PUTNAM
AMERICAN
GOVERNMENT
INCOME FUND
[Artwork]
ANNUAL REPORT
September 30, 1995
[Putnam Logo]
Boston * London * Tokyo
<PAGE>
PERFORMANCE HIGHLIGHTS
"Putnam American Government Income Fund has seen its
performance improve signi-
ficantly since [Fund Manager Michael] Martino assumed
management duties early
last year. During this time, the fund has provided
competitive yields at a mo-
derate level of volatility."
-- The Value Line Mutual Fund Survey, October 30, 1995
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CLASS A CLASS B
CLASS M
TOTAL RETURN: NAV POP NAV
CDSC NAV POP
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- -------------------
(change in value during period
plus reinvested distributions)
-----------------------------------------------------------
- --------------------
12 months ended 9/30/95 13.42% 8.03% 12.32%
7.32%
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- --------------------
Life of class M (since 2/14/95)
11.44% 7.86%
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- -------------------
SHARE VALUE: NAV POP NAV
NAV POP
- ------------------------------------------------------------
- -------------------
9/30/94 $8.21 $8.62 $8.19
- -- --
2/14/95 (inception of
class M shares) -- -- --
$8.14 $8.41
9/30/95 8.65 9.08 8.62
8.65 8.94
- ------------------------------------------------------------
- -------------------
DISTRIBUTIONS: NO. INCOME RETURN OF
CAPITAL(3) TOTAL
- ------------------------------------------------------------
- -------------------
Class A 12 $0.561 $0.051
$0.612
Class B 12 0.493 0.045
0.538
Class M 8 0.367 0.033
0.400
- ------------------------------------------------------------
- -------------------
CLASS A CLASS B
CLASS M
CURRENT RETURN NAV POP NAV
NAV POP
- ------------------------------------------------------------
- -------------------
End of period
Current dividend rate(1) 7.08% 6.74% 6.40%
6.94% 6.71%
Current 30-day SEC yield(4) 6.94 6.61 6.15
6.31 6.09
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- -------------------
Performance data represent past results and are not
indicative of future per-
formance. For performance over longer periods, see pages 8
and 9. POP assumes
4.75% maximum sales charge for class A and 3.25% for class M
shares. CDSC assu-
mes 5% maximum contingent deferred sales charge. (1) Income
portion of most re-
cent distribution, annualized and divided by NAV or POP at
end of period. (2)
Based only on investment income, calculated using SEC
guidelines. (3) For an
explanation, see page 22.
<PAGE>
FROM THE CHAIRMAN [PHOTOGRAPH
OF GEORGE PUTNAM]
* (C)
KARSH, OTTAWA
DEAR SHAREHOLDER:
PUTNAM AMERICAN GOVERNMENT INCOME FUND ENDS ONE FISCAL YEAR
AND BEGINS ANOTHER
IN ONE OF THE MOST VIBRANT BOND MARKETS IN YEARS. DURING THE
PAST YEAR, INFLA-
TION PEAKED AT 3%, A LOWER LEVEL THAN IN THE MID-1980S. WITH
MODEST ECONOMIC
GROWTH, IT COULD CONTINUE TO FALL, MAKING REAL YIELDS EVEN
MORE ATTRACTIVE THAN
THEY ARE NOW. ALL IN ALL, THIS IS AN IDEAL ENVIRONMENT FOR
FINANCIAL ASSETS.
NEVERTHELESS, FUND MANAGER MICHAEL MARTINO EXPECTS SOME
ANXIETY TO PERSIST OVER
THE NEAR TERM AS INVESTORS AWAIT CLEARER ECONOMIC AND
INTEREST RATE TRENDS AND
PROGRESS IN WASHINGTON TOWARD REDUCING THE FEDERAL BUDGET
DEFICIT. IN MIKE'S
VIEW, MOST OF THE UNCERTAINTIES OVER THE ECONOMY AND
INTEREST RATES WILL SOON
EASE AND SOME BUDGET CUTS WILL BE FORTHCOMING. PROGRESS ON
EITHER FRONT SHOULD
HELP SUSTAIN THE BOND MARKET'S RISE.
IT IS IN THIS SETTING THAT MIKE LOOKS AT YOUR FUND'S FISCAL
1995 PERFORMANCE
AND ITS PROSPECTS FOR FISCAL 1996.
RESPECTFULLY YOURS,
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
NOVEMBER 15, 1995
* (C) Copyright.
<PAGE>
REPORT FROM THE FUND MANAGER
MICHAEL MARTINO
Putnam American Government Income Fund rebounded
dramatically in fiscal 1995 as
U.S. government securities rallied throughout much of the
period. The fund's to-
tal return of 13.42% for class A shares at net asset value
(NAV) outpaced the
Lehman Brothers Intermediate Treasury Index's 10.56% return
over the 12 months
ended September 30, 1995. The fund's class B shares also
outperformed the index,
returning a solid 12.32% at net asset value.
While the bond-market surge was essential to your fund's
solid performance, two
specific investment strategies were equally important. To
derive the greatest
benefit from two key sectors of the U.S. government
securities market -- Trea-
suries and mortgage-backed securities -- we continuously
adjusted the portfo-
lio's allocations to take advantage of changing market
conditions. In addition,
we positioned the portfolio's Treasury holdings to
capitalize on the price
appreciation that resulted from falling interest rates.
FIXED-INCOME MARKET STAGES A SUSTAINED RALLY
By last November, the bond-market decline of 1994 had
significantly boosted bond
yields and driven prices lower. Attracted by these
conditions and by indications
of slowing economic growth and benign inflation, investors
returned in force to
the bond market. The resulting increase in demand began to
chip away at the
yield on the 30-year Treasury bond, reducing it from 8.15%
in mid-November 1994
to 6.50% on September 30, 1995. At the same time, bond
prices, which move in
the opposite direction of yields, rallied considerably in
all domestic market
sectors.
Leading economic indicators currently suggest that the
economy continues to ex-
pand at roughly a 2.5% annual pace. This growth rate,
generally considered to
be productive but noninflationary, is the pace the Federal
Reserve Board has
tried to achieve since earlier this year by manipulating
short-term interest
rates. Indeed, as the Fed has guided the economy toward this
rate of growth,
inflation has remained under control.
<PAGE>
These economic trends may continue for the remainder of 1995
and into 1996, par-
ticularly if current Congressional budget negotiations are
fruitful. If Congress
is able to agree on a budget that cuts spending to reduce
the government's annu-
al deficit, the outlook for bonds may improve further. While
there can be no
assurances, reduced government spending has the potential to
benefit fixed-
income markets in two ways. First, it may further retard
economic growth, which
could prompt the Fed to ease short-term interest rates and
spark another market
rally. Also, lower spending levels may decrease the
government's need to borrow,
thereby reducing the number of government bond issues and
enhancing the value
of existing bonds.
LOWER-COUPON GNMA SECURITIES PROTECT VALUE
Typically, your fund invests roughly half of its assets in
U.S. Treasury secu-
rities, with the remainder allocated to Government National
Mortgage Association
(GNMA) securities. As with Treasuries, GNMAs are backed by
the full faith and
credit of the U.S. government, and they normally offer
yields roughly one per-
centage point higher than those of Treasuries.
[Bar Chart - Page 5]
GNAM COUPON ALLOCATION *
GNMA coupon % of total GNMA
allocation
5.0% - 5.9%
3.7%
6.0% - 6.9%
5.5%
7.0% - 7.9%
63.6%
8.0% - 8.9%
18.7%
9.0% - 9.9%
8.5%
10% and above
0.0%
* Base on net assets as of 9/30/95. This chart illustrates
that a majority of
fund's GNMA holdings have coupons below 8%. The fund's
management has chosen
this strategy to protect against mortgage prepayments in
the event that in-
terest rates continue to decline.
<PAGE>
At the outset of the fiscal year, the 1994 bond-market
decline was still under
way and interest rates remained high. The undervalued GNMA
market benefited from
these rising rates and outperformed Treasuries. However, in
the first few months
of 1995, as the bond-market rally drove prices higher and
yields lower, the per-
formance of GNMAs was eroded by the effects of prepayments.
Mortgage prepayments
typically accelerate as mortgage holders rush to refinance
in response to fall-
ing long-term rates, diminishing the value of mortgage-
backed securities.
Over the past several months, GNMA performance has
rebounded. In response, we
gradually increased the portfolio's GNMA allocation to 49.3%
at fiscal year end.
A majority of the portfolio's GNMA holdings have coupons
(the bond's interest
rate) below 8%, while many GNMAs available in the market
offer coupons of 8%
and above. Mortgage-backed bonds with lower coupons offer a
degree of protection
against prepayment risk in an environment of declining
interest rates because
mortgage holders are less likely to refinance a mortgage
with a 7.5% coupon than
one with an 8.5% rate. Going forward, if interest rates
continue to decline, we
may shift the fund's GNMA holdings to those with even lower
coupons in an effort
to minimize the fund's exposure to prepayment risk.
LONG PORTFOLIO DURATION CAPITALIZES ON FALLING INTEREST
RATES
Early in the fund's fiscal year, we kept the portfolio's
duration relatively
short to protect the fund's value as long-term interest
rates continued to
climb. Duration is a measure of the price sensitivity of a
portfolio of bonds
to changes in interest rates. Like maturity, with which it
is often confused,
duration is measured in years.
As the current bond-market rally picked up steam in response
to slowing economic
growth and moderate inflation, investors' fears of inflation
gradually dissipa-
ted. This, in turn, drove down long-term interest rates. At
the same time, we
extended the portfolio's duration -- from 5.49 years on
March 31 to 6.12 years
on September 30 -- in order to capitalize on the interest-
rate decline. Because
bond prices increase as interest rates fall, the portfolio's
longer duration
enabled the fund to derive greater benefit from falling long-
term interest ra-
tes. If, as we anticipate,
<PAGE>
[Bar Chart - Page 7]
PORTFOLIO ALLOCATION *
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- -------------------
U.S. TREASURY MORTGAGE-RELATED
CASH AND SHORT-TERM
SECURITIES SECURITIES
INVESTMENTS
- ------------------------------------------------------------
- -------------------
9/30/94 57.4 36.8
4.7
3/31/95 67.1 27.6
5.3
9/30/95 45.5 50.9
3.6
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- -------------------
* Base on net assets of the indicated date. Holdings will
vary over time.
rates continue to drop, the portfolio's longer duration may
continue to boost
performance, although there can be no assurances. However,
with such a strategy,
an increase in interest rates could adversely affect the
fund.
A FUND FOR THE LONG TERM
Investors in this fund should have an investment horizon of
at least three years
to allow their investment the opportunity to benefit from
economic activity
through an entire interest-rate cycle. As each cycle
progresses, we will conti-
nue to monitor interest-rate trends and price relationships
among government
bond sectors. Our goal is to deliver attractive income in
line with the portfo-
lio's earnings while keeping share price volatility to a
minimum.
The views expressed in this report are exclusively those of
Putnam Management
and are not meant as investment advice. Although the
described holdings were
viewed favorably as of 9/30/95, there is no guarantee the
fund will continue to
hold these securities in the future. Although the U.S.
government guarantees the
timely payment of principal and interest on the U.S.
government and agency obli-
gations, the value of the fund shares is not guaranteed and
will fluctuate.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your
fund's performance.
Total return shows how the value of the fund's shares
changed over time, assu-
ming you held the shares through the entire period and
reinvested all distribu-
tions back into the fund. We show total return in two ways:
on a cumulative
long-term basis and on average how the fund might have grown
each year over va-
rying periods.
Performance should always be considered in light of a fund's
investment strate-
gy. Putnam American Government Income Fund is designed for
investors seeking
high current income primarily through U.S. government
securities.
TOTAL RETURN FOR PERIODS ENDED 9/30/95
CLASS A CLASS B
CLASS M
NAV POP NAV CDSC
NAV POP
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- -------------------
1 year 13.42% 8.03% 12.32% 7.32%
- -- --
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- -------------------
5 year 43.67 36.91 -- --
- -- --
Annual average 7.52 6.48 -- --
- -- --
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10 year 110.55 100.58 -- --
- -- --
Annual average 7.73 7.21 -- --
- -- --
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Life of class B -- -- 11.73 7.73
- -- --
Annual average -- -- 8.37 5.55
- -- --
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Life of class M -- -- -- --
11.44% 7.86%
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/95
LEHMAN BROS.
CONSUMER
INTERMEDIATE TREASURY
INDEX PRICE INDEX
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- -------------------
1 year 10.56%
2.54%
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- -------------------
5 years 49.84
15.45
Annual average 8.42
2.91
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10 year 132.79
41.46
Annual average 8.82
3.53
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Life of class B 11.43
3.86
Annual average 8.45
2.81
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Life of class M 8.91
1.93
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- -------------------
Fund performance data do not take into account any
adjustment for taxes payable
on reinvested distributions. The fund began offering class B
shares on 5/20/94
and class M shares on 2/14/95. Performance data represent
past results and will
differ for each share class. Investment returns and net
asset value will fluc-
tuate so an investor's shares, when sold, may be worth more
or less than their
original cost.
<PAGE>
[Line Chart - Page 9]
GROWTH OFA $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since
9/30/85
LEHMAN BROS.
FUND'S CLASS A INTERMEDIATE
CONSUMER PRICE
SHARES AT POP TREASURY INDEX
INDEX
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- -------------------
1985 9525 10000
10000
1986 11324 11662
10175
1987 10819 11830
10619
1988 12115 13067
11062
1989 13327 14321
11542
1990 13963 15535
12253
1991 15986 17637
12669
1992 17195 19854
13047
1993 18434 21378
13398
1994 17686 21055
13795
1995 20058 23279
14146
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- -------------------
Past performance is no assurance of future results. A
$10,000 investment in the
fund's class B shares at inception on 5/20/94 would have
been valued at $11,173
on 9/30/95 ($10,773 with a redemption at the end of the
period). A $10,000 in-
vestment in the fund's class M shares at inception on
2/14/95 would have been
valued at $10,786 at POP.
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales
charge.
CLASS B SHARES may be subject to a sales charge upon
redemption.
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.
NET ASSET VALUE (NAV) is the value of all your fund's assets
for each class,
minus any liabilities, divided by the number of outstanding
shares for each
class, not including any initial or contingent deferred
sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund
share plus the maximum
sales charge levied at the time of purchase. POP performance
figures shown here
assume the maximum 4.75% sales charge for class A shares 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 shares and assumes redemption at the
end of the period.
Your fund's 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.
COMPARATIVE BENCHMARKS
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, may include bonds different from those in
the fund, and may po-
se different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of
inflation; it does not
represent an investment return.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended September 30, 1995
To the Trustees and Shareholders of
Putnam American Government Income Fund
In our opinion, the accompanying statement of assets and
liabilities, including
the portfolio of investments owned, and the related
statements of operations and
of changes in net assets and the financial highlights
present fairly, in all ma-
terial respects, the financial position of Putnam American
Government Income
Fund, at September 30, 1995, and the results of its
operations, the changes in
its net assets, and the financial highlights for the periods
indicated, in con-
formity with generally accepted accounting principles. These
financial state-
ments and financial highlights (hereafter referred to as
"financial statements")
are the responsibility of the fund's management; our
responsibility is to ex-
press an opinion on these financial statements based on our
audits. We conducted
our audits of these financial statements in accordance with
generally accepted
auditing standards which require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting
the amounts and disclosures in the financial statements,
assessing the account-
ing principles used and significant estimates made by
management, and evaluating
the overall financial statement presentation. We believe
that our audits, which
included confirmation of investments owned at September 30,
1995 by correspon-
dence with the custodian and brokers and the application of
alternative auditing
procedures where confirmations from brokers were not
received, provide a rea-
sonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
November 13, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1995
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (95.9%)*
PRINCIPAL AMOUNT
VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (0.5%)*
- ------------------------------------------------------------
- -------------------
Federal National Mortgage Association
$ 7,500,000 Ser. 89-23, Class D, 10.2s, September 25, 2018
$ 7,935,938
3,135,736 Principal Only (PO) Strips, Ser. 93-152, Class
A,
zero %, February 25, 2017^^
3,069,102
- ---------------
11,005,040
U.S. AGENCY MORTGAGE PASS-THROUGHS (49.3%)*
- ------------------------------------------------------------
- -------------------
Government National Mortgage Association
86,133,845 9s, with various due dates to July 1, 2024
91,563,336
40,565,254 8 1/2s, with various due dates to November 15,
2024 42,379,155
155,208,648 8s, with various due dates to November 15,
2024 160,196,145
386,754,998 7 1/2s, with various due dates to September
15, 2025 390,702,210
301,417,051 7s, with various due dates to August 15, 2025
298,022,731
29,400,030 6s, Midgets, with various due dates to
September 20, 2025
29,368,852
30,000,000 6s, TBA, October 14, 2025+++
30,056,250
40,000,000 5 1/2s, TBA, November 14, 2025+++
39,562,500
- ---------------
1,081,851,179
U.S. TREASURY OBLIGATIONS (46.1%)*
- ------------------------------------------------------------
- -------------------
50,000,000 U.S. Treasury Bonds 9 7/8s, November 15, 2015
67,773,500
150,000,000 U.S. Treasury Bonds 8 7/8s, February 15, 2019
189,093,000
100,000,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017
125,391,000
175,000,000 U.S. Treasury Bonds 7 5/8s, February 15, 2025
198,159,500
250,000,000 U.S. Treasury Bonds 6 7/8s, August 15, 2025
262,695,000
50,000,000 U.S. Treasury Notes 9 1/2s, November 15, 1995
50,218,500
25,000,000 U.S. Treasury Notes 9 1/4s, January 15, 1996
25,250,000
25,000,000 U.S. Treasury Notes 8 5/8s, August 15, 1997
26,218,750
50,000,000 U.S. Treasury Notes 7 1/2s, February 15, 2005
54,461,000
10,000,000 U.S. Treasury Notes 7 1/4s, May 15, 2004
10,682,800
- ---------------
1,009,943,050
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $2,044,465,543)
$2,102,799,269
<PAGE>
SHORT-TERM INVESTMENTS (6.9%)*
PRINCIPAL AMOUNT
VALUE
- ------------------------------------------------------------
- -------------------
$ 19,500,000 Federal Home Loan Mortgage Corporation 5.59s,
November 29, 1995
$ 19,318,325
Federal National Mortgage Association
15,000,000 5.65s, October 11, 1995
14,974,104
10,000,000 5.60s, October 16, 1995
9,975,111
25,500,000 5.59s, November 29, 1995
25,262,425
30,000,000 5.53s, December 27, 1995
29,594,467
50,000,000 5.48s, February 12, 1996
48,972,500
2,414,000 Interest in $652,192,000 joint repurchase
agreement
dated September 29, 1995 with Goldman, Sachs
&Co.,
due October 2, 1995 with respect to various
U.S.
Treasury obligations -- maturity value of
$2,415,282
for an effective yield of 6.375%
2,414,855
- ---------------
TOTAL SHORT-TERM INVESTMENTS (cost
$150,511,787) $ 150,511,787
- ------------------------------------------------------------
- -------------------
TOTAL INVESTMENTS (cost $2,194,977,330)***
$2,253,311,056
- ------------------------------------------------------------
- -------------------
* Percentages indicated are based on net assets of
$2,193,536,124, which co-
rrespond to a net asset value per class A share, class B
share, and class M
share of $8.65, $8.62, and $8.65, respectively.
+++ TBA's are mortgage backed securities traded under
delayed delivery commit-
ments settling after September 30, 1995. Although the
unit price for the
trades has been established, the principal value has not
been finalized.
However, the amount of the commitments will not
fluctuate more than 2.0%
from the principal amount. Income on the securities will
not be earned until
settlement date. The cost of TBA purchases at September
30, 1995 was
$69,639,063.
^^ Principal Only (PO) Strips represent the right to
receive the monthly prin-
cipal payments on an underlying pool of mortgage loans.
No payments of in-
terest on the pool are passed through to the PO holders.
*** The aggregate identified cost for federal income tax
purposes is
$2,196,645,649, resulting in gross unrealized
appreciation and depreciation
of $62,512,851 and $5,847,444, respectively, or net
unrealized appreciation
of $56,665,407.
The accompanying notes are an integral part of these
financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
ASSETS
- ------------------------------------------------------------
- -------------------
Investments in securities, at value
(identified cost $2,194,977,330) (Note 1)
$2,253,311,056
- ------------------------------------------------------------
- -------------------
Cash
2,134,690
- ------------------------------------------------------------
- -------------------
Interest receivable
18,337,695
- ------------------------------------------------------------
- -------------------
Receivable for shares of the fund sold
256,065
- ------------------------------------------------------------
- -------------------
Receivable for securities sold
80,012
- ------------------------------------------------------------
- -------------------
TOTAL ASSETS
2,274,119,518
LIABILITIES
- ------------------------------------------------------------
- -------------------
Payable for securities purchased
71,568,693
- ------------------------------------------------------------
- -------------------
Payable for shares of the fund repurchased
3,590,066
- ------------------------------------------------------------
- -------------------
Payable for compensation of Manager (Note 2)
2,809,235
- ------------------------------------------------------------
- -------------------
Payable for compensation of Trustees (Note 2)
2,677
- ------------------------------------------------------------
- -------------------
Payable for investor servicing and custodian fees (Note 2)
337,970
- ------------------------------------------------------------
- -------------------
Payable for administrative services (Note 2)
7,884
- ------------------------------------------------------------
- -------------------
Payable for distribution fees (Note 2)
1,388,047
- ------------------------------------------------------------
- -------------------
Other accrued expenses
878,822
- ------------------------------------------------------------
- -------------------
TOTAL LIABILITIES
80,583,394
- ------------------------------------------------------------
- -------------------
NET ASSETS
$2,193,536,124
REPRESENTED BY
- ------------------------------------------------------------
- -------------------
Paid-in capital (Notes 1 and 4)
$3,614,411,632
- ------------------------------------------------------------
- -------------------
Accumulated net realized loss on investments (Note 1)
(1,479,209,234)
- ------------------------------------------------------------
- -------------------
Net unrealized appreciation of investments
58,333,726
- ------------------------------------------------------------
- -------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING
$2,193,536,124
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ------------------------------------------------------------
- -------------------
Net asset value and redemption price of class A shares
($2,183,765,967 divided by 252,329,822 shares)
$8.65
- ------------------------------------------------------------
- -------------------
Offering price per class A share (100/95.25 of $8.65)*
$9.08
- ------------------------------------------------------------
- -------------------
Net asset value and offering price of class B shares
($9,098,529 divided by 1,055,466 shares)**
$8.62
- ------------------------------------------------------------
- -------------------
Net asset value and redemption price of class M shares
($671,628 divided by 77,683 shares)
$8.65
- ------------------------------------------------------------
- -------------------
Offering price per class M share (100/96.75 of $8.65)*
$8.94
- ------------------------------------------------------------
- -------------------
* 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.
<PAGE>
STATEMENT OF OPERATIONS
Year ended September 30, 1995
INTEREST INCOME
$167,226,152
- ------------------------------------------------------------
- -------------------
EXPENSES:
- ------------------------------------------------------------
- -------------------
Compensation of Manager (Note 2)
11,349,797
- ------------------------------------------------------------
- -------------------
Investor servicing and custodian fees (Note 2)
3,110,514
- ------------------------------------------------------------
- -------------------
Compensation of Trustees (Note 2)
65,980
- ------------------------------------------------------------
- -------------------
Reports to shareholders
116,331
- ------------------------------------------------------------
- -------------------
Auditing
99,123
- ------------------------------------------------------------
- -------------------
Legal
31,484
- ------------------------------------------------------------
- -------------------
Postage
505,222
- ------------------------------------------------------------
- -------------------
Administrative services (Note 2)
35,689
- ------------------------------------------------------------
- -------------------
Distribution fees -- class A (Note 2)
5,598,060
- ------------------------------------------------------------
- -------------------
Distribution fees -- class B (Note 2)
49,554
- ------------------------------------------------------------
- -------------------
Distribution fees -- class M (Note 2)
1,014
- ------------------------------------------------------------
- -------------------
Other
135,196
- ------------------------------------------------------------
- -------------------
TOTAL EXPENSES
21,097,964
- ------------------------------------------------------------
- -------------------
FEES PAID INDIRECTLY (NOTE 2)
(2,498,519)
- ------------------------------------------------------------
- -------------------
NET EXPENSES
18,599,445
- ------------------------------------------------------------
- -------------------
NET INVESTMENT INCOME
148,626,707
- ------------------------------------------------------------
- -------------------
Net realized loss on investments (Notes 1 and 3)
(16,549,652)
- ------------------------------------------------------------
- -------------------
Net unrealized appreciation of investments during the year
147,624,755
- ------------------------------------------------------------
- -------------------
NET GAIN ON INVESTMENT TRANSACTIONS
131,075,103
- ------------------------------------------------------------
- -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$279,701,810
- ------------------------------------------------------------
- -------------------
The accompanying notes are an integral part of these
financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR
ENDED SEPTEMBER 30
1995 1994
INCREASE IN NET ASSETS
- ------------------------------------------------------------
- -------------------
Operations:
- ------------------------------------------------------------
- -------------------
Net investment income $
148,626,707 $ 200,825,572
- ------------------------------------------------------------
- -------------------
Net realized loss on investments
(16,549,652) (249,203,701)
- ------------------------------------------------------------
- -------------------
Net unrealized appreciation (depreciation) of
investments
147,624,755 (75,684,083)
- ------------------------------------------------------------
- -------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS
279,701,810 (124,062,212)
- ------------------------------------------------------------
- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- Class A
(151,762,165) (214,863,213)
Net investment income -- Class B
(283,676) (63,569)
Net investment income -- Class M
(11,822) --
Return of capital -- Class A
(13,778,422) --
Return of capital -- Class B
(25,755) --
Return of capital -- Class M
(1,073) --
- ------------------------------------------------------------
- -------------------
Decrease from capital share transactions
(Note 4)
(338,147,532) (773,296,455)
- ------------------------------------------------------------
- -------------------
TOTAL DECREASE IN NET ASSETS
(224,308,635) (1,112,285,449)
- ------------------------------------------------------------
- -------------------
NET ASSETS
Beginning of period
2,417,844,759 3,530,130,208
- ------------------------------------------------------------
- -------------------
END OF PERIOD (including undistributed net
investment income of $0 and
$4,566,950, respectively)
$2,193,536,124 $2,417,844,759
- ------------------------------------------------------------
- -------------------
The accompanying notes are an integral part of these
financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period
For the period
February 14, 1995
May 20, 1994
(commencement
(commencement
of operations) to
of operations) to
September 30 Year ended
September 30 September 30
1995* 1995*
1994
- ------------------------------------------------------------
- -------------------------------------
Class M
Class B
- ------------------------------------------------------------
- -------------------------------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING
OF PERIOD $8.14 $8.19
$8.43
- ------------------------------------------------------------
- -------------------------------------
INVESTMENT OPERATIONS
Net investment income .29 .46
.21
- ------------------------------------------------------------
- -------------------------------------
Net realized and unrealized
gain (loss) on investments .62 .51
(.25)
- ------------------------------------------------------------
- -------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .91 .97
(.04)
- ------------------------------------------------------------
- -------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (.37) (.49)
(.20)
- ------------------------------------------------------------
- -------------------------------------
Net realized gain on investments -- --
- --
- ------------------------------------------------------------
- -------------------------------------
Return of capital (.03) (.05)
- --
- ------------------------------------------------------------
- -------------------------------------
TOTAL DISTRIBUTIONS (.40) (.54)
(.20)
- ------------------------------------------------------------
- -------------------------------------
NET ASSET VALUE, END OF PERIOD $8.65 $8.62
$8.19
- ------------------------------------------------------------
- -------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) 11.44(b) 12.32
(.52)(b)
- ------------------------------------------------------------
- -------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $672 $9,099
$5,691
- ------------------------------------------------------------
- -------------------------------------
Ratio of expenses to
average net assets (%) (c) .78(b) 1.68
.59(b)
- ------------------------------------------------------------
- -------------------------------------
Ratio of net investment
income to average net
assets (%) 4.03(b) 5.76
2.22(b)
- ------------------------------------------------------------
- -------------------------------------
Portfolio turnover (%) 468.86 468.86
331.61
- ------------------------------------------------------------
- -------------------------------------
<FN>
* Per share investment income has been determined on the
basis of the weighted average number of shares outstanding
during the
period.
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) Not annualized.
(c) The ratio of expenses to average net assets for the year
ended September 30, 1995 includes amounts paid through
expense offset
arrangements. Prior period ratios exclude these amounts.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Year ended September 30
1995
1994 1993 1992 1991
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Class A
<S> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $8.21
$9.21 $9.32 $9.60 $9.32
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
INVESTMENT OPERATIONS
Net investment income .55
.62 .77 .56 .70
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Net realized and unrealized
gain (loss) on investments .50
(.98) (.13) .12 .59
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
TOTAL FROM INVESTMENT OPERATIONS 1.05
(.36) .64 .68 1.29
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
LESS DISTRIBUTIONS FROM:
Net investment income (.56)
(.64) (.75) (.56) (.70)
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Net realized gain on investments -- -
- - -- (.40) (.31)
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Return of capital (.05) -
- - -- -- --
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
TOTAL DISTRIBUTIONS (.61)
(.64) (.75) (.96) (1.01)
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
NET ASSET VALUE, END OF PERIOD $8.65
$8.21 $9.21 $9.32 $9.60
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) 13.42
(4.06) 7.20 7.56 14.49
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
NET ASSETS, END OF PERIOD
(in thousands) $2,183,766
$2,412,154 $3,530,130 $4,275,225 $5,045,139
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Ratio of expenses to
average net assets (%) (c) .94
.83 .91 .96 .97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Ratio of net investment
income to average net
assets (%) 6.62
6.93 8.39 6.03 7.39
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Portfolio turnover (%) 468.86
331.61 235.61 798.43 469.45
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
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 cu-
rrent income, with preservation of capital as its secondary
objective.
The fund offers class A, class B and class M shares. The
fund commenced its pu-
blic offering of class M shares on February 14, 1995. Class
A shares are sold
with a maximum front-end sales charge of 4.75%. Class B
shares do not pay a
front-end sales charge, but pay a higher ongoing
distribution fee than class A
shares, and may be subject to a contingent deferred sales
charge, if those sha-
res are redeemed within six years of purchase. Class M
shares are sold with a
maximum front end sales charge of 3.25% and an ongoing
distribution fee that is
higher than class A shares and lower than class B shares.
Expenses of the fund
are borne pro rata by the shareholders 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 fo-
llowed 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 avail-
able are stated at market value, which is determined using
the last reported sa-
le price, or, if no sales are reported -- as in the case of
most securities tra-
ded 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 sta-
ted 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) pur-
chase 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 commit-
ments 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 obliga-
tions 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
<PAGE>
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 Putnam Management deems it
appropriate to do so.
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 compa-
nies managed by Putnam Investment Management, Inc. ("Putnam
Management"), the
fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc. and cer-
tain 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. 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.
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 amortized 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 In-
ternal 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. There-
fore, 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, 1995, the fund had a capital loss carryover
of approximately
$1,474,761,000 which may be available to offset future
capital gains, if any.
The amount of the carryover and the expiration dates are:
LOSS CARRYOVER EXPIRATION
- -----------------------------------
$1,165,356,000 September 30, 1998
$ 45,648,000 September 30, 2001
$ 7,767,000 September 30, 2002
$ 255,990,000 September 30, 2003
- -----------------------------------
G) DISTRIBUTIONS TO SHAREHOLDERS Distributions to
shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund
may pay distribu-
tions at a level rate even though, as a result of market
conditions or invest-
ment decisions, the fund may not achieve projected
investment results for a gi-
ven period.
The amount and character of income and gains to be
distributed are determined
in accordance with income tax regulations which may differ
from generally accep-
ted accounting principles. These differences include
treatment of post-October
loss deferrals, losses on wash sale transactions and capital
loss carryover. Re-
classifications are made to the fund's capital accounts to
reflect income and
gains available for distribution (or available capital loss
carryovers) under
income tax regulations. For the year ended September 30,
1995, the fund recla-
ssified $1,135,995 to decrease undistributed net investment
income, $426,082 to
decrease accumulated net realized loss and $709,912 to
increase paid-in
<PAGE>
capital. The calculation of net investment income per share
in the financial
highlights table excludes these adjustments.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER
TRANSACTIONS
Compensation of Putnam Management for management and
investment advisory servi-
ces is paid quarterly based on the average net assets of the
fund for the quar-
ter.
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 ra-
tes: 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 excess over $9.5
billion, subject 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 excess
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.
The fund also reimburses the Manager for the compensation
and related expenses
of certain officers of the fund and their staff who provide
administrative ser-
vices to the fund. The aggregate amount of all such
reimbursements is determined
annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of
$3,160 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.
For the year ended September 30, 1995, fund expenses were
reduced by $2,498,519
under expense offset arrangements with PFTC. Investor
servicing and custodian
fees reported in the Statement of operations exclude these
credits. The fund
could have invested a portion of the assets utilized in
connection with the off-
set arrangements in an income-producing asset if it had not
entered into such
arrangements.
The fund has adopted distribution plans (the "Plans") with
respect to its class
A, class B, and class M shares pursuant to Rule 12b-1 under
the Investment Com-
pany Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds
Corp., a wholly-owned subsidiary of Putnam Investments,
Inc., for services pro-
vided and expenses incurred by it in distributing shares of
the fund. The Plans
provide for payments by the Fund to Putnam Mutual Funds
Corp. at an annual rate
up to 0.35%, 1.00%, and 1.00% of the average net assets
attributable to class A,
class B, and class M shares, respectively. The Trustees have
approved payment
by the fund at the annual rate of 0.25%, 1.00%, and 0.50% of
the average net
assets attributable to class A, class B, and class M shares,
respectively.
For the year ended September 30, 1995, Putnam Mutual Funds
Corp., acting as un-
derwriter, received net commissions of $85,807 and $538 from
the sale of class
A and M shares, respectively, and $5,327 in contingent
deferred sales charges
from redemptions of class B shares. A deferred sales charge
of up to 1% is
assessed on certain redemptions of class A shares. For the
year ended September
30, 1995, Putnam Mutual
<PAGE>
Funds Corp., acting as underwriter, received $251,764 on
class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 1995, purchases and
sales of U.S. government
obligations other than short-term investments aggregated
$9,006,424,746 and
$9,312,422,337, respectively. In determining the net gain or
loss on securities
sold, the cost of securities has been determined on the
identified cost basis.
NOTE 4
CAPITAL SHARES
At September 30, 1995, there was an unlimited number of
shares of beneficial
interest authorized, divided into three classes, class A,
class B and class M
capital shares. Transactions in capital shares were as
follows:
YEAR ENDED
SEPTEMBER 30, 1995
CLASS A SHARES
AMOUNT
- ------------------------------------------------------------
- -------------------
Shares sold 6,624,630
$54,980,481
- ------------------------------------------------------------
- -------------------
Shares issued in connection with
reinvestment of distributions 9,059,519
74,915,985
- ------------------------------------------------------------
- -------------------
15,684,149
129,896,466
- ------------------------------------------------------------
- -------------------
Shares repurchased (57,082,955)
(471,766,626)
- ------------------------------------------------------------
- -------------------
NET DECREASE (41,398,806)
$(341,870,160)
- ------------------------------------------------------------
- -------------------
YEAR ENDED
SEPTEMBER 30, 1994
CLASS A SHARES
AMOUNT
- ------------------------------------------------------------
- -------------------
Shares sold 8,942,849
$77,862,084
- ------------------------------------------------------------
- -------------------
Shares issued in connection with
reinvestment of distributions 10,622,308
91,971,912
- ------------------------------------------------------------
- -------------------
19,565,157
169,833,996
- ------------------------------------------------------------
- -------------------
Shares repurchased (109,083,833)
(948,928,990)
- ------------------------------------------------------------
- -------------------
NET DECREASE (89,518,676)
$(779,094,994)
- ------------------------------------------------------------
- -------------------
YEAR ENDED
SEPTEMBER 30, 1995
CLASS B SHARES
AMOUNT
- ------------------------------------------------------------
- -------------------
Shares sold 1,205,771
$10,033,873
- ------------------------------------------------------------
- -------------------
Shares issued in connection with
reinvestment of distributions 25,686
214,274
- ------------------------------------------------------------
- -------------------
1,231,457
10,248,147
- ------------------------------------------------------------
- -------------------
Shares repurchased (871,188)
(7,180,267)
- ------------------------------------------------------------
- -------------------
NET INCREASE 360,269
$3,067,880
- ------------------------------------------------------------
- -------------------
FOR THE PERIOD
MAY 20, 1994
(COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30, 1994
CLASS B SHARES
AMOUNT
- ------------------------------------------------------------
- -------------------
Shares sold 714,110
$5,953,948
- ------------------------------------------------------------
- -------------------
Shares issued in connection with
reinvestment of distributions 7,241
59,832
- ------------------------------------------------------------
- -------------------
721,351
6,013,780
- ------------------------------------------------------------
- -------------------
Shares repurchased (26,154)
(215,241)
- ------------------------------------------------------------
- -------------------
NET INCREASE 695,197
$5,798,539
- ------------------------------------------------------------
- -------------------
FOR THE PERIOD
FEBRUARY 14, 1995
(COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30, 1995
CLASS M SHARES
AMOUNT
- ------------------------------------------------------------
- -------------------
Shares sold 76,597
$645,492
- ------------------------------------------------------------
- -------------------
Shares issued in connection with
reinvestment of distributions 1,133
9,656
- ------------------------------------------------------------
- -------------------
77,730
655,148
- ------------------------------------------------------------
- -------------------
Shares repurchased (47)
(400)
- ------------------------------------------------------------
- -------------------
NET INCREASE 77,683
$654,748
- ------------------------------------------------------------
- -------------------
<PAGE>
FEDERAL TAX INFORMATION
(Unaudited)
For the year ended September 30, 1995, a portion of the
fund's distribution
represents a return of capital and is therefore not taxable
to shareholders.
This resulted from prepayments on higher-coupon mortgage-
backed securities as
long-term interest rates declined early in the fiscal year,
and from the fund's
subsequent investments in lower coupon mortgage-backed
securities. While lower-
coupon securities offered a degree of protection against
prepayments, their
lower yields caused the fund's income to be less than was
projected.
The Form 1099 you receive in January 1996 will show the tax
status of all dis-
tributions paid to your account in calendar 1995, as well as
the amount of the
distribution not subject to tax.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman William F. Pounds,
Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T.
Kennan
Lawrence J. Lasser Robert E.
Patterson
Donald S. Perkins George Putnam, III
Eli Shapiro A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice
President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Gary N. Coburn
Vice President Vice President
Alan J. Bankart Michael Martino
Vice President Vice President and
Fund Manager
William N. Shiebler John R. Verani
Vice President Vice President
Paul M. O'Neil John D. Hughes
Vice President Vice President and
Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
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 accompa-
nied by the current prospectus, which gives details of sales
charges, investment
objectives, and operating policies of the fund, and the most
recent copy of
Putnam's Quarterly Performance Summary. For more
information, or to request a
prospectus, call toll free: 1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY
THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR
ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
<PAGE>
----
- -----------
PUTNAM INVESTMENTS Bulk
Rate
U.S.
Postage
THE PUTNAM FUNDS PAID
One Post Office Square
Putnam
Boston, Massachusetts 02109
Investments
----
- -----------
20977-033/292/895 11/95
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES
BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters,
italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected,
certain tabular and
columnar headings and symbols are displayed differently
in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The registered mark symbol has been replaced by (R).
(8) The dagger symbol has been replaced by +
(9) The double dagger symbol has been replaced by ++
(10) The triple dagger symbol has been replaced by +++
(11) The section symbol has been replaced by ^
(12) The double section symbol has been replaced by ^^
(13) The trile section symbol has been replaced by ^^^
