Putnam
American
Government
Income Fund
SEMIANNUAL REPORT
March 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "As the Dow Jones Industrial Average nears the 9000 mark, many
investors are examining alternatives, and an increasing number are
turning to bond funds."
-- The Wall Street Journal, April 6, 1998
* "Until the U.S. economic outlook becomes more clear, we intend to
keep the fund's duration strategy relatively defensive. We also
expect to maintain a sizable position in mortgage-backed securities
to take advantage of their relatively higher yields and lower
sensitivity to interest rates."
-- Michael Martino, manager
Putnam American Government Income Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
14 Financial statements
24 Results of March 5, 1998, shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The financial troubles in Asia continued to dominate the capital markets
during the first half of Putnam American Government Income Fund's fiscal
year, pushing aside worries that the continued strength in the U.S.
economy would have inflationary implications. The rush of funds to the
safety of the U.S. bond market did drive down yields on most bonds,
especially the U.S. Treasury issues that make up a large portion of your
fund's portfolio, as the brisk demand moved their prices higher.
The Federal Reserve Board kept close watch on these events as you might
expect. But in the end, the Fed remained on the sidelines, apparently
content that the economic engine was still sufficiently under control.
In this environment, Fund Manager Michael Martino continued to focus on
the fund's objective: maintaining a high level of current income. In the
following report, Mike discusses his strategy during the six months
ended March 31, 1998, and looks at prospects for the fiscal year's
second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 20, 1998
Report from the Fund Manager
Michael Martino
Putnam American Government Income Fund enjoyed a healthy start to its
1998 fiscal year. Its class A shares returned 4.61% at net asset value
for the six-month period ended March 31, 1998. Your fund continues to
outperform its benchmark index, the Lehman Brothers Intermediate
Treasury Index, which returned 3.78% for the period. The fund also
compares well with its peers. The 183 general U.S. government funds
tracked by Lipper Analytical Services returned 4.34% on average for the
six-month period. At public offering price, class A shares returned
- -0.35%. For more performance information, including the results for
other share classes, please see pages 8 and 9.
* ASIAN TROUBLES BOOST U.S. RETURNS
A flight to quality from Asian markets, combined with a noninflationary
growth picture in the United States, fueled a dramatic rise in U.S.
Treasury prices during the period. Beginning last summer, the currencies
of several Southeast Asian countries crumbled under competitive
pressures from China and Japan. Weak current account balances were
revealed, and a number of fiscal-policy missteps sent investors seeking
safer havens. Local depositors also suffered an erosion of confidence,
as years of government-controlled lending practices and misguided
investments culminated in several high-profile bank closings.
Dollar-denominated assets, particularly U.S. Treasuries, have been key
beneficiaries of this trend. Your fund's 37% stake in this segment of
the market at the start of the period bolstered overall performance, as
the prices of intermediate and long-term Treasuries were bid ever
higher. So great was the demand for dollar-denominated bonds that by
January, the yield of the 30-year U.S. Treasury bond had declined to a
3-decade low of 5.69%. (Generally a bond's yield moves lower as its
price rises.) This is especially remarkable given that the federal funds
rate -- the interest rate charged on overnight loans from one member
bank of the Federal Reserve system to another and the basis for all
short-term interest rates -- was 5.50% as of March 31, 1998.
* MORTGAGE-BACKED SECURITIES ALLOCATION INCREASED
Although Treasuries helped boost fund performance in the fourth quarter
of 1997, the dramatic run-up in bond prices over the past six months
convinced us to reduce Treasury exposure in favor of mortgage-backed
securities. With a strong U.S. dollar and scant evidence of inflation,
Treasury prices may continue to rise in the short term. However, we
believe the potential for a correction is now greater than the prospects
for additional gains. With the proceeds from the sale of Treasuries and
using a roughly 8% cash position available at the start of the period,
we increased the fund's mortgage position to approximately 62% of
portfolio assets at the end of March. We believe mortgage-backed
securities such as GNMAs and FNMAs offer distinct advantages in this
environment. Mortgages generally are less sensitive than Treasuries to
changes in interest rates, and they provide higher yields in order to
compensate investors for the risk of prepayment.
[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND
DURATION]
AVERAGE EFFECTIVE MATURITY AND DURATION
3/31/97 9/30/97 3/31/98
Average effective maturity 9.4 yrs. 6.7 yrs. 8.8 yrs.
Duration 4.8 yrs. 4.2 yrs. 4.2 yrs.
Footnote reads:
This chart depicts the fund's average effective maturity and duration at
6-month intervals over the 12 months ended 3/31/98. Average effective
maturity and duration, stated in years, are derived from calculations
that incorporate assumptions about prepayment rates and cash flows of
mortgage-backed securities. Measures of effective maturity, duration,
and the assumptions on which they are based will vary over time.
Prepayment was indeed a concern during the period. The fall in interest
rates took 30-year mortgage rates below 7% for a time, sparking a wave
of mortgage refinancings. When homeowners opt to refinance or prepay
their mortgages, the principal from those mortgages is returned to
investors, such as the fund, who must then reinvest it at lower
prevailing rates. To protect the portfolio against the unwanted
prepayment of mortgage principal, we concentrated assets in lower-coupon
bonds, such as 7% 30-year GNMAs. The idea is that homeowners are less
likely to refinance a mortgage for an interest savings of less than one
percentage point.
To take advantage of the higher coupons available in the mortgage
market, we focused our purchases on seasoned mortgages, which carry
little prepayment risk in the eyes of investors. These bonds represent
mortgages that could have been refinanced in the past but were not for
one reason or another and now are even less likely to be refinanced
given the little time remaining before the loans are paid off. With
coupons in the 9% to 10% range, these bonds contributed a high level of
income to the portfolio.
* DURATION STRATEGY REMAINS SLIGHTLY DEFENSIVE
Throughout the six-month period, we maintained the fund's slightly
defensive duration to protect against unexpected shifts in the market.
Duration measures a portfolio's sensitivity to changing interest rates
and can be altered by changing a fund's mix of bonds. Bonds with shorter
maturities generally are less sensitive to changes in interest rates,
and so holding cash or short-term securities will tend to reduce a
portfolio's average duration. While we invested the fund's roughly 8%
cash position in mortgage-backed securities during the period, the bonds
we purchased have relatively little interest-rate exposure. For example,
a 7% coupon 30-year GNMA has about as much interest-rate sensitivity as
a 5-year Treasury note.
[GRAPHIC OMITTED: pie chart PORTFOLIO ALLOCATIONS (3/31/98)]
PORTFOLIO ALLOCATIONS (3/31/98)*
U.S. Treasury securities 37.4%
Cash and short-term investments 0.5%
Mortgage-backed securities 62.1%
Footnote reads:
*Based on total market value of assets. The allocation to mortgage-
backed securities is primarily concentrated in bonds issued by the
Government National Mortgage Association (Ginnie Mae). Allocations will
vary over time.
Mixed signals now appear to be the rule rather than the exception in
economic data. Real incomes are surging but so are bankruptcies and bad
credit-card debt. Nonfarm payrolls waned in March, but manufacturing
output and consumer demand were on the rise. And while investors
continue to ponder the question of Asia's potential impact, the Fed's
Open Market Committee unanimously agreed to leave interest rates
unchanged at its most recent meeting.
Until the U.S. economic outlook becomes more clear, we intend to keep
the fund's duration strategy slightly defensive. We also expect to
maintain a sizable position in mortgage-backed securities to take
advantage of their relatively higher yields and lower sensitivity to
interest rates. With a hand in both segments of the government market
and limited exposure to changing interest rates, we believe Putnam
American Government Income Fund is prepared to make the most of whatever
uncertainty lies ahead.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 3/31/98, there is no guarantee the fund will
continue to hold these securities in the future. While U.S. government
backing of individual securities does not insure your principal, which
will fluctuate with market conditions, it does guarantee that the fund's
government-backed holdings will make timely payments of interest and
principal. The fund may invest in securities other than those issued or
backed by the full faith and credit of the U.S. government.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
American Government Income Fund is designed for investors seeking high
current income primarily through U.S. government securities.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
Class A Class B Class M
(inception date) (3/1/85) (5/20/94) (2/14/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 4.61% -0.35% 4.48% -0.52% 4.58% 1.19%
- ------------------------------------------------------------------------
1 year 11.46 6.14 10.94 5.94 11.40 7.79
- ------------------------------------------------------------------------
5 years 34.19 27.81 29.14 27.26 32.70 28.42
Annual average 6.06 5.03 5.25 4.94 5.82 5.13
- ------------------------------------------------------------------------
10 years 99.28 89.76 83.79 83.79 93.79 87.49
Annual average 7.14 6.62 6.28 6.28 6.84 6.49
- ------------------------------------------------------------------------
Life of fund 172.36 159.36 143.71 143.71 160.98 152.54
Annual average 7.96 7.56 7.05 7.05 7.61 7.34
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/98
Lehman Bros.
Intermediate Consumer
Treasury Index Price Index
- ------------------------------------------------------------------------
6 months 3.78% 0.62%
- ------------------------------------------------------------------------
1 year 9.40 1.38
- ------------------------------------------------------------------------
5 years 33.25 12.95
Annual average 5.91 2.47
- ------------------------------------------------------------------------
10 years 114.61 39.23
Annual average 7.94 3.37
- ------------------------------------------------------------------------
Life of fund 204.24 53.02
Annual average 8.88 3.30
- ------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum
initial sales charges of 4.75% and 3.25%, respectively. Class B share
returns for the 1-, 5-, and 10-year (where available) and life-of-fund
periods reflect the applicable contingent deferred sales charge (CDSC),
which is 5% in the first year, declines to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial
sales charge or CDSC, if any, currently applicable to each class and, in
the case of class B and class M shares, the higher operating expenses
applicable to such shares. All returns assume reinvestment of
distributions at NAV and represent past performance; they do not
guarantee future results. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/98
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------
Income $0.264 $0.232 $0.252
- ------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------
Total $0.264 $0.232 $0.252
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
9/30/97 $8.65 $9.08 $8.61 $8.66 $8.95
- ------------------------------------------------------------------------
3/31/98 8.78 9.22 8.76 8.80 9.10
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate1 6.01% 5.73% 5.34% 5.73% 5.54%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 5.12 4.87 4.30 4.90 4.74
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
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, minus any
liabilities, divided by the number of outstanding shares, 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 pose different risks than the
fund. Securities indexes assume reinvestment of all distributions and
interest payments, and the performance of the fund will differ. It is
not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
+ Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured
nor guaranteed by the U.S. government. These funds
are managed to maintain a price of $1.00 per share,
although there is no assurance that this price will
be maintained in the future.
Please call your financial advisor or Putnam at
1-800-225-1581 to obtain a prospectus for any Putnam
fund. It contains more complete information,
including charges and expenses. Please read it
carefully before you invest or send money.
Portfolio of investments owned
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (98.4%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (61.4%)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
$10,412,213 8 1/2s, with due dates from November 1, 2025
to August 1, 2027 $10,870,975
33,584,769 7s, with due dates from August 1, 2012
to November 1, 2012 34,161,756
Federal National Mortgage Association
43,950,603 7s, Dwarf, with due dates from November 1, 2007
to January 1, 2013 44,678,423
22,957,051 5 1/2s, Dwarf, with due dates from June 1, 2009
to March 1, 2012 22,263,523
Government National Mortgage Association
50,578,366 9s, with due dates from November 15, 2008
to July 15, 2024 54,466,742
11,491,385 8 1/2s, with due dates from February 15, 2005
to December 15, 2024 12,250,684
170,466,059 8s, with due dates from August 15, 2006
to March 15, 2028 176,872,306
208,786,372 7 1/2s, with due dates from February 15, 2022
to January 15, 2028 214,781,511
361,279,930 7s, with due dates from September 15, 2025
to February 15, 2028 364,895,028
--------------
935,240,948
U.S. Treasury Obligations (37.0%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
50,000,000 9 7/8s, November 15, 2015 71,039,000
75,000,000 8 3/4s, November 15, 2008 85,371,000
5,000,000 6 3/4s, August 15, 2026 5,503,100
7,575,000 6 5/8s, February 15, 2027 8,218,875
2,650,000 6 3/8s, August 15, 2027 2,799,063
100,665,000 6 1/8s, November 15, 2027 103,228,938
U.S. Treasury Notes
1,145,000 6 1/4s, June 30, 2002 1,169,331
25,000,000 6 1/8s, August 15, 2007 25,711,000
160,000,000 5 3/4s, October 31, 2002 160,449,600
100,000,000 5 1/2s, January 31, 2003 99,359,000
--------------
562,848,907
--------------
Total U.S. Government and Agency Obligations
(cost $1,480,302,393) $1,498,089,855
SHORT-TERM INVESTMENTS (0.5%) (cost $8,142,334) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$8,141,000 Interest in $321,730,000 joint repurchase agreement
March 31, 1998 with Morgan (J.P.) & Co., Inc. due
April 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $8,142,334 for an
effective yield of 5.9% $8,142,334
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,488,444,727) *** $1,506,232,189
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,521,906,254.
*** The aggregate identified cost on a tax basis is $1,488,444,727,
resulting in gross unrealized appreciation and depreciation of
$21,029,431 and $3,241,969, respectively, or net unrealized
appreciation of $17,787,462.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,488,444,727) (Note 1) $1,506,232,189
- ---------------------------------------------------------------------------------------------------
Cash 2,100,757
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 17,823,957
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,162,737
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 4,311
- ---------------------------------------------------------------------------------------------------
Total assets 1,528,323,951
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 936,700
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,611,193
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,143,361
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 174,838
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 42,373
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 22,894
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 965,249
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 521,089
- ---------------------------------------------------------------------------------------------------
Total liabilities 6,417,697
- ---------------------------------------------------------------------------------------------------
Net assets $1,521,906,254
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 2,917,381,845
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,886,425
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,418,149,478)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 17,787,462
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,521,906,254
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,483,748,890 divided by 168,910,412 shares) $8.78
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.78)* $9.22
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($36,471,445 divided by 4,164,903 shares)** $8.76
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,685,919 divided by 191,489 shares) $8.80
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.80)* $9.10
- ---------------------------------------------------------------------------------------------------
* 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 sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 1998 (Unaudited)
<S> <C>
Interest Income: $54,915,687
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,292,306
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,276,540
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 21,703
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,652
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,905,702
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 169,278
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 3,499
- --------------------------------------------------------------------------------------------------
Reports to shareholders 126,712
- --------------------------------------------------------------------------------------------------
Auditing 22,203
- --------------------------------------------------------------------------------------------------
Legal 11,113
- --------------------------------------------------------------------------------------------------
Postage 230,099
- --------------------------------------------------------------------------------------------------
Other 255,140
- --------------------------------------------------------------------------------------------------
Total expenses 8,323,947
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (483,773)
- --------------------------------------------------------------------------------------------------
Net expenses 7,840,174
- --------------------------------------------------------------------------------------------------
Net investment income 47,075,513
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 22,885,538
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 1,950,064
- --------------------------------------------------------------------------------------------------
Net gain on investments 24,835,602
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $71,911,115
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1998* 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------
Net investment income $47,075,513 $107,202,765
- ------------------------------------------------------------------------------------------------------------
Net realized gain on investments 22,885,538 7,069,893
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,950,064 38,765,618
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 71,911,115 153,038,276
- ------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------
From net investment income
Class A (45,908,153) (100,203,913)
- ------------------------------------------------------------------------------------------------------------
Class B (858,818) (1,395,293)
- ------------------------------------------------------------------------------------------------------------
Class M (38,797) (64,049)
- ------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (89,009,766) (290,422,524)
- ------------------------------------------------------------------------------------------------------------
Total decrease in net assets (63,904,419) (239,047,503)
Net assets
- ------------------------------------------------------------------------------------------------------------
Beginning of period 1,585,810,673 1,824,858,176
- ------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $4,886,425 and $4,616,680, respectively) $1,521,906,254 $1,585,810,673
- ------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.65 $8.39 $8.65 $8.21 $9.21 $9.32
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .26 (c) .54 .52 .55 .62 .77
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .13 .23 (.21) .50 (.98) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .39 .77 .31 1.05 (.36) .64
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.51) (.53) (.56) (.64) (.75)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.04) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.51) (.57) (.61) (.64) (.75)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.78 $8.65 $8.39 $8.65 $8.21 $9.21
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.61 * 9.49 3.64 13.42 (4.06) 7.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,483,749 $1,553,706 $1,800,683 $2,183,766 $2,412,154 $3,530,130
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .52 * .97 .95 .94 .83 .91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.02 * 6.34 6.14 6.62 6.93 8.39
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 217.90 * 253.26 245.46 468.86 331.61 235.61
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 May 20, 1994+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.61 $8.35 $8.62 $8.19 $8.43
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 (c) .48 .49 .46 (c) .21
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .15 .23 (.26) .51 (.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .38 .71 .23 .97 (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.45) (.46) (.49) (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.45) (.50) (.54) (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.76 $8.61 $8.35 $8.62 $8.19
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.48 * 8.72 2.77 12.32 (.52)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $36,471 $30,935 $23,067 $9,099 $5,691
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .90 * 1.72 1.70 1.68 .59 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.66 * 5.59 5.46 5.76 2.22 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 217.90 * 253.26 245.46 468.86 331.61
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Feb. 14, 1995+
operating performance (Unaudited) Year ended September 30 Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $8.66 $8.38 $8.65 $8.14
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .25 (c) .53 .53 .29 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .14 .24 (.26) .62
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .39 .77 .27 .91
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.49) (.50) (.37)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.04) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.49) (.54) (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.80 $8.66 $8.38 $8.65
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.58 * 9.45 3.24 11.44 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,686 $1,170 $1,108 $672
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .65 * 1.22 1.20 .78 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.89 * 6.10 5.94 4.03 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 217.90 * 253.26 245.46 468.86
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
</TABLE>
Notes to financial statements
March 31, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam American Government Income Fund (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.
The fund offers class A, class B, and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
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. 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) 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 and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be 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.
D) 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 original issue discount bonds are accreted according to the
yield-to-maturity method.
E) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At September 30, 1997, the fund had a capital loss carryover of
approximately $1,432,529,000 available to offset future capital gains,
if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$1,123,124,000 September 30, 1998
45,648,000 September 30, 2001
7,767,000 September 30, 2002
255,990,000 September 30, 2003
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by he fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. On
March 5, 1998 the shareholders approved a proposal to increase fees payable to
Putnam Management under the fund's management contract. Management fees will
be paid thereafter at an annual rate of: 0.65% of the first $500 million of
average net assets, 0.55% of the next $500 million, 0.50% of the next $500
million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405%
of the next $5 billion, 0.39% of the next $5 billion, and 0.38% thereafter.
Prior to the March 5, 1998, the fee was based on the following annual 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% thereafter.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended March 31, 1998, fund expenses were reduced by
$483,773 under expense offset arrangements with PFTC and brokerage service
arrangements. 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 expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,420 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 Company 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 provided 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 currently limit payment by the fund to an 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 six months ended March 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $35,011 and $209 from the sale of
class A and class M shares, respectively and $38,208 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 six
months ended March 31, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $50 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended March 31, 1998 purchases and sales of U.S.
government and agency obligations other than short-term investments aggregated
$3,266,977,774 and $3,349,163,926, 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 March 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 5,194,450 $45,426,011
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,726,771 23,827,056
- ------------------------------------------------------------
7,921,221 69,253,067
Shares
repurchased (18,707,670) (163,778,969)
- ------------------------------------------------------------
Net decrease (10,786,449) $(94,525,902)
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 5,833,699 $49,722,743
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,932,492 50,394,712
- ------------------------------------------------------------
11,766,191 100,117,455
Shares
repurchased (46,679,438) (397,622,579)
- ------------------------------------------------------------
Net decrease (34,913,247) $(297,505,124)
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,766,236 $15,432,683
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 76,724 668,210
- ------------------------------------------------------------
1,842,960 16,100,893
Shares
repurchased (1,269,166) (11,080,363)
- ------------------------------------------------------------
Net increase 573,794 $5,020,530
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 2,434,171 $20,670,881
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 126,879 1,073,299
- ------------------------------------------------------------
2,561,050 21,744,180
Shares
repurchased (1,731,632) (14,689,269)
- ------------------------------------------------------------
Net increase 829,418 $7,054,911
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 110,332 $970,040
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,273 28,674
- ------------------------------------------------------------
113,605 998,714
Shares
repurchased (57,313) (503,108)
- ------------------------------------------------------------
Net increase 56,292 $495,606
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 82,926 $705,529
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,427 29,079
- ------------------------------------------------------------
86,353 734,608
Shares
repurchased (83,265) (706,919)
- ------------------------------------------------------------
Net increase 3,088 $27,689
- ------------------------------------------------------------
Results of March 5, 1998 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on March 5, 1998.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
Jameson Adkins Baxter 106,858,576 2,886,398
Hans H. Estin 106,728,455 3,016,519
John A. Hill 106,894,207 2,850,767
Ronald J. Jackson 106,909,198 2,835,776
Paul L. Joskow 106,833,520 2,911,454
Elizabeth T. Kennan 106,840,235 2,904,739
Lawrence J. Lasser 106,842,560 2,902,414
John H. Mullin III 106,864,745 2,880,229
Robert E. Patterson 106,851,919 2,893,055
Donald S. Perkins 106,692,029 3,052,945
William F. Pounds 106,731,372 3,013,602
George Putnam 106,645,940 3,099,034
George Putnam, III 106,759,285 2,985,689
A.J.C. Smith 106,887,139 2,857,835
W. Thomas Stephens 106,846,642 2,898,332
W. Nicholas Thorndike 106,840,609 2,904,365
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows: 105,274,787 votes for, and
1,211,036 votes against, with 3,259,151 abstentions and broker
non-votes.
A proposal to approve a new management contract increasing the fees
payable to Putnam Investment Management, Inc. was approved as follows:
74,709,329 votes for, and 19,761,795 votes against, with 15,273,850
abstentions and broker non-votes.
A proposal to approve an amendment to the fund's fundamental
investment restriction with respect to borrowing was approved as
follows: 83,580,006 votes for, and 10,458,414 votes against, with
15,706,554 abstentions and broker non-votes.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to making loans was approved as follows:
83,036,698 votes for, and 10,748,278 votes against, with 15,959,998
abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
William J. Curtin
Vice President
Ian C. Ferguson
Vice President
David L. Waldman
Vice President
Michael Martino
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
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 accompanied 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. You
can also learn more at Putnam Investments' website: http://www.putnaminv.com.
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA027-42029-033/292/895 5/98
