Prospectus Supplement 44515 7/98
dated July 13, 1998 to:
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Putnam American Government Income Fund (the "fund")
Prospectus dated January 30, 1998
The first paragraph under the heading "How the fund pursues its
objectives - Options and futures portfolio strategies"
is replaced with the following:
THE FUND MAY ENGAGE IN A VARIETY OF TRANSACTIONS INVOLVING THE
USE OF OPTIONS AND FUTURES CONTRACTS. The fund may purchase and
sell futures contracts in order to hedge against changes in the
values of securities the fund owns or expects to purchase or to
hedge against interest rate changes. For example, if Putnam
Investment Management, Inc. ("Putnam Management") expected
interest rates to increase, the fund might sell futures contracts
on U.S. government securities. If rates were to increase, the
value of the fund's fixed-income securities would decline, but
this decline might be offset in whole or in part by an increase
in the value of the futures contracts. The fund may also
purchase and sell call and put options on futures contracts or on
securities it is permitted to purchase in addition to or as an
alternative to purchasing and selling futures contracts. The
fund may also buy and sell combinations of put and call options
on the same underlying security. The fund may also engage in
futures and options transactions for nonhedging purposes, such as
to substitute for direct investment or to manage the fund's
effective duration. Duration is a commonly used measure of the
longevity of debt instruments.
