, 2003, the fund had a capital loss carryover of
$115,552,142 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
- -----------------------------------
$51,883,929 September 30, 2004
8,892,718 September 30, 2005
23,731,356 September 30, 2008
31,044,139 September 30, 2009
The aggregate identified cost on a tax basis is $2,463,778,934,
resulting in gross unrealized appreciation and depreciation of
$45,611,597 and $8,297,427, respectively, or net unrealized appreciation
of $37,314,170.
H) 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. 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
Putnam Management is paid 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.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for
the fund's Lipper peer group of front-end load funds.
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 Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor serving agent
functions to the fund. During the six months ended March 31, 2004, the
fund paid PFTC $1,981,079 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended March 31, 2004,
the fund's expenses were reduced by $117,559 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $2,301 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.
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. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. 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 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, 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 payments by the fund to Putnam Retail
Management 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%, 1.00%, 0.50% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the six months ended March 31, 2004, Putnam Retail Management,
acting as underwriter, received net commissions of $34,720 and $1,728
from the sale of class A and class M shares, respectively, and received
$1,031,696 and $12,856 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 six months ended
March 31, 2004, Putnam Retail Management, acting as underwriter,
received $8,715 and no monies on class A and class M redemptions,
respectively.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2004, cost of purchases and
proceeds from sales of U.S. government securities and agency obligations
other than short-term investments aggregated $1,523,080,993 and
$2,118,307,209, respectively.
Note 4
Capital shares
At March 31, 2004, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended March 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 6,622,794 $87,432,304
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,102,157 14,560,320
- ----------------------------------------------------------------
7,724,951 101,992,624
Shares repurchased (40,068,603) (527,825,712)
- ----------------------------------------------------------------
Net decrease (32,343,652) $(425,833,088)
- ----------------------------------------------------------------
Year ended September 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 35,015,344 $465,312,563
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 3,931,022 47,917,376
- ----------------------------------------------------------------
38,946,366 513,229,939
Shares repurchased (69,673,599) (916,559,344)
- ----------------------------------------------------------------
Net decrease (30,727,233) $(403,329,405)
- ----------------------------------------------------------------
Six months ended March 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 1,266,492 $16,601,681
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 178,960 2,352,980
- ----------------------------------------------------------------
1,445,452 18,954,661
Shares repurchased (13,939,388) (182,750,309)
- ----------------------------------------------------------------
Net decrease (12,493,936) $(163,795,648)
- ----------------------------------------------------------------
Year ended September 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 14,026,611 $184,014,591
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 785,854 10,294,180
- ----------------------------------------------------------------
14,812,465 194,308,771
Shares repurchased (27,051,779) (353,647,377)
- ----------------------------------------------------------------
Net decrease (12,239,314) $(159,338,606)
- ----------------------------------------------------------------
Six months ended March 31, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 170,023 $2,238,293
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 15,440 203,721
- ----------------------------------------------------------------
185,463 2,442,014
Shares repurchased (1,752,228) (23,023,624)
- ----------------------------------------------------------------
Net decrease (1,566,765) $(20,581,610)
- ----------------------------------------------------------------
Year ended September 30, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 2,836,586 $37,055,863
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 69,627 1,145,143
- ----------------------------------------------------------------
2,906,213 38,201,006
Shares repurchased (3,020,888) (39,615,652)
- ----------------------------------------------------------------
Net decrease (114,675) $(1,414,646)
- ----------------------------------------------------------------
Six months ended March 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 122,524 $1,614,997
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 8,974 118,354
- ----------------------------------------------------------------
131,498 1,733,351
Shares repurchased (1,432,180) (18,829,217)
- ----------------------------------------------------------------
Net decrease (1,300,682) $(17,095,866)
- ----------------------------------------------------------------
Year ended September 30, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 2,833,334 $37,274,929
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 48,152 633,107
- ----------------------------------------------------------------
2,881,486 37,908,036
Shares repurchased (10,340,528) (136,014,374)
- ----------------------------------------------------------------
Net decrease (7,459,042) $(98,106,338)
- ----------------------------------------------------------------
Six months ended March 31, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 7 $103
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1 9
- ----------------------------------------------------------------
8 112
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 8 $112
- ----------------------------------------------------------------
For the period January 21, 2003
(commencement of operations) to
September 30, 2003
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 76 $1,000
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1 14
- ----------------------------------------------------------------
77 1,014
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 77 $1,014
- ----------------------------------------------------------------
Six months ended March 31, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 326,321 $4,308,530
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 44,516 587,360
- ----------------------------------------------------------------
370,837 4,895,890
Shares repurchased (700,932) (9,239,390)
- ----------------------------------------------------------------
Net decrease (330,095) $(4,343,500)
- ----------------------------------------------------------------
Year ended September 30, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 1,450,537 $19,086,340
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 132,487 1,748,493
- ----------------------------------------------------------------
1,583,024 20,834,833
Shares repurchased (2,924,607) (38,496,572)
- ----------------------------------------------------------------
Net decrease (1,341,583) $(17,661,739)
- ----------------------------------------------------------------
At March 31, 2004, Putnam, LLC owned 77 class R shares of the fund (90.6%
of class R shares outstanding), valued at $1,024.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massa chu setts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
For the period ended March 31, 2004, Putnam Management has assumed
$39,207 of legal, shareholder servicing and communication, audit, and
Trustee fees incurred by the Fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
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
Global Income Trust*
High Yield Advantage Fund+*
High Yield Trust*
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund++
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio and Pennsylvania
Asset Allocation Funds
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
* A 1% redemption fee on total assets redeemed or exchanged between 6
and 90 days of purchase may be imposed for all share classes of these
funds.
+ Closed to new investors.
++ 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 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 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end performance at
www.putnaminvestments.com.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or
protect against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may
be more or less than the original cost of the shares. Class B and class
C shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a
check made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment slip
found at the top of your Confirmation of Activity statement and return
it with a check payable to your fund.
For more information
Visit www.putnaminvestments.com A secure section of our Web site
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.
Use our toll-free number 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.
* This privilege is subject to change or termination. An exchange of
funds may result in a taxable event. In addition, a 2% redemption fee
will be applied to shares exchanged or sold within 5 days of purchase,
and certain funds have imposed a 1% redemption fee on total assets
redeemed or exchanged between 6 and 90 days of purchase.
Putnam puts your interests first
In January, Putnam announced a number of voluntary initiatives designed
to reduce fund expenses, provide investors with more useful information,
and help safeguard the interests of all Putnam investors. For details,
visit www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A shares has been
reduced to 5.25% for equity funds (formerly 5.75%) and 4.50% for most
income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective share class,
the maximum amount that can be invested in class B shares has been reduced
to $100,000. (Larger trades or accumulated amounts will be directed to
class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees for
all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. For more information,
please see the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders
in the six global and international funds that had short-term trading
issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare
funds and weigh their costs and risks along with their potential
benefits. Shareholders will find easy-to-understand information about
fund expense ratios, portfolio manager compensation, risk comparisons,
brokerage commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being enhanced to
alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a fund's
long-term strategy, a 2% short-term trading fee will be imposed on any
Putnam fund shares redeemed or exchanged within five calendar days of
purchase.
* The maximum sales charge for class A shares of Putnam U.S.
Intermediate Government Income Fund remains 3.25%.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 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 presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Treasurer and Principal
Executive Officer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Judith Cohen
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.putnaminvestments.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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
SA038-213217 032/885/689/527 5/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam U.S. Government Income Trust
Supplement to Semiannual Report dated 3/31/04
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to clients that meet the eligibility requirements
specified in the fund's prospectus for such shares. Performance of class Y
shares, which do not incur a front-end load, a distribution fee, or a
contingent deferred sales charge, will differ from the performance of class
A, B, C, M, and R shares, which are discussed more extensively in the
semiannual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 3/31/04
NAV
6 months 1.96%
1 year 2.92
5 years 32.84
Annual average 5.84
10 years 89.48
Annual average 6.60
Life of fund (since class A inception, 2/8/84)
Annual average 7.85
Share value: NAV
9/30/03 $13.18
3/31/04 $13.28
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.156 -- $0.156
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results. More
recent returns may be more or less than those shown. Returns shown for
class Y shares for periods prior to their inception are derived from the
historical performance of class A shares, and are not adjusted to reflect
the initial sales charge currently applicable to class A shares. These
returns have not been adjusted to reflect differences in operating expenses
which, for class Y shares, typically are lower than the operating expenses
applicable to class A shares. All returns assume reinvestment of
distributions at net asset value. Investment return and principal value
will fluctuate so your shares, when redeemed, may be worth more or less
than their original cost. See full report for information on comparative
benchmarks. If you have questions, please consult your fund prospectus or
call Putnam toll free at 1-800-752-9894.
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. 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 on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an 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.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: May 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an 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: May 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: May 27, 2004