(logo)
Putnam
American
Government
Income Fund
Semiannual
Report
March 31, 1994
(artwork)
For investors seeking
high current income
primarily through
U.S. government
securities
A member
of the Putnam
Family of Funds
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
7 Portfolio of investments owned
9 Financial statements
19 Fund performance supplement
<PAGE>
How your
fund performed
For periods ended March 31, 1994
Total return* Lehman Bros. Consumer
Fund Intermediate Price
NAV POP Treasury Index Index
6 months -3.67% -8.26% -1.72% 1.45%
1 year 0.07 -4.68 2.35 2.51
5 years 44.26 37.44 58.19 20.36
annualized 7.60 6.57 9.61 3.78
Life-of-fund
(since 3/1/85) 103.12 93.42 133.63 38.87
annualized 8.12 7.54 9.79 3.68
Share data
NAV POP
September 30, 1993 $9.21 $9.67
March 31, 1994 $8.55 $8.98
Distributions Investment
6 months ended Number income Total
March 31, 1994 6 $0.331 $0.331
Current returns
at the end of the period NAV POP
Current dividend rate 7.16% 6.82%
Current 30-day yield 5.10 4.86
*Performance data represent past results. Investment return and
net asset value will fluctuate so an investor's shares, when
redeemed, may be worth more or less than their original cost.
Performance data reflect fund operations under the investment
objective and strategies and the distribution policy in effect
prior to November 1, 1992.
<PAGE>
Terms you need to know
Total return is the change in value of an investment from the
beginning to the end of a period, assuming the reinvestment of
all distributions. It may be shown at net asset value or at
public offering price.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not reflecting any sales charge.
Public offering price (POP) is the price of a mutual fund share
plus the maximum 4.75% sales charge levied at the time of
purchase.
Current dividend rate is calculated by annualizing the net
investment income paid to shareholders in the fund's most recent
distribution, then dividing by the NAV or POP on the last day of
the period.
Current 30-day yield, based only on the fund's net investment
income, is calculated in accordance with Securities and Exchange
Commission guidelines.
Please see the fund performance supplement on page 19 for
additional information about performance comparisons.
<PAGE>
From the
Chairman
(photograph of George Putnam)
(c) Karsh, Ottawa
George Putnam
Chairman
of the Trustees
Dear Shareholder:
The period in which we now write is a challenging one. A series
of bond- and stock-market corrections has exacerbated market
volatility and sparked investor concerns.
Despite initially gloomy headlines, we believe economic
fundamentals remain sound. At this stage of the recovery, with
interest rates having edged upward for the first time in several
years, market volatility is a natural occurrence. The performance
of Putnam American Government Income Fund should be expected to
reflect the environment in which it invests. The fund is an
intermediate- to long-term investment, and, unlike short-term
investments such as money market funds, it is likely to have
periodic fluctuations of principal.
On a brighter note, I am pleased to inform you of a change in the
management of your fund. Michael Martino started managing the
day-to-day operations of the fund in March but is no newcomer to
the investment business. Mike brings to Putnam considerable
talent and over 18 years of investment experience, having managed
portfolios for the New England Mutual Life Insurance Company and
Back Bay Advisors. We are delighted to welcome him to our
management team.
In these uncertain times, professional management is more
important than ever. As you review your investment program in
light of current events, we hope you will proceed cautiously. A
well-reasoned investment strategy, fashioned to meet your
long-term needs, should not be altered without careful thought.
We believe that the advent of calmer markets and the portfolio
changes discussed in the following Report from Putnam Management
will contribute toward competitive returns for your fund.
Respectfully yours,
George Putnam
May 18, 1994
<PAGE>
Report from
Putnam Management
In early February, after more than five years of declining
interest rates, the Federal Reserve Board raised short-term
interest rates by a quarter of a percentage point, then raised
them another quarter point in March. Each increase had a
disastrous effect on the bond markets, culminating in a complete
reversal of bond-investor psychology to one of widespread
pessimism. The 10-year Treasury ended the first quarter of 1994
with a return of -5.79% and a yield of 6.78% -- the highest since
November 1992.
Putnam American Government Income Fund's performance during this
period was average for its peer group; its shares posted a total
return of -3.67% at NAV for the six months ended March 31, 1994.
The average U.S. government fund as reported by Lipper Analytical
Services, Inc., an independent research firm, returned -3.56%.
Your fund's performance, while negative, is still competitive and
must be taken in the context of a wide-scale bond market decline.
For additional performance information, please see the table on
page 2.
Investors overreact, bonds oversold Given the size and breadth of
the first-quarter correction, a few words of explanation are
appropriate. It is our view that the market's sell-off was an
overreaction to and possibly a misinterpretation of the Fed's
actions. It is important to remember that, up until the end of
1993, interest rates had been declining for years, with the
Federal Reserve making accommodative cuts along the way. More
encouraging still, the economic recovery seemed to be progressing
slowly enough that inflation need not be a concern. Inflation, of
course, is the bond market's primary worry, since it erodes the
income earned from fixed-income investments.
All this changed abruptly in the first quarter of 1994. First,
when reports detailing unusually strong economic growth started
surfacing in early January, bond traders and analysts on Wall
Street began to get nervous. Then, when the Fed raised short-term
rates in February, shareholders and money managers alike
interpreted it as an effort to stem existing inflation --
inflation they had not detected. They had been caught off guard.
An outburst of selling erupted on two fronts. First,
shareholders, particularly those invested in no-load mutual
funds, cashed in their shares. Fund managers met these
redemptions by selling securities. Second, multibillion-dollar
hedge funds, which manage large private-investor accounts by
using a host of complex derivative securities, began to unload
bundles of these securities, particularly principal-only CMOs
(collateralized mortgage obligations). And, at this point, the
markets did not want them. The result was further price declines
amid aggravated selling -- some hedge funds lost hundreds of
millions of dollars. <PAGE>
Gearing up for change Late in 1993, we began to conclude that
interest rates had hit rock bottom. If you remember, short-term
rates, minus inflation, were practically zero. While it was not
possible to predict when interest rates would pick up again, it
was obvious that, sooner or later, they would. Your fund's
relatively strong performance during the period was the result of
two deliberate moves on our part to prepare for the inevitable.
First, in early January, we reduced the fund's CMO position from
25% to 10% of the portfolio. As we've seen with hedge funds, some
derivative securities tend to be difficult to sell during periods
of rising rates. It is precisely when rates rise that most
investors retreat to shorter maturities and better-quality
holdings. The 10% CMO position we now hold is of the highest
quality -- AAA-rated by Standard & Poor's(r) -- and very liquid.
Our second anticipatory measure was to keep the fund's duration
relatively short -- just 6.1 years at the end of the period.
Duration is a mathematical measure of a bond's sensitivity to
changes in interest rates and, like maturity, is expressed in
years. In general, bonds with shorter durations will be affected
less adversely by rising interest rates. Currently, the fund is
managed to be approximately as volatile as a 7- to 10-year
Treasury security, while seeking to produce more income.
The bond market's silver lining As investment managers, we are
trained to find the good in every downturn, and we believe the
recent bond market correction offers a host of opportunities. One
significant result of the first-quarter correction is that
mortgage-backed securities were oversold relative to comparable
U.S. Treasuries. This had a lot to do with the fierce selling of
derivative and highly leveraged mortgage-backed securities. We
see a tremendous opportunity to add value to the portfolio with
higher quality mortgage-backed securities now selling at a
discount. We expect to increase the fund's position in these
bonds by 10% in the coming weeks, to a full 40% of the portfolio.
In addition, we will seek to increase the fund's position in 5-
to 7-year U.S. Treasuries, which should remain relatively stable
in an environment of rising short-term rates, while still
outperforming shorter-term securities.
Moderation in the coming months While it is highly likely that
the Federal Reserve will continue raising rates in the coming
weeks and months, it is unlikely that these moves will continue
to create the level of volatility seen in the first quarter.
Calmer markets should eventually prevail because the element of
surprise has been removed, and investors are now expecting rising
rates. What's more, we believe that the surge of economic growth
in the fourth quarter of 1993 was an aberration that will be
replaced this year with more subdued growth rates in the 3%
range. This should go a long way toward keeping inflation under
control.
An environment of steadily rising rates, while far from ideal, is
at least manageable. We believe that our combined strategy of an
increased mortgage weighting coupled with a shorter, more
conservative average duration is not only appropriate, but will
lead to continued competitive performance for the remainder of
fiscal year 1994.
<PAGE>
Portfolio of
investments owned
March 31, 1994 (Unaudited)
U.S. Government and Agency Obligations (92.8%)(a)
Principal Amount Value
Federal National Mortgage
Association
$156,253,707 6 1/2s, with various due dates
to February 15, 2024 $145,169,460
Federal National Mortgage
Association Interest
Only Strips(b)
44,734,285 8 1/2s, August 25, 2022 12,078,257
Government National
Mortgage Association
817,420 9s, with various due dates
to April 15, 2022 867,232
75,559,863 8s, with various due dates
to March 15, 2023 76,492,038
97,884,664 7 1/2s, with various due dates
to January 15, 2024 96,202,271
18,505,953 7s, with various due dates
to July 15, 2023 17,644,270
150,000,000 7s, TBA, August 14, 2024(c) 143,015,625
234,870,054 6 1/2s, with various due dates
to February 15, 2024 216,010,119
61,063,218 6s, Midgets with
various due dates to
January 15, 2009 57,533,001
50,000,000 U.S. Treasury Bonds, 11 1/8s,
August 15, 2003 64,828,125
150,000,000 U.S. Treasury Bonds, 7 1/8s,
February 15, 2023 148,218,750
278,000,000 U.S. Treasury Bonds, 6 1/4s,
August 15, 2023 248,896,875
269,000,000 U.S. Treasury Notes, 13 1/8s,
May 15, 1994 271,774,063
49,800,000 U.S. Treasury Notes, 12 5/8s,
August 15, 1994 51,340,688
46,000,000 U.S. Treasury Notes, 11 5/8s,
November 15, 1994 48,041,250
115,000,000 U.S. Treasury Notes, 7 1/8s,
April 15, 1998 122,439,063
46,000,000 U.S. Treasury Notes, 5 7/8s,
February 15, 2004 43,096,250
125,500,000 U.S. Treasury Notes, 5 1/2,
February 28, 1999 121,656,563
330,000,000 U.S. Treasury Notes, 5 1/8s,
December 31, 1998 315,356,250
268,580,000 U.S. Treasury Notes, 5s,
January 31, 1999 254,983,138
86,000,000 U.S Treasury Stripped
Interest Payment Coupon
Securities zero %,
February 15, 2017 15,721,875
247,000,000 U.S Treasury Stripped
Interest Payment
Coupon Securities, zero %,
November 15, 2016 46,003,750
272,500,000 U.S. Treasury Stripped
Interest Payment Coupon
Securities, zero %,
February 15, 2019 43,344,531
227,000,000 U.S. Treasury Stripped
Principal Payment
Coupon Securities, zero %,
November 15, 2018 36,745,625
Total U.S. Government and
Agency Obligations
(cost $2,754,250,525) $2,597,459,069
Collateralized Mortgage Obligations (10.9%)(a)
Principal Amount Value
Federal Home Loan
Mortgage Corporation
$ 37,475,500 10 1/2s, December 15, 2020 $ 40,977,117
97,739,865 10s, January 15, 2021 104,850,134
2,181,266 Homestead Mortgage
Acceptance Corporation
11s, November 1, 2015 2,258,974
Federal National
Mortgage Association
59,200,000 10 1/2s, November 25, 2006 64,990,500
7,500,000 10.2s, September 25, 2018 8,006,250
77,310,000 10s, with various due dates
to November 25, 2020 83,689,456
Total Collateralized
Mortgage Obligations
(cost $324,063,474) $ 304,772,431
Short-Term Investments (0.5%)(a) (cost $13,163,000)
Principal Amount Value
$ 13,163,000 Interest in $66,810,000 joint
repurchase agreement
dated March 31,1994 with
J.P. Morgan Securities, Inc.
due April 4, 1994 with
respect to various U.S.
Treasury obligations--
maturity value of
$13,168,119 for an effective
yield of 3.5% $ 13,163,000<PAGE>
Total Investments
(cost $3,078,313,999)(d) $2,915,394,500
Notes
(a) Percentages indicated are based on net assets of
$2,799,423,524, which correspond to a net asset value per share
of $8.55.
(b) Interest Only (IO) strips represent the right to receive the
monthly interest payments on an underlying pool of mortgage
loans. No payments of principal on the pool are passed through to
IO holders.
(c) TBAs are mortgage-backed securities traded under delayed
delivery commitments, settling after March 31, 1994. The unit
price for the trades has been finalized, the amount of the
commitments will not fluctuate more than 2% from the principal
amount. Income on the securities will not be earned until
settlement date. The cost of TBA purchases held at March 31,
1994, was $147,806,250 .
TBA Sale Commitments at March 31, 1994
(Proceeds receivable $147,952,344)
Principal Delivery Coupon Market
Agency Amount Month Rate Value
FNMA $155,000,000 Apr. 6 1/2% $144,004,688
(d) The aggregate identified cost on a tax basis is
$3,083,242,590, resulting in gross unrealized appreciation and
depreciation of $4,826,264 and $172,674,354, respectively, or net
unrealized depreciation of $167,848,090.
<PAGE>
<TABLE>
<CAPTION>
Statement of
assets and liabilities
March 31, 1994 (Unaudited)
<S> <C> <C> <C>
Assets
Investments in securities, at value (identified cost
$3,078,313,999) (Note 1) $2,915,394,500
Cash 163,252
Interest receivable 38,321,489
Receivable for shares of the Fund sold 339,637
Receivable for securities sold 222,326,296
Total assets 3,176,545,174
Liabilities
Distributions payable to shareholders $ 20,810
Payable for securities purchased 215,726,741
Payable for shares of the Fund repurchased 11,269,707
Payable for compensation of Manager (Note 2) 3,628,158
Payable for compensation of Trustees (Note 2) 3,556
Payable for investor servicing and custodian fees (Note 2) 590,310
Payable for administrative services (Note 2) 16,405
Payable for distribution fees (Note 2) 1,540,121
Other accrued expenses 321,154
TBA sale commitment at value (proceeds receivable
$147,952,344) (Note 1) 144,004,688
Total liabilities 377,121,650
Net assets $2,799,423,524
Represented by
Paid-in capital (Notes 4 and 5) $4,242,406,071
Accumulated net realized loss on investments (1,298,974,991)
Undistributed net investment income 14,964,287
Net unrealized depreciation of investments and
TBA sale commitments (158,971,843)
<PAGE>
Total -- Representing net assets applicable to
capital shares outstanding $2,799,423,524
Computation of net asset value and offering price
Net asset value and redemption price per share
($2,799,423,524 divided by 327,605,020 shares) $8.55
Offering price per share (100/95.25 of $8.55 )* $8.98
*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.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
operations
Six months ended March 31, 1994 (Unaudited)
<S> <C> <C>
Interest income $ 128,880,509
Expenses:
Compensation of Manager (Note 2) $7,647,862
Investor servicing and custodian fees (Note 2) 880,043
Compensation of Trustees (Note 2) 45,917
Reports to shareholders 84,087
Auditing 46,541
Legal 21,747
Postage 165,723
Administrative services (Note 2) 35,638
Distribution fees (Note 2) 3,459,419
Other 129,535
Total expenses 12,516,512
Net investment income 116,363,997
Net realized loss on investments (Notes 1 and 3) (85,569,292)
Net unrealized depreciation of investments and
TBA sale commitments during the period (145,364,897)
Net loss on investment transactions (230,934,189)
Net decrease in net assets resulting from operations $(114,570,192)
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
changes in net assets
Six months ended Year ended
March 31 September 30
1994* 1993
<S> <C> <C> <C>
Decrease in net assets
Operations:
Net investment income $ 116,363,997 $ 321,023,280
Net realized loss on investments (85,569,292) (45,992,616)
Net unrealized depreciation of investments
and TBA sale commitments (145,364,897) (12,761,363)
Net increase (decrease) in net assets resulting
from operations (114,570,192) 262,269,301
Undistributed net investment income included in
price of shares sold and repurchased, net -- (156,161)
Distributions to shareholders from:
net investment income (119,591,606) (313,364,337)
Decrease from capital share transactions (Note 4) (496,544,886)(693,843,741)
Total decrease in net assets (730,706,684) (745,094,938)
Net assets
Beginning of period 3,530,130,208 4,275,225,146
End of period (including undistributed net
investment income of $14,964,287 and $
7,502,782, respectively) $2,799,423,524 $3,530,130,208
*Unaudited.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Financial highlights*
(For a share outstanding
throughout the period)
Six months ended Year ended
March 31 September 30
1994*** 1993 1992
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.21 $9.32 $9.60
Investment Operations
Net Investment Income .32 .77 .56
Net Realized and Unrealized
Gain (Loss) on Investments (.65) (.13) .12
Total from
Investment Operations (.33) .64 .68
Less Distributions from:
Net Investment
Income (b) (.33) (.75) (.56)
Net Realized Gain
on Investments -- -- (.40)
Paid-in Capital (b) -- -- --
Total Distributions (.33) (.75) (.96)
Net Asset Value,
End of Period $8.55 $9.21 $9.32
Total Investment Return
at Net Asset Value (%) (c) -7.34(d) 7.20 7.56
<PAGE>
Net Assets,
End of Period
(in thousands) $2,799,424 $3,530,130 $4,275,225
Ratio of Expenses to
Average Net Assets (%) .78(d) .91 .96
Ratio of Net Investment
Income to Average
Net Assets (%) 7.28(d) 8.39 6.03
Portfolio Turnover (%) 201.75(e) 235.61 798.43
See page 13 for notes to Financial highlights.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Financial highlights*(continued)
For the period
March 1, 1985
(commencement
of operations) to
Year Ended September 30 September 30
1991 1990 1989 1988 1987 1986 1985**
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.32 $10.06 $10.30 $10.38 $12.41 $11.89 $11.57
Investment Operations
Net Investment Income .70 .78 .84 .88 .91 1.05 .57(a)
Net Realized and Unrealized
Gain (Loss) on Investments .59 (.32) .12 .32 (1.36) 1.07 .45
Total from
Investment Operations 1.29 .46 .96 1.20 (.45) 2.12 1.02
Less Distributions from:
Net Investment
Income (b) (.70) (.78) (.87) (.92) (1.02) (1.17) (.52)
Net Realized Gain
on Investments (.31) -- -- -- (.56) (.43) (.18)
Paid-in Capital (b) -- (.42) (.33) (.36) -- -- --
Total Distributions (1.01) (1.20) (1.20) (1.28) (1.58) (1.60) (.70)
Net Asset Value,
End of Period $9.60 $ 9.32 $10.06 $10.30 $10.38 $12.41 $11.89
Total Investment Return
at Net Asset Value (%) (c) 14.49 4.77 10.01 11.97 (4.46) 18.86 15.48(d)
<PAGE>
Net Assets,
End of Period
(in thousands) $5,045,139 $6,171,106 $7,880,043 $9,519,718$10,558,552 $5,164,692 $824,625
Ratio of Expenses to
Average Net Assets (%) .97 .95 .91 .75 .73 .82 1.05(a)(d)
Ratio of Net Investment
Income to Average
Net Assets (%) 7.39 8.05 8.31 8.31 7.59 7.75 8.67(a)(d)
Portfolio Turnover (%) 469.45 255.47 213.35 52.18 98.74 187.37 171.09(e)
*Financial highlights for periods ended through September 30, 1992 have been restated to conform with requirements
issued by the SEC in April, 1993.
**Activity for the period from December 18, 1984 to February 28, 1985 is not included.
***Unaudited.
(a)Reflects a voluntary expense limitation in effect during the period. As a result of such limitation, expenses of the
Fund for the period ended September 30, 1985 reflect a reduction of less than $0.01 per share.
(b)See Note 1 to the Financial Statements. Additionally, $0.035, $0.044, and $0.11 of distributions from net investment
income for the years ended September 30, 1989, 1988, and 1987, respectively, represent return of capital for federal
income tax purposes.
(c)Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(d)Annualized.
(e)Not annualized.
/TABLE
<PAGE>
Notes to
financial statements
March 31, 1994 (Unaudited)
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management investment
company. The Fund seeks high current income with preservation of
capital as its secondary objective. Prior to November 1, 1992,
the Fund, was named Putnam High Income Government Trust, and had
the investment objective of high current return consistent with
preservation of capital through a portfolio of U.S. government
securities.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with
generally accepted accounting principles.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are reported-
- -as in the case of most securities traded over-the-counter--the
last reported bid price, except that certain U.S. government
obligations are stated at the mean between the bid and asked
prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value, and other investments are stated at fair value
following procedures approved by the Trustees.
B) TBA purchase commitments The Fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a
fixed unit price at a future date beyond customary settlement
time. Although the unit price has been established, the principal
value has not been finalized. However, the amount of the
commitment will not fluctuate more than 2.0% from the principal
amount. The Fund holds, and maintains until the settlement date,
cash or high-grade debt obligations in an amount sufficient to
meet the purchase price, or the Fund enters into offsetting
contracts for the forward sale of other securities it owns. TBA
purchase commitments may be considered securities in themselves,
and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the Fund's other
assets.
Unsettled TBA purchase commitments are valued at the current
market value of the underlying securities, generally according to
the procedures described under "Security valuation" above.
Although the Fund will generally enter into TBA purchase
commitments with the intention of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has
entered into, the Fund may dispose of a commitment prior to
settlement if the Fund Manager deems it appropriate to do so.
TBA sale commitments The Fund may enter into TBA sale commitments
to hedge its portfolio positions or to sell mortgage-backed
securities it owns under delayed delivery arrangements. Proceeds
of TBA sale commitments are not received until the contractual
settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market
value of the underlying securities, generally according to the
procedures described under "Security valuation" above. The
contract is "marked-to-market" daily and the change in market
value is recorded by the Fund as an unrealized gain or loss. If
the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the Fund realizes a gain or loss
on the commitment without regard to any unrealized gain or loss
on the underlying security. If the Fund delivers securities under
the commitment, the Fund realizes a gain or loss from the sale of
the securities based upon the unit price established at the date
the commitment was entered into.
C) Joint trading account Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the Fund may transfer
uninvested cash balances into a joint trading account, along with
the cash of other registered investment companies managed by
Putnam Investment Management Inc. (Putnam Management), the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.
and certain other accounts. These balances may be invested in one
or more repurchase agreements and/or short-term money market
instruments.
D) Repurchase agreements The Fund, or any joint trading account,
through its custodian, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. The Fund's Manager is responsible for
determining that the value of these underlying securities is at
all times at least equal to the resale price, including accrued
interest.
E) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order
to buy or sell is executed). Interest income is recorded on the
accrual basis. Discount on zero coupon bonds is accreted
according to the effective yield method.
F) Federal taxes It is the policy of the Fund to distribute all
of its income within the prescribed time and otherwise comply
with the provisions of the Internal Revenue Code applicable to
regulated investment companies. It is also the intention of the
Fund to distribute an amount sufficient to avoid imposition of
any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on
income, capital gains or unrealized appreciation of securities
held and excise tax on income and capital gains.
At September 30, 1993 the Fund had a capital loss carryover of
approximately $1,211,031,139 which may be available to offset
realized capital gains to the extent provided by regulations. Of
this amount, $1,165,356,319 and $45,674,820 will expire on
September 30, 1998 and 2001, respectively.
G) Distributions to shareholders Distributions to shareholders
are recorded by the Fund on the ex-dividend date.
H) Equalization Prior to October 1, 1993, the Fund used the
accounting practice known as equalization to keep a continuing
shareholder's per share interest in undistributed net investment
income unaffected by sales or repurchases of Fund shares. This
was accomplished by allocating a per share portion of the
proceeds from sales and the costs of repurchases of shares to
undistributed net investment income.
As of October 1, 1993, the Fund discontinued using equalization.
This change has no effect on the Fund's total net assets, net
asset value per share, or its net increase (decrease) in net
assets from operations and did not have a material effect on the
per share amounts shown in the financial highlights. In
management's opinion, discontinuation of the use of equalization
will result in less distortion of undistributed net investment
income as compared to income available for distribution for
federal income tax purposes. The cumulative effect of this
change, net of distributions, was to increase undistributed net
investment income and decrease to paid-in capital previously
reported through September 30, 1993 by $156,161.
Note 2 Management fee, administrative services, and other
transactions
Compensation of Putnam Management for management and investment
advisory services is paid quarterly based on the average net
assets of the Fund for the quarter.
Under a management contract dated December 8, 1989, the fees paid
by the Fund for management and investment advisory services are
based on the following rates: 0.60% of the first $500 million of
average net assets, 0.50% of the next $1 billion, 0.45% of the
next $1 billion, 0.40% of the next $4.5 billion, 0.375% of the
next $2.5 billion, and 0.35% of any amount over $9.5 billion,
subject, under current law, to reduction in any year to the
extent that expenses (exclusive of distribution fees, brokerage,
interest and taxes) of the Fund exceed 2.5% of the first $30
million of average net assets, 2% of the next $70 million and
1.5% of any amount over $100 million, and by the amount of
certain brokerage commissions and fees (less expenses) received
by affiliates of the Manager on the Fund's portfolio
transactions. These rates have been in effect since April 15,
1989 pursuant to the Stipulation of Settlement in Fountain, et
al. v. Putnam Management, et al., United States District Court,
District of Massachusetts ("the Stipulation"). The Stipulation
provides that, until April 15, 1994, the Fund's Manager will
continue to offer to provide services substantially similar to
those that it was obligated to provide prior to the Stipulation,
and that there will not be any increase in the rate of the Fund's
advisory fee except under certain circumstances specified in the
Stipulation.
The Fund also reimburses the Manager for the compensation and
related expenses of certain officers of the Fund and their staff
who provide administrative services to the Fund. The aggregate
amount of all such reimbursements is determined annually by the
Trustees. For the six months ended March 31, 1994 the Fund paid
$35,638 for these services.
The Fund has adopted a distribution plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose
of the Plan is to compensate Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments Inc., for services
provided and expenses incurred by it in distributing shares.
Under the Plan the Fund pays Putnam Mutual Funds Corp. at an
annual rate of 0.25% of the Fund's net assets at the end of each
quarter attributable to shareholders for whom firms other than
Putnam Mutual Funds are designated as the dealer of record. The
Stipulation discussed above provides that the rate of payments
made by the Fund pursuant to its Distribution Plan will not be
increased for a period of five years from the effective date of
the Stipulation, that is, until April 15, 1994, except under
certain circumstances specified in the Stipulation. For the six
months ended March 31, 1994, expenses under the Plan were
$3,459,419.
Trustees of the Fund receive an annual Trustee's fee of $4,990
and an additional fee for each Trustees' meeting attended.
Trustees who are not interested persons of the Manager and who
serve on committees of the Trustees receive additional fees for
attendance at certain committee meetings.
Custodial functions for the Fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided
by Putnam Investor Services, a division of PFTC. Fees paid for
these investor servicing and custodial functions for the six
months ended March 31, 1994 amounted to $880,043.
Investor servicing and custodian fees reported in the Statement
of operations for the six months ended March 31, 1994 have been
reduced by credits allowed by PFTC.
During the six months ended March 31, 1994, Putnam Mutual Funds
Corp., acting as an underwriter, received net commissions of
$86,151 from the sale of shares of the Fund.
A deferred sales charge of up to 1% is assessed on certain
redemptions of shares purchased as part of an investment of $1
million or more. For the six months ended March 31, 1994 Putnam
Mutual Funds Corp., acting as an underwriter, received $208 on
such redemptions.
Note 3 Purchases and sales of securities
During the six months ended March 31, 1994, purchases and sales
of U.S. government obligations other than short-term investments
aggregated $6,629,156,330 and $6,910,715,438, respectively. In
determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
Note 4 Capital shares
At March 31, 1994, there was an unlimited number of shares of beneficial interest
authorized. Transactions in capital shares were as follows:
Six months ended Year ended
March 31 September 30
1994 1993
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 5,216,517 $46,690,407 13,269,530 $121,899,393
Shares issued in connection
with reinvestment of
distributions 5,624,853 50,307,521 13,785,421 126,356,684
10,841,370 96,997,928 27,054,951 248,256,077
Shares repurchased (66,483,654) (593,542,814) (102,699,591) (942,099,818)
Net decrease (55,642,284) $(496,544,886) (75,644,640) $(693,843,741)
/TABLE
<PAGE>
Note 5 Reclassification of Capital Accounts
Effective October 1, 1993, Putnam American Government Income Fund
has adopted the provisions of Statement of Position 93-2
"Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain and Return of Capital Distributions, by
Investment Companies (SOP)." The purpose of this SOP is to report
the accumulated net investment income (loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate
amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the
presentation of distributions by investment companies.
As a result of the SOP, the Fund has reclassified $10,532,953 to
increase undistributed net investment income, $392,203,864 to
increase accumulated net realized loss and $402,736,817 to
decrease additional paid in capital.
These adjustments represent the cumulative amounts necessary to
report these balances through September 30, 1993, the close of
the Fund's most recent fiscal year end for financial reporting
and tax purposes.
Note 6 Subsequent Events
On May 12, 1994, the Fund began issuing class B shares, which do
not pay a front-end sales charge, but pay a higher ongoing
distribution fee than the Fund's original class of shares (now
known as class A shares), and are subject to a contingent
deferred sales charge if redeemed within six years of purchase.
Effective May 6, the Fund has adopted a new Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the Plan is to compensate Putnam Mutual Funds
Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for
services provided and expenses incurred by it in distributing
class A shares of the Fund. The Trustees have approved payment by
the Fund to Putnam Mutual Fund Corp. at the annual rate of 0.025%
of the Fund's average net assets attributable to class A shares.
<PAGE>
Fund
performance
supplement
Putnam American Government Income Fund is a portfolio managed for
high current income primarily through securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities. Preservation of capital is a secondary
objective. Although the U.S. government guarantees timely payment
of principal and interest on the underlying securities, the value
of fund shares is not guaranteed and will fluctuate.
The Lehman Brothers Intermediate Treasury Index is an unmanaged
list of Treasury bonds; it is used as a general gauge of the
market for Intermediate-term fixed-income securities. The index
does not take into account brokerage commissions or other costs.
Securities in the fund do not match those in the index and may
pose different risks.
The Consumer Price Index is a commonly used measure of inflation;
it does not represent an investment return.
The fund performance supplement has been prepared by Putnam
Management to provide additional information about the fund and
the indexes used for performance comparisons. The information is
not part of the portfolio of investments owned nor the financial
statements.
<PAGE>
Putnam
American
Government
Income Fund
Fund information
Investment manager
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
Marketing services
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
(DALBAR logo)
Putnam Investor Services
has received the DALBAR
award each year since the
award's 1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
A10-11902<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Michael Martino
Vice President
and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
John D. Hughes
Vice President
and Treasurer
Beverly Marcus
Clerk and
Assistant Treasurer
Trustees
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter, Hans H. Estin,
John A. Hill, Elizabeth T. Kennan,
Lawrence J. Lasser, Robert E. Patterson,
Donald S. Perkins, George Putnam, III,
A.J.C. Smith, W. Nicholas Thorndike
This report is for the information of
shareholders of Putnam American
Government Income Fund. It may
also be used as sales literature when
preceded or accompanied by the
current prospectus, which gives details
of sales charges, investment objectives,
and operating policies of the fund.<PAGE>
- ------------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
- ------------------
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS:
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g, the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
