As filed with the Securities and Exchange Commission on
February 22, 1999
Registration No.
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
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Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. [ ]
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(Check appropriate box or boxes)
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PUTNAM AMERICAN GOVERNMENT INCOME FUND
(Exact Name of Registrant as Specified in Charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
617-292-1000
(Area Code and Telephone Number)
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JOHN R. VERANI, Vice President
PUTNAM AMERICAN GOVERNMENT INCOME FUND
One Post Office Square
Boston, Massachusetts 02109
(Name and address of Agent for Service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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<PAGE>
Approximate Date of Proposed Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective on March 24, 1999 pursuant
to Rule 488.
An indefinite amount of the Registrant's Class A, Class B and Class M shares has
been registered under the Securities Act of 1933 pursuant to Rule 24f-2 under
the Investment Company Act of 1940. In reliance upon such Rule, no filing fee is
being paid at this time. A Rule 24f-2 notice for the Registrant for the year
ended September 30, 1998 was filed on December 30, 1998.
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IMPORTANT INFORMATION FOR SHAREHOLDERS IN PUTNAM HIGH QUALITY BOND FUND
The document you hold in your hands contains a combined prospectus/proxy
statement and proxy card. A proxy card is, in essence, a ballot. When you fill
out your proxy card, it tells us how to vote on your behalf on important issues
relating to your fund. If you complete and sign the proxy, we'll vote it exactly
as you tell us. If you simply sign the proxy, we'll vote it in accordance with
the Trustees' recommendation on page __.
We urge you to carefully review the prospectus/proxy statement, fill out your
proxy card, and return it to us. When shareholders don't return their proxies in
sufficient numbers, we have to make follow-up solicitations, which can cost your
fund money.
We want to know how you would like to vote and welcome your comments. Please
take a few minutes with these materials and return your proxy card to us.
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<PAGE>
TABLE OF CONTENTS
A Message from the Chairman
Notice of Shareholder Meeting
Combined Prospectus/Proxy Statement
Proxy Card Enclosed
If you have any questions, please contact us at the special toll-free number we
have set up for you (1-800-225-1581) or call your financial advisor.
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<PAGE>
A MESSAGE FROM THE CHAIRMAN
(photograph of George Putnam appears here)
Dear Shareholder:
I am writing you to ask you for your vote on an important matter that affects
your investment in Putnam High Quality Bond Fund (the "High Quality Bond Fund").
While you are, of course, welcome to join us at the High Quality Bond Fund's
meeting, most shareholders cast their vote by filling out and signing the
enclosed proxy card.
We are asking for your vote on the following matter:
1. Approval or disapproval of a proposed merger of the High Quality Bond Fund
into Putnam American Government Income Fund (the "American Government Fund"). In
this merger, your shares of the High Quality Bond Fund would, in effect, be
exchanged, on a tax-free basis, for shares of the American Government Fund with
an equal net asset value.
The Trustees of the High Quality Bond Fund recommend approval of the merger,
because they believe it offers shareholders of the fund the opportunity to
invest in a substantially larger fund with similar investment policies but that
has a greater potential to achieve economies of scale and a lower expense ratio.
The two funds are both fixed income funds investing primarily in U.S. government
and agency securities. The High Quality Bond Fund seeks high current income. To
the extent consistent with seeking high current income, capital preservation and
long-term total return are its secondary goals. The American Government Fund
seeks high current income, with preservation of capital as its secondary
objective.
Both Funds seek their goals by investing, under normal market conditions, at
least 65% of their assets in U.S. government securities, which are debt
securities issued or guaranteed by the U.S. government, by certain of its
agencies, or by various instrumentalities established or sponsored by the U.S.
government. The American Government Fund may also invest up to 35% of its total
assets in highly rated mortgage-backed securities that are privately issued. The
High Quality Bond Fund has additional flexibility. It can invest a substantial
portion of its total assets in investment grade obligations, including those of
foreign government and corporate issuers, as well as asset-backed securities.
Your vote is important to us. We appreciate the time and consideration I am sure
you will give this important matter. If you have questions about the proposal,
please call 1-800-225-1581, or call your financial advisor.
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<PAGE>
Sincerely yours,
/s/ George Putnam
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George Putnam, Chairman
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<PAGE>
PUTNAM HIGH QUALITY BOND FUND
NOTICE OF A MEETING OF SHAREHOLDERS
This is the formal agenda for the shareholder meeting. It tells you
what matters will be voted on and the time and place of the meeting, if
you can attend in person.
To the Shareholders of Putnam High Quality Bond Fund:
A Meeting of Shareholders of Putnam High Quality Bond Fund (the "Fund"
or the "High Quality Bond Fund") will be held July 1, 1999 at 2:00
p.m., Boston time, on the eighth floor of One Post Office Square,
Boston, Massachusetts, to consider the following:
1. Approving or disapproving an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the Fund to Putnam
American Government Income Fund (the "American Government Fund") in
exchange for shares of the American Government Fund and the assumption
by the American Government Fund of all of the liabilities of the Fund,
and the distribution of such shares to the shareholders of the Fund in
complete liquidation of the Fund. See page __.
2. Transacting such other business as may properly come before the
meeting.
By the Trustees
George Putnam, Chairman
John A. Hill, Vice Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter Robert E. Patterson
Hans H. Estin Donald S. Perkins
Ronald J. Jackson George Putnam, III
Paul L. Joskow A.J.C. Smith
Elizabeth T. Kennan W. Thomas Stephens
Lawrence J. Lasser W. Nicholas Thorndike
John H. Mullin, III
We urge you to mark, sign, date, and mail the enclosed proxy in the
postage-paid envelope provided, or follow the instructions in these
materials relating to telephonic or internet voting, so that you will
be represented at the meeting.
April 15, 1999
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<PAGE>
Prospectus/Proxy Statement
April 15, 1999
Acquisition of the assets of
Putnam High Quality Bond Fund
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
By and in exchange for shares of
Putnam American Government Income Fund
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
Table of Contents
Synopsis
Risk factors
General
Proposal Regarding Approval or Disapproval of Merger and Related
Agreement and Plan of Reorganization
Background and Reasons for the Proposed Merger
Information about the Merger
Voting Information
Agreement and Plan of Reorganization A-1
This document will give you the information you need to vote on the proposed
merger. Much of the information is required under rules of the Securities and
Exchange Commission ("SEC"); some of it is technical. If there is anything you
don't understand, please contact us at our special toll-free number,
1-800-225-1581, or call your financial advisor.
This Prospectus/Proxy Statement relates to the proposed merger of Putnam High
Quality Bond Fund (the "High Quality Bond Fund") into Putnam American Government
Income Fund (the "American Government Fund"). As a result of the proposed
transaction, each Class A, Class B and Class M shareholder of the High Quality
Bond Fund will receive a number of full and fractional Class A, Class B and
Class M shares, respectively, of the American Government Fund equal in value at
the date of the exchange to the total value of the shareholder's High Quality
Bond Fund shares. Like the High Quality Bond Fund, the American Government Fund
is in the
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<PAGE>
family of funds managed by Putnam Investment Management, Inc. ("Putnam
Management"). The American Government Fund and the High Quality Bond Fund are
collectively referred to herein as the "Funds," and each is referred to
individually as a "Fund."
This Prospectus/Proxy Statement explains concisely what you should know before
voting on the proposed merger or investing in the American Government Fund.
Please read it and keep it for future reference. This Prospectus/Proxy Statement
is accompanied by (i) the Prospectus, dated January 30, 1999, of the American
Government Fund (the "American Government Fund Prospectus"), and (ii) the Report
of Independent Accountants and financial statements included in the American
Government Fund's Annual Report to Shareholders for the fiscal year ended
September 30, 1998. The American Government Fund Prospectus and the American
Government Fund's Annual Report are incorporated into this Prospectus/Proxy
Statement by reference.
The following documents have been filed with the Securities and Exchange
Commission and are also incorporated into this Prospectus/Proxy Statement by
reference:
(i) the Prospectus, dated February 28, 1999, of the High Quality Bond Fund;
(ii) the Statement of Additional Information of the High Quality Bond Fund,
dated February 28, 1999;
(iii) the Statement of Additional Information of the American Government
Fund, dated January 30, 1999;
(iv) the Report of Independent Accountants and financial statements
included in the High Quality Bond Fund's Annual Report to Shareholders for
the fiscal year ended October 31, 1998; and
(v) a Statement of Additional Information, dated April 15, 1999, relating
to the proposed merger.
For a Free Copy of Any of the Above, Please Contact Us at the Special Toll-free
Number We Have Set up for You (1-800-225-1581).
Proxy materials, information statements and other information filed by the Funds
can be inspected and copied at the Public Reference Room maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of such material can also be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C. 20549 at prescribed rates. You may also
access reports and other information about the Funds on the Commission's
internet site at http://www.sec.gov.
The securities offered by the accompanying Prospectus/Proxy Statement have not
been approved or disapproved by the Securities and Exchange Commission or any
state securities
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<PAGE>
commission nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of such
Prospectus/Proxy Statement. Any representation to the contrary is a criminal
offense.
Shares of the American Government Fund are not deposits or obligations of, or
guaranteed or endorsed by any financial institution, are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
agency, and involve risk, including the possible loss of principal amount
invested.
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<PAGE>
Synopsis
The responses to the questions that follow provide an overview of key points
typically of concern to shareholders considering a proposed merger between
funds. These responses are qualified in their entirety by the remainder of the
Prospectus/Proxy Statement, which contains additional information and further
details regarding the proposed merger.
1. What is being proposed?
The Trustees of the Funds are recommending that shareholders approve the merger
of the High Quality Bond Fund into the American Government Fund. If approval by
shareholders all of the assets of the High Quality Bond Fund will be transferred
to the American Government Fund in exchange for shares of the American
Government Fund with a value equal to those assets net of liabilities and for
the assumption by the American Government Fund of all of the liabilities of the
High Quality Bond Fund. Immediately following the transfer the American
Government Fund shares received by the High Quality Bond Fund will be
distributed to its shareholders, pro rata.
2. What will happen to my shares of the High Quality Bond Fund as a result of
the merger?
Your shares of the High Quality Bond Fund will, in effect, be exchanged on a
tax-free basis for shares of the American Government Fund with an equal total
net asset value.
3. Why are the Trustees proposing the merger?
As discussed in more detail below, the two funds are similar in investment
strategy and policy. The Trustees believe that combining the two similar funds
will result in lower expenses for fund shareholders without changing in a
fundamental way the essential investment profile of the funds. In addition the
Trustees believe the combined fund will offer greater potential for increased
sales and thus the potential for further economies of scale. As the American
Government fund is considerably larger the Trustees believe it is appropriate
for the smaller High Quality Bond Fund to be merged into the larger fund.
4. How do the investment goals, policies and restrictions of the two funds
compare?
The investment goals and policies of the two funds are similar. Each is an
income oriented fund investing primarily in U.S. government and agency
securities. The High Quality Bond Fund seeks high current income. Capital
preservation and long-term total return are its secondary goals, but only to the
extent consistent with seeking high current income. The American Government Fund
seeks high current income, with preservation of capital as its secondary
objective.
Both Funds seek their goals by investing, under normal market conditions, at
least 65% of their
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<PAGE>
assets in U.S. government securities, which are debt securities issued or
guaranteed by the U.S. government, by certain of its agencies, or by various
instrumentalities established or sponsored by the U.S. government. The American
Government Fund may also invest up to 35% of its total assets in mortgage-backed
securities that are privately issued and at the time of purchase rated at least
AAA or Aaa by a nationally recognized securities rating. The High Quality Bond
Fund has broader flexibility than the American Government Fund. It can invest up
to 35% of its total assets in a wide variety of investment grade obligations,
including privately issued mortgage-backed and asset-backed securities as well
as securities of foreign government and corporate issuers. The High Quality Bond
Fund's investments in non-U.S. government securities must be rated at the time
of purchase at least Baa or BBB by a nationally recognized securities rating
agency.
5. How do the management fees and other expenses of the two funds compare, and
what are they estimated to be following the merger?
The American Government Fund and the High Quality Bond Fund have identical fee
and other expense structures. However, because the American Government Fund is
substantially larger than the High Quality Bond Fund, its expenses are lower on
a per share basis due to its attainment of break points in the management fee
schedule and other economies of scale. As of January 31, 1999, the American
Government Fund and the High Quality Bond Fund had net assets of $1,559,262,662
and $384,970,695, respectively. Each fund is subject to the same management fee
schedule. However, as shown in the Annual Fund Operating Expense table below, in
each fund's most recent fiscal year the American Government Fund paid a
management fee that is .09% lower on a per share basis than that of the High
Quality Bond Fund. On a pro forma basis, giving effect to the merger, the
combined fund's effective management fees will be .11% lower on a per share
basis than those of the High Quality Bond Fund. Also as shown in the table, the
American Government Fund's "other expenses" were .04% lower on a per share basis
than those of the High Quality Bond Fund in each fund's last fiscal year. The
pro forma post-merger total operating expenses of the American Government Fund
are also lower than those of the High Quality Bond Fund on a per share basis.
The sales charges and the maximum amounts payable under the distribution plans,
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, for the
Funds are identical. 12b-1 fees are 0.25%, 1.00% and 0.50% of average net assets
attributable to Class A, Class B and Class M shares, respectively.
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<PAGE>
The following tables summarize the maximum fees and expenses you may pay when
investing in the Funds, expenses that each of the Funds incurred in the 12
months ending December 31, 1998 and estimated expenses that Putnam Management
expects the combined fund to incur in the first year following the merger.
<TABLE>
<CAPTION>
Class A Class B Class M Shares
Shares Shares
<S> <C> <C> <C>
Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)
High Quality Bond Fund 4.75% NONE* 3.25%
The American Government Fund 4.75% NONE* 3.25%
(Not applicable to (Not applicable to
Merger Shares) Merger Shares)
Maximum Deferred Sales Charge (Load)
(as a percentage of the original purchase
price or redemption proceeds, whichever is lower)
High Quality Bond Fund NONE** 5.0%*** NONE
The American Government Fund NONE** 5.0%*** NONE
</TABLE>
* Higher 12b-1 fees borne by class B and class M shares may cause long-term
class B and class M shareholders to pay more than the total sales charges paid
by class A shareholders.
** A deferred sales charge of up to 1.00% is assessed on certain redemptions of
Class A shares that were purchased without an initial sales charge as part of an
investment of $1 million or more.
*** 5.0% in the first year, declining to 1.0% in the sixth year, and eliminated
thereafter.
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<PAGE>
Annual Fund Operating Expenses
(Expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Management Distribution Other Expenses Total Annual Fund
Fees (12b-1) Fees Operating Expenses
<S> <C> <C> <C> <C>
High Quality Bond Fund
Class A 0.65% 0.25% 0.25% 1.15%
Class B 0.65% 1.00% 0.25% 1.90%
Class M 0.65% 0.50% 0.25% 1.40%
The American Government Fund
Class A 0.56% 0.25% 0.21% 1.02%
Class B 0.56% 1.00% 0.21% 1.77%
Class M 0.56% 0.50% 0.21% 1.27%
The American Government Fund
(Pro forma combined)
Class A 0.54% 0.25% 0.21% 1.00%
Class B 0.54% 1.00% 0.21% 1.75%
Class M 0.54% 0.50% 0.21% 1.25%
</TABLE>
The tables are provided to help you understand the expenses of investing in the
Funds and your share of the operating expenses that each Fund incurs and that
Putnam Management expects the combined fund to incur in the first year following
the merger. The expenses shown in the table do not reflect the application of
credits related to expense offset arrangements that reduce certain fund
expenses.
Examples
These examples translate the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. By doing this, you can more easily compare
the cost of investing in the Funds. The examples make certain assumptions. They
assume that you invest $10,000 in a Fund for the time periods shown and then,
except as shown for Class B shares, redeem all your shares at the end of these
periods. They also assume 5% return on your investment each year
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and that a Fund's operating expenses remain the same. The examples are
hypothetical; your actual costs and returns may be higher or lower.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
High Quality Bond Fund
Class A $587 $823 $1,078 $1,806
Class B $693 $897 $1,226 $2,027****
Class B (no redemption) $193 $597 $1,026 $2,027****
Class M $463 $754 $1,066 $1,950
The American
Government Fund
Class A $574 $784 $1,011 $1,664
Class B $680 $857 $1,159 $1,886****
Class B (no redemption) $180 $557 $ 959 $1,886****
Class M $450 $715 $ 999 $1,809
The American
Government Fund
(Pro forma combined)
Class A $572 $778 $1,001 $1,641
Class B $678 $851 $1,149 $1,864****
Class B (no redemption) $178 $551 $ 949 $1,864****
Class M $448 $709 $ 989 $1,787
</TABLE>
**** Reflects conversion of Class B shares to Class A shares (which pay lower
ongoing expenses) approximately eight years after purchase.
+ For purposes of determining the Contingent Deferred Sales Charge ("CDSC")
applicable to Class B Merger Shares, such shares will be treated as having been
acquired as of the dates the corresponding Class B shares of the High Quality
Bond Fund were originally acquired. See "Information about the reorganization -
Description of the Merger Shares."
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6. What are the federal income tax consequences of the proposed Merger?
For federal income tax purposes, no gain or loss will be recognized by the High
Quality Bond Fund or its shareholders as a result of the merger.
7. Will my dividend be affected by the merger?
After the merger you will continue to receive distributions of any net
investment income once a month and any net realized capital gains at least once
a year. Except as described below, your distributions will continue to be either
reinvested or paid in cash, according to the option you selected with the High
Quality Bond Fund. Of course, the amount of these distributions will reflect the
investment policies of the American Government Fund. Since the American
Government Fund does not invest in corporate or foreign bonds as High Quality
Bond Fund does, its dividend rate can be expected to be lower than that of the
High Quality Bond Fund under normal market conditions.
The American Government Fund will not permit any High Quality Bond Fund
Shareholder holding certificates for High Quality Bond Fund shares at the time
of the merger to receive cash dividends or other distributions, receive
certificates for shares issued in the merger ("Merger Shares"), exchange Merger
Shares for shares of other investment companies managed by Putnam Management, or
pledge or redeem Merger Shares until such certificates for High Quality Bond
Fund shares have been surrendered, or, in the case of lost certificates, until
an adequate surety bond has been posted.
If a shareholder is not for that reason permitted to receive cash dividends or
other distributions on Merger Shares, the American Government Fund will pay all
such dividends and distributions in additional shares, notwithstanding any
election the shareholder may have made previously to receive dividends and
distributions on High Quality Bond Fund shares in cash.
8. Do the procedures for purchasing, redeeming and exchanging shares of the two
funds differ?
No. The procedures for purchasing and redeeming shares of each Fund, and for
exchanging such shares of each Fund for shares of other Putnam funds, are
identical.
Both Funds currently offer three classes of shares. Shares of both Funds may be
purchased either through investment dealers that have sales agreements with
Putnam Mutual Funds Corp. ("Putnam Mutual Funds") or directly through Putnam
Mutual Funds at prices based on net asset value, plus varying sales charges,
depending on the class and number of shares purchased. Reinvestment of
distributions by the Funds are made at net asset value for all classes of
shares.
Shares of each Fund may be redeemed any day the New York Stock Exchange is open
at their net asset value next determined after receipt by the Fund of a properly
completed redemption
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request either directly by a Fund or through an investment dealer.
Shares of both Funds may be exchanged after a ten-day holding period for shares
of the same class of certain other Putnam funds.
9. How will I be notified of the outcome of the merger?
If the proposed merger is approved by shareholders, you will receive
confirmation after the reorganization is completed, indicating your new account
number, the number of shares you are receiving and the procedures for
surrendering your certificates if you have any. If the merger is not approved,
shareholders will be notified, and the results of the meeting will be provided
in the next annual report of the High Quality Bond Fund.
10. Will the number of shares I own change?
Yes, but the total value of the shares of the American Government Fund you
receive will equal the total value of the shares of the High Quality Bond Fund
that you hold at the time of the merger. Even though the net asset value per
share of each fund is different, the total value of a shareholder's holdings
will not change as a result of the merger.
Risk factors
What are the principal risk factors associated with an investment in the
American Government Fund, and how do they compare with those for the High
Quality Bond Fund?
Because the Funds share similar goals and policies, the risks of an investment
in the American Government Fund are similar to the risks of an investment in the
High Quality Bond Fund. A more detailed description of certain risks associated
with an investment in the American Government Fund is contained in the American
Government Fund Prospectus.
Lower Yielding Assets. Although the two funds' investment policies are similar
they are not identical. The American Government Fund's investment policies are
more restrictive than those of the High Quality Bond Fund. Although both can
invest up to 35% of their assets in non-U.S. government and agency securities,
the American Government fund is limited to investing in AAA or Aaa rated
mortgage backed securities while the High Quality Bond fund may invest in a
broad range of investment grade U.S. corporate and foreign debt. Since both
corporate debt and foreign debt have additional risks, the Trustees and Putnam
Management believe that as a general matter, a fund with a substantial portion
of these securities involves more risk than one with a substantial portion of
its assets invested in U.S. government and agency securities. However,
investment grade corporate debt and foreign government debt will generally have
higher yields, and the diversification they add may reduce overall risk at times
when U.S. government securities markets are declining. Thus, although the
American Government Fund's overall portfolio risk may generally be lower and its
return less volatile, its yield and total return
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can also be expected to be lower.
Interest rate risk. The values of debt investments usually rise and fall in
response to changes in interest rates. Declining interest rates will generally
raise the value of existing debt investments, and rising interest rates will
generally lower the value of existing debt investments. Changes in the values of
debt investments usually will not affect the amount of income the fund receives
from them, but will affect the value of the fund's shares. Interest rate risk is
often greater for investments with longer maturities.
Premium investments. Like the High Quality Bond Fund, the American Government
Fund may invest in so-called "premium" investments, which offer interest rates
higher than prevailing market rates. In addition, during times of declining
interest rates, many of the fund's investments may offer interest rates that are
higher than current market rates. When the fund holds these Apremium@
investments, shareholders are likely to receive higher dividends (but will bear
a greater risk that the value of the fund's shares will fall) than they would if
the fund held investments that offered current market rates of interest. Premium
investments involve a greater risk of loss, because their values tend to decline
over time.
Credit risk. Although U.S. government investments are generally considered to
have the least credit risk -- the risk that the issuer will fail to make timely
payments of interest and principal -- they are not entirely free of credit risk.
In addition, the values of these investments will still fluctuate in response to
changes in interest rates. Other securities in which the fund may invest are
subject to varying degrees of risk of default. These risk factors include the
creditworthiness of the issuer and, in the case of mortgage-backed securities,
the ability of the underlying mortgagors or other borrowers to meet their
obligations.
Prepayment risk. Traditional debt investments typically pay a fixed rate of
interest until maturity, when the entire principal amount is due. By contrast,
payments on mortgage-backed investments typically include both interest and a
partial payment of principal. Principal may also be prepaid voluntarily, or as a
result of refinancing or foreclosure. The fund may have to invest the proceeds
from prepayments under less attractive terms and yields.
Prepayments are particularly common during periods of declining interest rates,
when property owners seek to refinance their mortgages on more favorable terms;
the reverse is true during periods of rising interest rates. Mortgage-backed
investments are therefore less likely to increase in value during periods of
declining interest rates than other debt investments of comparable maturities.
In addition, they have a higher risk of decline during periods of rising
interest rates because declining prepayment rates effectively increase the
average maturity of the fund's investments (and, therefore, its sensitivity to
changes in interest rates) at times when that is least desirable. These
investments can increase the volatility of the fund.
Frequent trading. Like the High Quality Bond Fund, the American Government Fund
may buy and sell investments relatively often, which involves higher brokerage
commissions and other expenses, and may increase the taxes payable by
shareholders.
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<PAGE>
Other investments. In addition to the fund's main investment strategies of
investing in U.S. government securities, the fund may also buy and sell other
types of investments, such as collateralized mortgage obligations (CMOs) and
interest-only (IO) and principal-only (PO) stripped mortgage-backed investments,
and therefore may be subject to other risks.
General
This Prospectus/Proxy Statement is furnished in connection with the proposed
merger of the High Quality Bond Fund into the American Government Fund and the
solicitation of proxies by and on behalf of the Trustees of the High Quality
Bond Fund for use at the Meeting of Shareholders. The Meeting is to be held on
July 1, 1999 at 2:00 p.m. at One Post Office Square, 8th Floor, Boston,
Massachusetts. The Notice of the Meeting, the combined Prospectus/Proxy
Statement and the enclosed form of proxy are being mailed to shareholders on or
about April 15, 1999.
Any shareholder giving a proxy has the power to revoke it by mail (addressed to
the Fund's Clerk at the principal office of the High Quality Bond Fund, One Post
Office Square, Boston, Massachusetts 02109) or in person at the Meeting, by
executing a superseding proxy, or by submitting a notice of revocation to the
High Quality Bond Fund. All properly executed proxies received in time for the
Meeting will be voted as specified in the proxy, or, if no specification is
made, FOR the proposal (set forth in Proposal 1 of the Notice of Meeting) to
implement the merger of the High Quality Bond Fund by the transfer of all of its
assets to the American Government Fund in exchange for the Merger Shares and the
assumption by the American Government Fund of all of the liabilities of the High
Quality Bond Fund.
As of January 31, 1999, there were outstanding 37,750,724 shares of beneficial
interest of the High Quality Bond Fund. Only shareholders of record on April 1,
1999 will be entitled to notice of and to vote at the Meeting. Each share is
entitled to one vote, with fractional shares voting proportionally.
The Trustees of the High Quality Bond Fund know of no matters other than those
set forth herein to be brought before the Meeting. If, however, any other
matters properly come before the Meeting, it is the Trustees' intention that
proxies will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
Proposal regarding approval or disapproval of Merger Transaction and Related
Agreement and Plan of Reorganization
The shareholders of the High Quality Bond Fund are being asked to approve or
disapprove a merger between the High Quality Bond Fund and the American
Government Fund pursuant to an Agreement and Plan of Reorganization between the
Funds, dated as of March __, 1999 (the "Agreement"), a copy of which is attached
to this Prospectus/Proxy Statement as Exhibit A.
The merger is structured as a transfer of all of the assets of the High Quality
Bond Fund to the
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<PAGE>
American Government Fund in exchange for the assumption by the American
Government Fund of all of the liabilities of the High Quality Bond Fund and for
that number of the Class A, Class B and Class M Merger Shares, equal in total
net asset value to the net value of assets transferred to the American
Government Fund, all as more fully described below under "Information about the
merger."
After receipt of the Merger Shares, the High Quality Bond Fund will distribute
the Class A Merger Shares to its Class A shareholders, the Class B Merger Shares
to its Class B shareholders and the Class M Merger Shares to its Class M
shareholders, in proportion to their existing shareholdings in complete
liquidation of the High Quality Bond Fund, and the legal existence of the High
Quality Bond Fund as a separate business trust under Massachusetts law will be
terminated. Each shareholder of the High Quality Bond Fund will receive a number
of full and fractional Class A, Class B, or Class M Merger Shares equal in value
at the date of the exchange to the aggregate value of the shareholder's High
Quality Bond Fund shares.
Prior to the date of the transfer (the "Exchange Date"), the High Quality Bond
Fund will declare a distribution to shareholders which, together with all
previous distributions, will have the effect of distributing to shareholders all
of its investment company taxable income (computed without regard to the
deduction for dividends paid) and net realized capital gains, if any, through
the Exchange Date.
The Trustees have voted unanimously to approve the proposed transaction and to
recommend that shareholders also approve the transaction. The transactions
contemplated by the Agreement and Plan of Reorganization will be consummated
only if approved by the affirmative vote of the holders of 66-2/3% or more of
the outstanding shares of the High Quality Bond Fund entitled to vote.
In the event that this proposal is not approved by the shareholders of the High
Quality Bond Fund, the High Quality Bond Fund will continue to be managed as a
separate fund in accordance with its current investment objectives and policies,
and the Trustees may consider such alternatives as may be in the best interests
of its shareholders.
Background and reasons for the proposed merger
The Trustees of each Fund, including all Trustees who are not "interested
persons" of the Funds, have determined that the reorganization would be in the
best interests of each Fund's shareholders, and that the interests of existing
shareholders of each of the Funds would not be diluted as a result of effecting
the reorganization. The Trustees have unanimously approved the proposed
reorganization and have recommended its approval by shareholders. The American
Government Fund and the High Quality Bond Fund have the same Trustees.
The proposal is the result of a recent review by the funds' investment manager,
Putnam Investment Management, Inc. ("Putnam Management"), of the investment
strategies and position of Putnam Management's fixed income funds. Currently
Putnam Management advises a number of mutual funds investing wholly or
substantially in U.S. government and agency securities and investment grade
corporate debt. As discussed above, while not identical, the American
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<PAGE>
Government Fund and the High Quality Bond Fund have similar investment policies,
each investing at least 65% in U.S. government and agency securities.
In light of the substantial similarity of the funds, Putnam Management advised
the trustees that combining the funds would be in the best interests of
shareholders of both funds. The combined fund would have lower expenses than
either of the existing funds (see "Synopsis, question 5" for a discussion of
expenses). Putnam Management also advised the Trustees that combining the funds
would likely improve sales of the funds, thus offering the opportunity for
further growth and reduction of expenses although there can be no assurance that
the merger will lead to increased sales.
Based on their review and Putnam Management's advice, the Trustees have
unanimously approved the proposal. Further in light of the larger size of the
American Government Fund ($1,559,262,662 as of January 31, 1999 versus
$384,970,695 for the High Quality Bond Fund), the Trustees concluded that it
would be preferable for the High Quality Bond Fund to merge into the American
Government Fund.
Set forth below is total return information for the Class A shares of the two
Funds for the one year periods ending on the dates stated:
Annualized Total Return (Total Investment Return at NAV)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
American Government Fund 8.54% 9.23% 2.29% 18.35% -2.89%
High Quality Bond Fund 6.66% 8.34% 2.00% 18.96% -3.11%
</TABLE>
Of course the funds' past performance is not an indication of future
performance.
Exchange without recognition of gain or loss for Federal Income Tax purposes. If
a High Quality Bond Fund shareholder were to redeem his or her shares to invest
in another fund, like the American Government Fund, gain or loss would be
recognized by that shareholder for federal income tax purposes. Also, if the
High Quality Bond Fund were liquidated or were reorganized in a taxable
reorganization, the transaction would likely result in a taxable event for its
shareholders. By contrast, the proposed merger will permit the High Quality Bond
Fund's shareholders to exchange their investment for an investment in the
American Government Fund without recognition of gain or loss for federal income
tax purposes. After the merger, shareholders will be free to redeem any or all
of the American Government Fund shares at net asset value at any time, at which
point a taxable gain or loss would be recognized.
Information about the merger
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<PAGE>
Agreement and plan of reorganization. The proposed merger will be governed by
an Agreement and Plan of Reorganization. The Agreement provides that the
American Government Fund will acquire all of the assets of the High Quality Bond
Fund in exchange for the assumption by the American Government Fund of all of
the liabilities of the High Quality Bond Fund and for the issuance of Class A,
Class B and Class M Merger Shares equal in value to the value of the transferred
assets net of assumed liabilities. The shares will be issued on the next full
business day (the "Exchange Date") following the time as of which the funds'
shares are valued for determining net asset value for the merger (4:00 p.m.
Boston time on July 16, 1999 or such other date as may be agreed upon by the
parties). The following discussion of the Agreement is qualified in its entirety
by the full text of the Agreement, which is attached as Exhibit A to this
Prospectus/Proxy Statement.
The High Quality Bond Fund will sell all of its assets to the American
Government Fund, and in exchange, the American Government Fund will assume all
of the liabilities of the High Quality Bond Fund and deliver to the High Quality
Bond Fund (i) a number of full and fractional Class A Merger Shares having an
aggregate net asset value equal to the value of assets of the High Quality Bond
Fund attributable to its Class A shares, less the value of the liabilities of
the High Quality Bond Fund assumed by the American Government Fund attributable
to such Class A shares; (ii) a number of full and fractional Class B Merger
Shares having a net asset value equal to the value of assets of the High Quality
Bond Fund attributable to its Class B shares, less the value of the liabilities
of the High Quality Bond Fund assumed by the American Government Fund
attributable to such Class B shares, and (iii) a number of full and fractional
Class M Merger Shares having a net asset value equal to the value of assets of
the High Quality Bond Fund attributable to its Class M shares, less the value of
the liabilities of the High Quality Bond Fund assumed by the American Government
Fund attributable to such Class M Shares.
Immediately following the Exchange Date, the High Quality Bond Fund will
distribute pro rata to its shareholders of record as of the close of business on
the Exchange Date the full and fractional Merger Shares received by the High
Quality Bond Fund, with Class A Merger Shares being distributed to holders of
Class A shares of the High Quality Bond Fund, Class B Merger Shares being
distributed to holders of Class B shares of the High Quality Bond Fund and Class
M Merger Shares being distributed to holders of Class M shares of the High
Quality Bond Fund. As a result of the proposed transaction, each holder of Class
A, Class B and Class M shares of the High Quality Bond Fund will receive a
number of Class A, Class B and Class M Merger Shares equal in aggregate value at
the Exchange Date to the value of the Class A, Class B and Class M shares,
respectively, of the High Quality Bond Fund held by the shareholder. This
distribution will be accomplished by the establishment of accounts on the share
records of the American Government Fund in the name of such High Quality Bond
Fund shareholders, each account representing the respective number of full and
fractional Class A, Class B and Class M Merger Shares due such shareholder.
New certificates for Merger Shares will be issued only upon written request.
The Trustees of the High Quality Bond Fund have determined that the interests of
the High Quality Bond Fund's shareholders will not be diluted as a result of the
transactions contemplated
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<PAGE>
by the merger, and the Trustees of both funds have determined that the proposed
merger is in the best interests of each fund.
The consummation of the merger is subject to the conditions set forth in the
Agreement. The Agreement may be terminated and the reorganization abandoned at
any time, before or after approval by the shareholders, prior to the Exchange
Date by mutual consent of the American Government Fund and the High Quality Bond
Fund or, if any condition set forth in the Agreement has not been fulfilled and
has not been waived by the party entitled to its benefits, by such party.
The fees and expenses for the transaction are estimated to be $215,000. All fees
and expenses, including legal and accounting expenses, portfolio transfer taxes
(if any) or other similar expenses incurred in connection with the consummation
of the transactions contemplated by the Agreement will be allocated ratably
between the two Funds in proportion to their net assets as of the day of the
transfer, except that the costs of proxy materials and proxy solicitations will
be borne by the High Quality Bond Fund. However, to the extent that any payment
by either Fund of such fees or expenses would result in the disqualification of
the American Government Fund or the High Quality Bond Fund as a "regulated
investment company" within the meaning of Section 851 of the Internal Revenue
Code of 1986, as amended (the "Code"), such fees and expenses will be paid
directly by the party incurring them.
Description of the Merger Shares. Merger Shares will be issued to the High
Quality Bond Fund's shareholders in accordance with the procedure under the
Agreement as described above. The Merger Shares are Class A, Class B and Class M
shares of the American Government Fund. Investors purchasing Class A and Class M
shares pay a sales charge at the time of purchase, but High Quality Bond Fund
shareholders receiving Class A and Class M Merger Shares in the merger will not
pay a sales charge on such shares. Class A and Class M shares of the American
Government Fund generally are not subject to redemption fees, but such shares
are subject to a 12b-1 fee at the annual rate of 0.25% and 0.50% of the Fund's
average daily net assets attributable to Class A and Class M shares,
respectively. Class B shares of The American Government Fund are sold without a
sales charge, but are subject to a CDSC of up to 5% if redeemed within six years
of purchase. For purposes of determining the CDSC payable on redemption of Class
B Merger Shares received by holders of Class B shares of the High Quality Bond
Fund, such shares will be treated as having been acquired as of the dates such
shareholders originally acquired their Class B shares of the High Quality Bond
Fund. Class B shares are also subject to a 12b-1 fee at the annual rate of 1.00%
of the Fund's average daily net assets attributable to Class B shares. Class B
shares will automatically convert to Class A shares, based on relative net asset
value, approximately eight years after purchase.
Each of the Merger Shares will be fully paid and nonassessable when issued, will
be transferable without restriction, and will have no preemptive or conversion
rights, except that Class B Merger Shares will have the conversion rights
specified above. The Agreement and Declaration of Trust of the American
Government Fund permits the fund to divide its shares, without shareholder
approval, into two or more classes of shares having such preferences and special
or
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<PAGE>
relative rights and privileges as the Trustees may determine. The American
Government Fund's shares are currently divided into three classes--Class A,
Class B and Class M shares.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the American Government Fund.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the American Government Fund and requires that notice
of such disclaimer be given in each agreement, obligation, or instrument entered
into or executed by the American Government Fund or its Trustees. The Agreement
and Declaration of Trust provides for indemnification out of Fund property for
all loss and expense of any shareholder held personally liable for the
obligations of the American Government Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the American Government Fund would be unable to meet its
obligations. The likelihood of such circumstances is remote. The shareholders of
the High Quality Bond Fund are currently subject to this same risk of
shareholder liability.
Federal income tax consequences. As a condition to the High Quality Bond Fund's
obligation to consummate the reorganization, the High Quality Bond Fund will
receive an opinion from Ropes & Gray, counsel to the Funds, (which opinion would
be based on certain factual representations and subject to certain
qualifications) to the effect that, on the basis of the existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax purposes:
(i) The acquisition by the American Government Fund of substantially
all of the assets of the High Quality Bond Fund solely in exchange for
Merger Shares and the assumption by the American Government Fund of
liabilities of the High Quality Bond Fund followed by the distribution
by the High Quality Bond Fund to its shareholders of Merger Shares in
complete liquidation of the High Quality Bond Fund, all pursuant to the
plan of reorganization, constitutes a reorganization within the meaning
of Section 368(a) of the Code and the High Quality Bond Fund and the
American Government Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) under Section 361 of the Code, no gain or loss will be recognized
by the High Quality Bond Fund upon the transfer of its assets and the
assumption of its liabilities by the American Government Fund or upon
the distribution of the Merger Shares to the High Quality Bond Fund's
shareholders in liquidation of the High Quality Bond Fund;
(iii) under Section 354 of the Code, no gain or loss will be recognized
by shareholders of the High Quality Bond Fund on the exchange of their
shares of the High Quality Bond Fund for Merger Shares;
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<PAGE>
(iv) under Section 358 of the Code, the basis of the Merger Shares
received by the High Quality Bond Fund's shareholders will be the same
as the basis of the High Quality Bond Fund shares exchanged therefor;
(v) under Section 1223(1) of the Code, the holding periods of the
Merger Shares received by the shareholders of the High Quality Bond
Fund will include the holding periods of the High Quality Bond Fund
shares exchanged therefor, provided that at the time of the
reorganization the High Quality Bond Fund shares are held by such
shareholders as a capital asset;
(vi) under Section 1032 of the Code, no gain or loss will be recognized
by the American Government Fund upon the receipt of assets of the High
Quality Bond Fund in exchange for Merger Shares and the assumption by
the American Government Fund of the liabilities of the High Quality
Bond Fund;
(vii) under Section 362(b) of the Code, the basis in the hands of the
American Government Fund of the assets of the High Quality Bond Fund
transferred to the American Government Fund will be the same as the
basis of such assets in the hands of the High Quality Bond Fund
immediately prior to the transfer; and
(viii) under Section 1223(2) of the Code, the holding periods of the
assets of the High Quality Bond Fund in the hands of the American
Government Fund will include the periods during which such assets were
held by the High Quality Bond Fund.
Capitalization. The following table shows the capitalization of the Funds as of
January 31, 1999, and on a pro forma combined basis, giving effect to the
proposed acquisition of assets at net asset value as of that date:
-25-
<PAGE>
(UNAUDITED)
<TABLE>
<CAPTION>
American Government High Quality Bond Fund+ Pro Forma
Fund Combined*
<S> <C> <C> <C>
Net assets
(000's omitted)
Class A 1,450,703 339,401 1,790,040
Class B 104,511 42,725 147,230
Class M 4,049 2,734 6,783
Shares outstanding
(000's omitted)
Class A 161,192 33,276 198,901
Class B 11,657 4,207 16,426
Class M 449 268 752
Net Asset value
per share
Class A 9.00 10.20 9.00
Class B 8.97 10.16 8.96
Class M 9.02 10.20 9.02
</TABLE>
+ High Quality Bond Fund assets reflect proxy-related costs.
* Pro forma combined net assets reflect legal and accounting merger-related
costs.
Unaudited pro forma combining financial statements of the Funds as of September
30, 1998 and for the twelve month period then ended are included in the
Statement of Additional Information relating to the proposed merger. Because the
Agreement provides that the American Government Fund will be the surviving Fund
following the merger and because the American Government Fund's investment
objectives and policies will remain unchanged, the pro forma combining financial
statements reflect the transfer of the assets and liabilities of the High
Quality Bond Fund to the American Government Fund as contemplated by the
Agreement.
The Trustees of Putnam High Quality Bond Fund, including the independent
trustees, unanimously recommend approval of the Agreement.
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<PAGE>
Voting information
The American Government Fund will not permit any High Quality Bond Fund
Shareholder holding certificates for High Quality Bond Fund shares at the time
of the merger to receive cash dividends or other distributions, receive
certificates for shares issued in the merger ("Merger Shares"), exchange Merger
Shares for shares of other investment companies managed by Putnam Management, or
pledge or redeem Merger Shares until such certificates for High Quality Bond
Fund shares have been surrendered, or, in the case of lost certificates, an
adequate surety bond has been posted.
Required vote. Proxies are being solicited from the High Quality Bond Fund's
shareholders by its Trustees for the Meeting of Shareholders to be held on July
1, 1999 at 2:00 p.m. (the "Meeting"), at One Post Office Square, 8th Floor,
Boston, Massachusetts, or at such later time made necessary by adjournment.
Unless revoked, all valid proxies will be voted in accordance with the
specification thereon or, in the absence of specifications, FOR approval of the
Agreement and Plan of Reorganization. The transactions contemplated by the
Agreement and Plan of Reorganization will be consummated only if approved by the
affirmative vote of the holders of 66-2/3% or more of the outstanding shares of
the High Quality Bond Fund entitled to vote.
Record date, quorum and method of tabulation. Shareholders of record of the High
Quality Bond Fund at the close of business on April 1, 1999 (the "record date")
will be entitled to vote at the Meeting or any adjournment thereof. The holders
of 30% of the shares of the High Quality Bond Fund outstanding at the close of
business on the record date present in person or represented by proxy will
constitute a quorum for the Meeting; however, as noted above, the affirmative
vote of the holders of 66-2/3% or more of the outstanding shares of the High
Quality Bond Fund entitled to vote, is necessary to approve the merger.
Shareholders are entitled to one vote for each share held, with fractional
shares voting proportionally.
Votes cast by proxy or in person at the meeting will be counted by persons
appointed by the High Quality Bond Fund as tellers for the Meeting. The tellers
will count the total number of votes cast "for" approval of the proposal for
purposes of determining whether sufficient affirmative votes have been cast. The
tellers will count shares represented by proxies that reflect abstentions and
"broker non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a quorum.
Abstentions and broker non-votes have the effect of a negative vote on the
proposal.
As of January 31, 1999, the officers and Trustees of the High Quality Bond Fund
as a group beneficially owned less than 1% of the outstanding shares of the High
Quality Bond Fund. To the best of the knowledge of the High Quality Bond Fund,
the following shareholders owned of record or
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<PAGE>
beneficially 5% or more of the outstanding shares of the High Quality Bond Fund:
Shareholder Percentage
Class Name and Address Owned
- ----- ---------------- -----
M Robert L. Salmon 11.30%
120 Seabury Road
PO Box 1008
York Harbor, ME 03911-1008
M Saint Dominic Grade School 6.40%
311 Campus Drive, Suite 102
Garden City, KS 67846-6150
The votes of the shareholders of the American Government Fund are not being
solicited, since their approval or consent is not necessary for this
transaction. As of January 31, 1999, the officers and Trustees of the American
Government Fund as a group beneficially owned less than 1% of the outstanding
shares of the American Government Fund. To the best of the knowledge of the
American Government Fund, the following shareholders beneficially owned 5% or
more of the outstanding shares of the American Government Fund:
Shareholder Percentage
Class Name and Address Owned
- ----- ---------------- -----
M Harold Azmelian, Philip Arpiarian, 5.0%
& Armen Kalbian, Trustees
Holy Cross Endowment Trust
104 Highpoint Avenue
Weehauken, NJ 07087-5603
Solicitation of proxies. In addition to soliciting proxies by mail, the
Trustees and employees of Putnam Management, Putnam Fiduciary Trust Company and
Putnam Mutual Funds may solicit proxies in person or by telephone. The High
Quality Bond Fund may also arrange to have votes recorded by telephone. The
telephonic voting procedure is designed to authenticate shareholders'
identities, to allow shareholders to authorize the voting of their shares in
accordance with their instructions and to confirm that their instructions have
been properly recorded. The High Quality Bond Fund has been advised by counsel
that these procedures are consistent with the requirements of applicable law. If
these procedures were subject to a successful legal challenge, such votes would
not be counted at the Meeting. The High Quality Bond Fund is unaware of any such
challenge at this time. Shareholders would be called at the phone number Putnam
Investments has in its records for their accounts, and would be asked for their
Social Security numbers or other identifying information. The shareholders would
then be given an opportunity to authorize their proxies to vote their shares in
accordance with their instructions. To ensure that the shareholders'
instructions have been recorded correctly, they will also receive a confirmation
of their instructions in the mail. A special toll-free number will be available
in the event the information in the confirmation is incorrect.
Shareholders may have the opportunity to vote via the Internet by utilizing a
program provided through ADP Investor Communication Services ("ADP"). The giving
of such a proxy will not affect your right to vote in person should you decide
to attend the Meeting. To vote via the Internet, you will need the 12-digit
"control" number that appears with your proxy materials. To vote via the
Internet, please access ADP on the World Wide Web at www.proxyvote.com. The
Internet voting procedures are designed to authenticate shareholder identities,
to allow shareholders to give their voting instructions, and to confirm that
shareholders' instructions have been recorded properly. Shareholders voting via
the Internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholders.
Persons holding shares as nominees will upon request be reimbursed for their
reasonable expenses in soliciting instructions from their principals. The High
Quality Bond Fund has retained at its own expense D.F. King & Co., Inc., 77
Water Street, New York, New York 10005, to aid in the solicitation of
instructions for nominee and registered accounts for a fee of $7,500,
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<PAGE>
plus reasonable out-of-pocket expenses for mailing and phone costs.
Revocation of proxies. Proxies, including proxies given by telephone, may be
revoked at any time before they are voted, by a written revocation received by
the Clerk of the High Quality Bond Fund, by properly executing a later-dated
proxy or by attending the Meeting and voting in person.
Adjournment. If sufficient votes in favor of the proposal are not received by
the time scheduled for the Meeting, the persons named as proxies may propose
adjournments of the Meeting for a period or periods of not more than 60 days in
the aggregate to permit further solicitation of proxies. Any adjournment will
require the affirmative vote of a majority of the votes cast on the question in
person or by proxy at the session of the Meeting to be adjourned. The persons
named as proxies will vote in favor of such adjournment those proxies which they
are entitled to vote in favor of the proposal. They will vote against any such
adjournment those proxies required to be voted against the proposal. The High
Quality Bond Fund pays the costs of any additional solicitation and of any
adjourned session.
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<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is
made as of March __, 1999 in Boston, Massachusetts, by and among Putnam American
Government Income Fund, a Massachusetts business trust (the "American Government
Fund"), Putnam High Quality Bond Fund, a Massachusetts business trust (the "High
Quality Bond Fund").
PLAN OF REORGANIZATION
(a) The High Quality Bond Fund will sell, assign, convey, transfer and deliver
to the American Government Fund on the Exchange Date (as defined in Section 6)
all of its properties and assets existing at the Valuation Time (as defined in
Section 3(c)). In consideration therefor, the American Government Fund shall, on
the Exchange Date, assume all of the liabilities of the High Quality Bond Fund
existing at the Valuation Time and deliver to the High Quality Bond Fund (i) a
number of full and fractional Class A shares of beneficial interest of the
American Government Fund (the "Class A Merger Shares") having an aggregate net
asset value equal to the value of the assets of the High Quality Bond Fund
attributable to Class A shares of the High Quality Bond Fund transferred to the
American Government Fund on such date less the value of the liabilities of the
High Quality Bond Fund attributable to Class A shares of the High Quality Bond
Fund assumed by the American Government Fund on such date, (ii) a number of full
and fractional Class B shares of beneficial interest of the American Government
Fund (the "Class B Merger Shares") having an aggregate net asset value equal to
the value of the assets of the High Quality Bond Fund attributable to Class B
shares of the High Quality Bond Fund transferred to the American Government Fund
on such date less the value of the liabilities of the High Quality Bond Fund
attributable to Class B shares of the High Quality Bond Fund assumed by the
American Government Fund on such date, and (iii) a number of full and fractional
Class M shares of beneficial interest of the American Government Fund (the
"Class M Merger Shares") having an aggregate net asset value equal to the value
of the assets of the High Quality Bond Fund attributable to Class M shares of
the High Quality Bond Fund transferred to the American Government Fund on such
date less the value of the liabilities of the High Quality Bond Fund
attributable to Class M shares of the High Quality Bond Fund assumed by the
American Government Fund on such date. The Class A Merger Shares, the Class B
Merger Shares, and the Class M Merger Shares shall be referred to collectively
as the "Merger Shares." It is intended that the reorganization described in this
Plan shall be a reorganization within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) Upon consummation of the transactions described in paragraph (a) of this
Agreement, the High Quality Bond Fund shall distribute in complete liquidation
to its Class A, Class B, and
<PAGE>
Class M shareholders of record as of the Exchange Date Class A, Class B, and
Class M Merger Shares, each shareholder being entitled to receive that
proportion of such Class A, Class B or Class M Merger Shares that the number of
Class A, Class B, or Class M shares of beneficial interest of the High Quality
Bond Fund held by such shareholder bears to the number of such Class A, Class B
or Class M shares of the High Quality Bond Fund outstanding on such date.
Certificates representing the Merger Shares will be issued only if the
shareholder so requests.
AGREEMENT
The American Government Fund and the High Quality Bond Fund agree as follows:
1. Representations and warranties of the American Government fund. The American
Government Fund represents and warrants to and agrees with the High Quality Bond
Fund that:
(a) The American Government Fund is a business trust duly established and
validly existing under the laws of The Commonwealth of Massachusetts, and has
power to own all of its properties and assets and to carry out its obligations
under this Agreement. The American Government Fund is not required to qualify as
a foreign association in any jurisdiction. The American Government Fund has all
necessary federal, state and local authorizations to carry on its business as
now being conducted and to carry out this Agreement.
(b) The American Government Fund is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company, and such registration has not been revoked or rescinded and is in full
force and effect.
(c) A statement of assets and liabilities, statement of operations, statement of
changes in net assets and schedule of investments (indicating their market
values) of the American Government Fund for the fiscal year ended September 30,
1998, such statements and schedule having been audited by PricewaterhouseCoopers
LLP, independent accountants, have been furnished to the High Quality Bond Fund.
Such statements of assets and liabilities and schedule of investments fairly
present the financial position of the American Government Fund as of September
30, 1998 and such statements of operations and changes in net assets fairly
reflect the results of its operations and changes in net assets for the period
covered thereby in conformity with generally accepted accounting principles.
(d) The prospectus and statement of additional information dated January 30,
1999, previously furnished to the High Quality Bond Fund, and any amendment or
supplement thereto or any superseding prospectus or statement of additional
information in respect thereof in effect prior to the Exchange Date, which will
be furnished to the High Quality Bond Fund (collectively, the "American
Government Fund Prospectus") do not and will not, as of the relevant date
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided however, that the
-2-
<PAGE>
American Government Fund makes no representation or warranty as to any
information in the American Government Fund Prospectus that does not
specifically relate to the American Government Fund.
(e) There are no material legal, administrative or other proceedings pending or,
to the knowledge of the American Government Fund, threatened against the
American Government Fund which assert liability or may, if successfully
prosecuted to their conclusion, result in liability on the part of the American
Government Fund, other than as have been disclosed in the American Government
Fund Prospectus.
(f) The American Government Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of September 30, 1998 and those incurred
in the ordinary course of the American Government Fund's business as an
investment company since such date.
(g) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the American Government Fund of
the transactions contemplated by this Agreement, except such as may be required
under the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, state
securities or blue sky laws (which term as used herein shall include the laws of
the District of Columbia and of Puerto Rico) or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "H-S-R Act").
(h) The registration statement (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") by the American Government
Fund on Form N-14 relating to the Merger Shares issuable hereunder, and the
proxy statement of the High Quality Bond Fund included therein (the "Proxy
Statement"), on the effective date of the Registration Statement (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder and (ii) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and at the time of the shareholders' meeting referred to in Section
7(a) and at the Exchange Date, the prospectus contained in the Registration
Statement of which the Proxy Statement is a part (the "Prospectus"), as amended
or supplemented by any amendments or supplements filed or requested to be filed
with the Commission by the High Quality Bond Fund, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Registration
Statement, the Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by the High Quality Bond Fund for use in
the Registration Statement, the Prospectus or the Proxy Statement.
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(i) There are no material contracts outstanding to which the American Government
Fund is a party, other than as disclosed in the Registration Statement, the
Prospectus, or the Proxy Statement.
(j) All of the issued and outstanding shares of beneficial interest of the
American Government Fund have been offered for sale and sold in conformity with
all applicable federal securities laws.
(k) The American Government Fund is and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under Sections 851
and 852 of the Code.
(l) The issuance of the Merger Shares pursuant to this Agreement will be in
compliance with all applicable federal securities laws.
(m) The Merger Shares to be issued to the High Quality Bond Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement, will be
legally and validly issued and will be fully paid and nonassessable by the
American Government Fund, and no shareholder of the American Government Fund
will have any preemptive right of subscription or purchase in respect thereof.
2. Representations and warranties of the High Quality Bond Fund. The High
Quality Bond Fund represents and warrants to and agrees with the American
Government Fund that:
(a) The High Quality Bond Fund is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts, and has power to
own all of its properties and assets and to carry out its obligations under this
Agreement. The High Quality Bond Fund is not required to qualify as a foreign
association in any jurisdiction. The High Quality Bond Fund has all necessary
federal, state and local authorizations to carry on its business as now being
conducted and to carry out this Agreement.
(b) The High Quality Bond Fund is registered under the 1940 Act as an open-end
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statement of operations, statement of
changes in net assets and schedule of investments (indicating their market
values) of the High Quality Bond Fund for the fiscal year ended October 31,
1998, such statements and schedule having been audited by PricewaterhouseCoopers
LLP, independent accountants, have been furnished to the American Government
Fund. Such statements of assets and liabilities and schedule of investments
fairly present the financial position of the High Quality Bond Fund as of
October 31, 1998, and such statements of operations and changes in net assets
fairly reflect the results of its
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operations and changes in net assets for the period covered thereby in
conformity with generally accepted accounting principles.
(d) The prospectus and statement of additional information dated February 28,
1999, previously furnished to the American Government Fund, and any amendment or
supplement thereto or any superseding prospectus or statement of additional
information in respect thereof in effect prior to the Exchange Date, which will
be furnished to the American Government Fund (collectively the "High Quality
Bond Fund Prospectus"), does not and will not contain as of the relevant date
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided however, that the High Quality Bond Fund makes no
representation or warranty as to any information in the High Quality Bond Fund
Prospectus that does not specifically relate to the High Quality Bond Fund.
(e) There are no material legal, administrative or other proceedings pending or,
to the knowledge of the High Quality Bond Fund, threatened against the High
Quality Bond Fund which assert liability or may, if successfully prosecuted to
their conclusion, result in liability on the part of the High Quality Bond Fund,
other than as have been disclosed in the High Quality Bond Fund Prospectus.
(f) The High Quality Bond Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of October 31, 1998 and those incurred in
the ordinary course of the High Quality Bond Fund's business as an investment
company since such date. Prior to the Exchange Date, the High Quality Bond Fund
will advise the American Government Fund of all material liabilities, contingent
or otherwise, incurred by it subsequent to October 31, 1998, whether or not
incurred in the ordinary course of business.
(g) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the High Quality Bond Fund of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, state securities or blue sky
laws, or the H-S-R Act.
(h) The Registration Statement, the Prospectus and the Proxy Statement, on the
Effective Date of the Registration Statement and insofar as they do not relate
to the American Government Fund (i) will comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7(a) below and on the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed or requested to be filed with the Commission by the American
Government Fund, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not
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<PAGE>
misleading; provided however, that the representations and warranties in this
subsection shall apply only to statements of fact relating to the High Quality
Bond Fund contained in the Registration Statement, the Prospectus or the Proxy
Statement, or omissions to state in any thereof a material fact relating to the
High Quality Bond Fund, as such Registration Statement, Prospectus and Proxy
Statement shall be furnished to the High Quality Bond Fund in definitive form as
soon as practicable following effectiveness of the Registration Statement and
before any public distribution of the Prospectus or Proxy Statement.
(i) There are no material contracts outstanding to which the High Quality Bond
Fund is a party, other than as will be disclosed in the Prospectus or the Proxy
Statement.
(j) All of the issued and outstanding shares of beneficial interest of the High
Quality Bond Fund have been offered for sale and sold in conformity with all
applicable federal securities laws.
(k) The High Quality Bond Fund is and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under Sections 851
and 852 of the Code.
(l) The High Quality Bond Fund has filed or will file all federal and state tax
returns which, to the knowledge of the High Quality Bond Fund's officers, are
required to be filed by the High Quality Bond Fund and has paid or will pay all
federal and state taxes shown to be due on said returns or on any assessments
received by the High Quality Bond Fund. All tax liabilities of the High Quality
Bond Fund have been adequately provided for on its books, and to the knowledge
of the High Quality Bond Fund, no tax deficiency or liability of the High
Quality Bond Fund has been asserted, and no question with respect thereto has
been raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
(m) At both the Valuation Time and the Exchange Date, the High Quality Bond Fund
will have full right, power and authority to sell, assign, transfer and deliver
the Investments and any other assets and liabilities of the High Quality Bond
Fund to be transferred to the American Government Fund pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of the Investments
and any such other assets and liabilities as contemplated by this Agreement, the
American Government Fund will acquire the Investments and any such other assets
and liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof. As used in
this Agreement, the term "Investments" shall mean the High Quality Bond Fund's
investments shown on the schedule of its investments as of October 31, 1998
referred to in Section 2(c) hereof, as supplemented with such changes as the
High Quality Bond Fund shall make, and changes resulting from stock dividends,
stock splits, mergers and similar corporate actions.
(n) No registration under the 1933 Act of any of the Investments would be
required if they were, as of the time of such transfer, the subject of a public
distribution by either of the
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American Government Fund or the High Quality Bond Fund, except as previously
disclosed to the American Government Fund by the High Quality Bond Fund.
(o) At the Exchange Date, the High Quality Bond Fund will have sold such of its
assets, if any, as necessary to assure that, after giving effect to the
acquisition of the assets of the High Quality Bond Fund pursuant to this
Agreement, the American Government Fund will remain in compliance with its
mandatory investment restrictions as set forth in the American Government Fund
Prospectus previously furnished to the High Quality Bond Fund.
3. Reorganization. (a) Subject to the requisite approval of the shareholders of
the High Quality Bond Fund and to the other terms and conditions contained
herein (including the High Quality Bond Fund's obligation to distribute to its
shareholders all of its investment company taxable income and net capital gain
as described in Section 8(m) hereof), the High Quality Bond Fund agrees to sell,
assign, convey, transfer and deliver to the American Government Fund, and the
American Government Fund agrees to acquire from the High Quality Bond Fund, on
the Exchange Date all of the Investments and all of the cash and other
properties and assets of the High Quality Bond Fund, whether accrued or
contingent (including cash received by the High Quality Bond Fund upon the
liquidation by the High Quality Bond Fund of any investments purchased by the
High Quality Bond Fund after October 31, 1998 and designated by the American
Government Fund as being unsuitable for it to acquire), in exchange for that
number of Merger Shares provided for in Section 4 and the assumption by the
American Government Fund of all of the liabilities of the High Quality Bond
Fund, whether accrued or contingent, existing at the Valuation Time. Pursuant to
this Agreement, the High Quality Bond Fund will, as soon as practicable after
the Exchange Date, distribute all of the Class A, Class B and Class M Merger
Shares received by it to the Class A, Class B and Class M shareholders,
respectively, of the High Quality Bond Fund, in complete liquidation of the High
Quality Bond Fund.
(b) The High Quality Bond Fund will pay or cause to be paid to the American
Government Fund any interest, cash or such dividends, rights and other payments
received by it on or after the Exchange Date with respect to the Investments and
other properties and assets of the High Quality Bond Fund, whether accrued or
contingent, received by it on or after the Exchange Date. Any such distribution
shall be deemed included in the assets transferred to the American Government
Fund at the Exchange Date and shall not be separately valued unless the
securities in respect of which such distribution is made shall have gone "ex"
such distribution prior to the Valuation Time, in which case any such
distribution which remains unpaid at the Exchange Date shall be included in the
determination of the value of the assets of the High Quality Bond Fund acquired
by the American Government Fund.
(c) The Valuation Time shall be 4:00 p.m. Boston time on July 16, 1999 or such
earlier or later day as may be mutually agreed upon in writing by the parties
hereto (the "Valuation Time").
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<PAGE>
4. Exchange date; valuation time. On the Exchange Date, the American Government
Fund will deliver to the High Quality Bond Fund (i) a number of full and
fractional Class A Merger Shares having an aggregate net asset value equal to
the value of assets of the High Quality Bond Fund attributable to Class A shares
of the High Quality Bond Fund transferred to the American Government Fund on
such date less the value of the liabilities of the High Quality Bond Fund
attributable to the Class A shares of the High Quality Bond Fund assumed by the
American Government Fund on that date, (ii) a number of full and fractional
Class B Merger Shares having an aggregate net asset value equal to the value of
the assets of the High Quality Bond Fund attributable to Class B shares of the
High Quality Bond Fund transferred to the American Government Fund on such date
less the value of the liabilities of the High Quality Bond Fund attributable to
Class B shares of the High Quality Bond Fund assumed by the American Government
Fund on that date, and (iii) a number of full and fractional Class M Merger
Shares having an aggregate net asset value equal to the value of the assets of
the High Quality Bond Fund attributable to Class M shares of the High Quality
Bond Fund transferred to the American Government Fund on such date less the
value of the liabilities of the High Quality Bond Fund attributable to Class M
shares of the High Quality Bond Fund assumed by the American Government Fund on
that date, determined as hereafter provided in this Section 4.
(a) The net asset value of the Merger Shares to be delivered to the High Quality
Bond Fund, the value of the assets attributable to the Class A, Class B and
Class M shares of the High Quality Bond Fund and the value of the liabilities
attributable to the Class A , Class B and Class M shares of the High Quality
Bond Fund to be assumed by the American Government Fund shall in each case be
determined as of the Valuation Time.
(b) The net asset value of the Class A , Class B and Class M Merger Shares shall
be computed in the manner set forth in the American Government Fund Prospectus.
The value of the assets and liabilities of the Class A , Class B and Class M
shares of the High Quality Bond Fund shall be determined by the American
Government Fund, in cooperation with the High Quality Bond Fund, pursuant to
procedures that the American Government Fund would use in determining the fair
market value of the American Government Fund's assets and liabilities.
(c) No adjustment shall be made in the net asset value of either the High
Quality Bond Fund or the American Government Fund to take into account
differences in realized and unrealized gains and losses.
(d) The American Government Fund shall issue the Merger Shares to the High
Quality Bond Fund in three certificates registered in the name of the High
Quality Bond Fund, one for Class A Merger Shares, one for Class B Merger Shares,
and one for Class M Merger Shares (excluding any fractional shares). The High
Quality Bond Fund shall distribute the Class A Merger Shares to the Class A
shareholders of the High Quality Bond Fund by redelivering such certificates to
the American Government Fund's transfer agent which will as soon as practicable
set up open
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<PAGE>
accounts for each Class A High Quality Bond Fund shareholder in accordance with
written instructions furnished by the High Quality Bond Fund. The High Quality
Bond Fund shall distribute the Class B Merger Shares to the Class B shareholders
of the High Quality Bond Fund by redelivering such certificates to the American
Government Fund's transfer agent which will as soon as practicable set up open
accounts for each Class B High Quality Bond Fund shareholder in accordance with
written instructions furnished by the High Quality Bond Fund. The High Quality
Bond Fund shall distribute the Class M Merger Shares to the Class M shareholders
of the High Quality Bond Fund by redelivering such certificates to the American
Government Fund's transfer agent which will as soon as practicable set up open
accounts for each Class M High Quality Bond Fund shareholder in accordance with
written instructions furnished by the High Quality Bond Fund. With respect to
any High Quality Bond Fund shareholder holding share certificates as of the
Exchange Date, the American Government Fund will not permit such shareholder to
receive dividends and other distributions on the Merger Shares (although such
dividends and other distributions shall be credited to the account of such
shareholder), receive certificates representing the Merger Shares, exchange the
Merger Shares credited to such shareholder's account for shares of other
investment companies managed by Putnam Investment Management, Inc. ("Putnam"),
or pledge or redeem such Merger Shares until such shareholder has surrendered
his or her outstanding High Quality Bond Fund certificates or, in the event of
lost, stolen, or destroyed certificates, posted adequate bond. In the event that
a shareholder shall not be permitted to receive dividends and other
distributions on the Merger Shares as provided in the preceding sentence, the
American Government Fund shall pay any such dividends or distributions in
additional shares, notwithstanding any election such shareholder shall have made
previously with respect to the payment, in cash or otherwise, of dividends and
distributions on shares of the High Quality Bond Fund. The High Quality Bond
Fund will, at its expense, request the shareholders of the High Quality Bond
Fund to surrender their outstanding High Quality Bond Fund certificates, or post
adequate bond, as the case may be.
(e) The American Government Fund shall assume all liabilities of the High
Quality Bond Fund, whether accrued or contingent, in connection with the
acquisition of assets and subsequent dissolution of the High Quality Bond Fund
or otherwise.
5. Expenses, fees, etc. (a) All fees and expenses, including legal and
accounting expenses, portfolio transfer taxes (if any) or other similar expenses
incurred in connection with the consummation by the High Quality Bond Fund and
the American Government Fund of the transactions contemplated by this Agreement
will be allocated ratably between the American Government Fund and the High
Quality Bond Fund in proportion to their net assets as of the Valuation Time,
except that the costs of proxy materials and proxy solicitation will be borne by
the High Quality Bond Fund, and provided however, that such expenses will in any
event be paid by the party directly incurring such expenses if and to the extent
that the payment by the other party of such expenses would result in the
disqualification of the American Government
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<PAGE>
Fund or the High Quality Bond Fund, as the case may be, as a "regulated
investment company" within the meaning of Section 851 of the Code.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of the American Government Fund's being either unwilling
or unable to go forward (other than by reason of the nonfulfillment or failure
of any condition to the American Government Fund's obligations referred to in
Section 8) the American Government Fund shall pay directly all reasonable fees
and expenses incurred by the High Quality Bond Fund in connection with such
transactions, including, without limitation, legal, accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of the High Quality Bond Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or failure of
any condition to the High Quality Bond Fund's obligations referred to in Section
9) the High Quality Bond Fund shall pay directly all reasonable fees and
expenses incurred by the American Government Fund in connection with such
transactions, including without limitation legal, accounting and filing fees.
(d) In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) the American Government Fund's or the
High Quality Bond Fund's being either unwilling or unable to go forward or (ii)
the nonfulfillment or failure of any condition to the American Government Fund's
or the High Quality Bond Fund's obligations referred to in Section 8 or Section
9 of this Agreement, then each of the American Government Fund and the High
Quality Bond Fund shall bear all of its own expenses incurred in connection with
such transactions.
(e) Notwithstanding any other provisions of this Agreement, if for any reason
the transactions contemplated by this Agreement are not consummated, no party
shall be liable to the other party for any damages resulting therefrom,
including without limitation consequential damages, except as specifically set
forth above.
6. Exchange date. Delivery of the assets of the High Quality Bond Fund to be
transferred, assumption of the liabilities of the High Quality Bond Fund to be
assumed and the delivery of the Merger Shares to be issued shall be made at the
offices of Ropes & Gray, One International Place, Boston, Massachusetts, at
10:00 A.M. on the next full business day following the Valuation Time, or at
such other time and date agreed to by the American Government Fund and the High
Quality Bond Fund, the date and time upon which such delivery is to take place
being referred to herein as the "Exchange Date."
7. Meeting of shareholders; dissolution. (a) The High Quality Bond Fund agrees
to call a meeting of its shareholders as soon as is practicable after the
effective date of the Registration Statement for the purpose of considering the
sale of all
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of its assets to and the assumption of all of its liabilities by the American
Government Fund as herein provided, adopting this Agreement, and authorizing the
liquidation and dissolution of the High Quality Bond Fund.
(b) The High Quality Bond Fund agrees that the liquidation and dissolution of
the High Quality Bond Fund will be effected in the manner provided in the
Agreement and Declaration of Trust of the High Quality Bond Fund in accordance
with applicable law and that on and after the Exchange Date, the High Quality
Bond Fund shall not conduct any business except in connection with its
liquidation and dissolution.
(c) The American Government Fund has, after the preparation and delivery to the
American Government Fund by the High Quality Bond Fund of a preliminary version
of the Proxy Statement which was satisfactory to the American Government Fund
and to Ropes & Gray for inclusion in the Registration Statement, filed the
Registration Statement with the Commission. Each of the High Quality Bond Fund
and the American Government Fund will cooperate with the other, and each will
furnished to the other the information relating to itself required by the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder set
forth in the Registration Statement, including the Prospectus and the Proxy
Statement.
8. Conditions to the American Government fund's obligations. The obligations of
the American Government Fund hereunder shall be subject to the following
conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
holders of at least two-thirds (66-2/3%) of the outstanding shares of beneficial
interest of the High Quality Bond Fund entitled to vote. (b) That the High
Quality Bond Fund shall have furnished to the American Government Fund a
statement of the High Quality Bond Fund's net assets, with values determined as
provided in Section 4 of this Agreement, together with a list of Investments
with their respective tax costs, all as of the Valuation Time, certified on the
High Quality Bond Fund's behalf by the High Quality Bond Fund's President (or
any Vice President) and Treasurer (or any Assistant Treasurer), and a
certificate of both such officers, dated the Exchange Date, to the effect that
as of the Valuation Time and as of the Effective Date there has been no material
adverse change in the financial position of the High Quality Bond Fund since
October 31, 1998 other than changes in the Investments and other assets and
properties since that date or changes in the market value of the Investments and
other assets of the High Quality Bond Fund, changes due to net redemptions, or
changes due to dividends paid or losses from operations.
(c) That the High Quality Bond Fund shall have furnished to the American
Government Fund a statement, dated the Exchange Date, signed on behalf of the
High Quality Bond Fund by the High Quality Bond Fund's President (or any Vice
President) and Treasurer (or any Assistant Treasurer) certifying that as of the
Valuation Time and as of the Exchange Date all representations and warranties of
the High Quality Bond Fund made in this Agreement are true and correct in all
material respects as if made at and as of such dates, and that the High Quality
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Bond Fund has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to each of such
dates.
(d) That the High Quality Bond Fund shall have delivered to the American
Government Fund a letter from PricewaterhouseCoopers LLP dated the Exchange
Date, stating that on the basis of an examination under attestation standards
established by the American Institute of Certified Public Accountants ("AICPA"),
management's assertions that for the fiscal period from November 1, 1998 to the
Exchange Date the High Quality Bond Fund (i) qualified as a regulated investment
company under the Internal Revenue Code (the "Code"), (ii) as of the Exchange
Date, has no liability other than liabilities stated for federal or state income
taxes and (iii) as of the Exchange Date, has no liability for federal excise tax
purposes under section 4982 of the Code are fairly stated.
(e) That there shall not be any material litigation pending with respect to the
matters contemplated by this Agreement.
(f) That the American Government Fund shall have received an opinion of Ropes &
Gray, in form satisfactory to the American Government Fund and dated the
Exchange Date, to the effect that (i) the High Quality Bond Fund is a business
trust duly established and validly existing under the laws of The Commonwealth
of Massachusetts, and, to the knowledge of such counsel, is not required to
qualify to do business as a foreign association in any jurisdiction except as
may be required by state securities or blue sky laws, (ii) this Agreement has
been duly authorized, executed, and delivered by the High Quality Bond Fund and,
assuming that the Registration Statement, the Prospectus and the Proxy Statement
comply with the 1933 Act, the 1934 Act and the 1940 Act and assuming due
authorization, execution and delivery of this Agreement by the American
Government Fund, is a valid and binding obligation of the High Quality Bond
Fund, (iii) the High Quality Bond Fund has power to sell, assign, convey,
transfer and deliver the assets contemplated hereby and, upon consummation of
the transactions contemplated hereby in accordance with the terms of this
Agreement, the High Quality Bond Fund will have duly sold, assigned, conveyed,
transferred and delivered such assets to the American Government Fund, (iv) the
execution and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the High Quality Bond Fund's
Agreement and Declaration of Trust, as amended, or Bylaws or any provision of
any agreement known to such counsel to which the High Quality Bond Fund is a
party or by which it is bound, it being understood that with respect to
investment restrictions as contained in the High Quality Bond Fund's Agreement
and Declaration of Trust, Bylaws or then-current prospectus or statement of
additional information, such counsel may rely upon a certificate of an officer
of the High Quality Bond Fund's whose responsibility it is to advise the High
Quality Bond Fund with respect to such matters, and (v) no consent, approval,
authorization or order of any court or governmental authority is required for
the consummation by the High Quality Bond Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act and
the 1940 Act and such as may be required under state securities or blue sky laws
and the H-S-R
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<PAGE>
Act, and (vi) such other matters as the American Government Fund may reasonably
deem necessary or desirable.
(g) That the American Government Fund shall have received an opinion of Ropes &
Gray dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), to the effect that, on
the basis of the existing provisions of the Code, current administrative rules
and court decisions, for federal income tax purposes: (i) no gain or loss will
be recognized by the American Government Fund upon receipt of the Investments
transferred to the American Government Fund pursuant to this Agreement in
exchange for the Merger Shares and the assumption by the American Government
Fund of the liabilities of the High Quality Bond Fund, (ii) the basis in the
hands of the American Government Fund of the Investments will be the same as the
basis of the Investments in the hands of the High Quality Bond Fund immediately
prior to such exchange, and (iii) the holding periods of the Investments in the
hands of the American Government Fund will include the respective periods during
which the Investments were held by the High Quality Bond Fund.
(h) That the assets of the High Quality Bond Fund to be acquired by the American
Government Fund will include no assets which the American Government Fund, by
reason of charter limitations or of investment restrictions disclosed in the
American Government Fund Prospectus in effect on the Exchange Date, may not
properly acquire.
(i) That the Registration Statement shall have become effective under the 1933
Act, and no stop order suspending such effectiveness shall have been instituted
or, to the knowledge of the American Government Fund, threatened by the
Commission.
(j) That the American Government Fund shall have received from the Commission,
any relevant state securities administrator, the Federal Trade Commission (the
"FTC") and the Department of Justice (the "Department") such order or orders as
Ropes & Gray deems reasonably necessary or desirable under the 1933 Act, the
1934 Act, the 1940 Act, any applicable state securities or blue sky laws and the
H-S-R Act in connection with the transactions contemplated hereby, and that all
such orders shall be in full force and effect.
(k) That all proceedings taken by the High Quality Bond Fund in connection with
the transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to the American Government
Fund and Ropes & Gray.
(l) That, prior to the Exchange Date, the High Quality Bond Fund shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to the shareholders of the High
Quality Bond Fund all of the High Quality Bond Fund's investment company taxable
income for each of its taxable years ending on or after October 31, 1998 and on
or prior to the Exchange Date (computed without regard to any
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<PAGE>
deduction for dividends paid), and all of its net capital gain realized in each
of its taxable years ending on or after October 31, 1998 and on or prior to the
Exchange Date.
(m) That the High Quality Bond Fund's custodian shall have delivered to the
American Government Fund a certificate identifying all of the assets of the High
Quality Bond Fund held by such custodian as of the Valuation Time.
(n) That the High Quality Bond Fund's transfer agent shall have provided to the
American Government Fund (i) the originals or true copies of all of the records
of the High Quality Bond Fund in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the High
Quality Bond Fund outstanding as of the Valuation Time, and (iii) the name and
address of each holder of record of any such shares and the number of shares
held of record by each such shareholder.
(o) That all of the issued and outstanding shares of beneficial interest of the
High Quality Bond Fund shall have been offered for sale and sold in conformity
with all applicable state securities or blue sky laws and, to the extent that
any audit of the records of the High Quality Bond Fund or its transfer agent by
the American Government Fund or its agents shall have revealed otherwise, either
(i) the High Quality Bond Fund shall have taken all actions that in the opinion
of the American Government Fund or its counsel are necessary to remedy any prior
failure on the part of the High Quality Bond Fund to have offered for sale and
sold such shares in conformity with such laws or (ii) the High Quality Bond Fund
shall have furnished (or caused to be furnished) surety, or deposited (or caused
to be deposited) assets in escrow, for the benefit of the American Government
Fund in amounts sufficient and upon terms satisfactory, in the opinion of the
American Government Fund or its counsel, to indemnify the American Government
Fund against any expense, loss, claim, damage or liability whatsoever that may
be asserted or threatened by reason of such failure on the part of the High
Quality Bond Fund to have offered and sold such shares in conformity with such
laws.
(p) That the American Government Fund shall have received from
PricewaterhouseCoopers LLP a letter addressed to the American Government Fund
dated as of the Exchange Date satisfactory in form and substance to the American
Government Fund to the effect that, on the basis of an examination under
attestation standards established by the AICPA, management's assertion that as
of the Valuation Time the value of the assets of the High Quality Bond Fund to
be exchanged for the Merger Shares has been determined in accordance with the
provisions of Article 10 section 5 (10.5) of the American Government Fund's
By-laws pursuant to the procedures customarily utilized by the American
Government Fund in valuing its assets and issuing its shares is fairly stated.
(q) That the High Quality Bond Fund shall have executed and delivered to the
American Government Fund an instrument of transfer dated as of the Exchange Date
pursuant to which the High Quality Bond Fund will assign, transfer and convey
all of the assets and other property to
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<PAGE>
the American Government Fund at the Valuation Time in connection with the
transactions contemplated by this Agreement.
9. Conditions to the High Quality Bond Fund's obligations. The obligations of
the High Quality Bond Fund hereunder shall be subject to the following
conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
holders of at least two-thirds (66-2/3%) of the outstanding shares of beneficial
interest of the High Quality Bond Fund entitled to vote.
(b) That the American Government Fund shall have furnished to the High Quality
Bond Fund a statement of the American Government Fund's net assets, together
with a list of portfolio holdings with values determined as provided in Section
4 of this Agreement, all as of the Valuation Time, certified on behalf of the
American Government Fund by the American Government Fund's President (or any
Vice President) and Treasurer (or any Assistant Treasurer), and a certificate of
both such officers, dated the Exchange Date, to the effect that as of the
Valuation Time and as of the Exchange Date there has been no material adverse
change in the financial position of the American Government Fund since September
30, 1998, other than changes in its portfolio securities since that date,
changes in the market value of its portfolio securities, changes due to net
redemptions, or changes due to dividends paid or losses from operations.
(c) That the American Government Fund shall have executed and delivered to the
High Quality Bond Fund an Assumption of Liabilities dated as of the Exchange
Date pursuant to which the American Government Fund will assume all of the
liabilities of the High Quality Bond Fund existing at the Valuation Time in
connection with the transactions contemplated by this Agreement.
(d) That the American Government Fund shall have furnished to the High Quality
Bond Fund a statement, dated the Exchange Date, signed on behalf of the American
Government Fund by the American Government Fund's President (or any Vice
President) and Treasurer (or any Assistant Treasurer) certifying that as of the
Valuation Time and as of the Exchange Date all representations and warranties of
the American Government Fund made in this Agreement are true and correct in all
material respects as if made at and as of such dates, and that the American
Government Fund has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to each of such
dates.
(e) That there shall not be any material litigation pending or threatened with
respect to the matters by this Agreement.
(f) That the High Quality Bond Fund shall have received an opinion of Ropes &
Gray, in form satisfactory to the High Quality Bond Fund and dated the Exchange
Date, to the effect that (i) the
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<PAGE>
American Government Fund is a business trust duly established and validly
existing in conformity with the laws of The Commonwealth of Massachusetts, and,
to the knowledge of such counsel, is not required to qualify to do business as a
foreign association in any jurisdiction except as may be required by state
securities or blue sky laws, (ii) this Agreement has been duly authorized,
executed and delivered by the American Government Fund and, assuming that the
Prospectus, the Registration Statement and the Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by High Quality Bond Fund, is a valid
and binding obligation of the American Government Fund, (iii) the Merger Shares
to be delivered to the High Quality Bond Fund as provided for by this Agreement
are duly authorized and upon such delivery will be validly issued and will be
fully paid and nonassessable by the American Government Fund and no shareholder
of the American Government Fund has any preemptive right to subscription or
purchase in respect thereof, (iv) the execution and delivery of this Agreement
did not, and the consummation of the transactions contemplated hereby will not,
violate the American Government Fund's Agreement and Declaration of Trust, as
amended, or By-laws, or any provision of any agreement known to such counsel to
which the American Government Fund is a party or by which it is bound, it being
understood that with respect to investment restrictions as contained in the
American Government Fund's Agreement and Declaration of Trust, as amended,
By-Laws or then-current prospectus or statement of additional information, such
counsel may rely upon a certificate of an officer of the American Government
Fund whose responsibility it is to advise the American Government Fund with
respect to such matters, (v) no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by the American
Government Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required under state securities or blue sky laws and the H-S-R Act, and (vi)
the Registration Statement has become effective under the 1933 Act, and to the
best of the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated under the
1933 Act.
(g) That the High Quality Bond Fund shall have received an opinion of Ropes &
Gray dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), to the effect that, on
the basis of the existing provisions of the Code, current administrative rules
and court decisions, for federal income tax purposes: (i) no gain or loss will
be recognized by the High Quality Bond Fund upon the transfer of the Investments
and the assumption of its liabilities by the American Government Fund, or upon
the distribution of the Merger Shares by the High Quality Bond Fund to its
shareholders in liquidation of the High Quality Bond Fund, pursuant to this
Agreement, (ii) no gain or loss will be recognized by the shareholders of the
High Quality Bond Fund upon the exchange of their shares of the High Quality
Bond Fund for shares of the American Government Fund, (iii) the basis of the
Merger Shares received by the High Quality Bond Fund's shareholders in
connection with the transaction will be the same as the basis of the High
Quality Bond Fund shares exchanged therefor, and (iv) the holding periods of the
Merger Shares received by the shareholders of the High Quality Bond
-16-
<PAGE>
Fund will include the holding periods of the High Quality Bond Fund shares
exchanged therefor, provided that at the time of the reorganization, the High
Quality Bond Fund shares are held by such shareholders as capital assets.
(h) That all proceedings taken by or on behalf of the American Government Fund
in connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance to the
High Quality Bond Fund and Ropes & Gray.
(i) That the Registration Statement shall have become effective under the 1933
Act, and no stop order suspending such effectiveness shall have been instituted
or, to the knowledge of the American Government Fund, threatened by the
Commission.
(j) That the High Quality Bond Fund shall have received from the Commission, any
relevant state securities administrator, the FTC and the Department such order
or orders as Ropes & Gray deems reasonably necessary or desirable under the 1933
Act, the 1934 Act, the 1940 Act, any applicable state securities or blue sky
laws and the H-S-R Act in connection with the transactions contemplated hereby,
and that all such orders shall be in full force and effect.
10. Indemnification. (a) The High Quality Bond Fund will indemnify and hold
harmless, out of the assets of the High Quality Bond Fund but no other assets,
the American Government Fund, its trustees and its officers (for purposes of
this subparagraph, the "Indemnified Parties") against any and all expenses,
losses, claims, damages and liabilities at any time imposed upon or reasonably
incurred by any one or more of the Indemnified Parties in connection with,
arising out of, or resulting from any claim, action, suit or proceeding in which
any one or more of the Indemnified Parties may be involved or with which any one
or more of the Indemnified Parties may be threatened by reason of any untrue
statement or alleged untrue statement of a material fact relating to the High
Quality Bond Fund contained in the Registration Statement, the Prospectus or the
Proxy Statement or any amendment or supplement to any of the foregoing, or
arising out of or based upon the omission or alleged omission to state in any of
the foregoing a material fact relating to the High Quality Bond Fund required to
be stated therein or necessary to make the statements relating to the High
Quality Bond Fund therein not misleading, including, without limitation, any
amounts paid by any one or more of the Indemnified Parties in a reasonable
compromise or settlement of any such claim, action, suit or proceeding, or
threatened claim, action, suit or proceeding made with the consent of the High
Quality Bond Fund. The Indemnified Parties will notify the High Quality Bond
Fund in writing within ten days after the receipt by any one or more of the
Indemnified Parties of any notice of legal process or any suit brought against
or claim made against such Indemnified Party as to any matters covered by this
Section 10(a). The High Quality Bond Fund shall be entitled to participate at
its own expense in the defense of any claim, action, suit or proceeding covered
by this Section 10(a), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim, action,
suit or proceeding, and if the High Quality Bond Fund elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the defense
of any such
-17-
<PAGE>
claim, action, suit or proceeding at their expense. The High Quality Bond Fund's
obligation under this Section 10(a) to indemnify and hold harmless the
Indemnified Parties shall constitute a guarantee of payment so that the High
Quality Bond Fund will pay in the first instance any expenses, losses, claims,
damages and liabilities required to be paid by it under this Section 10(a)
without the necessity of the Indemnified Parties' first paying the same.
(b) The American Government Fund will indemnify and hold harmless, out of the
assets of the American Government Fund but no other assets, the High Quality
Bond Fund, its trustees and its officers (for purposes of this subparagraph, the
"Indemnified Parties") against any and all expenses, losses, claims, damages and
liabilities at any time imposed upon or reasonably incurred by any one or more
of the Indemnified Parties in connection with, arising out of, or resulting from
any claim, action, suit or proceeding in which any one or more of the
Indemnified Parties may be involved or with which any one or more of the
Indemnified Parties may be threatened by reason of any untrue statement or
alleged untrue statement of a material fact relating to the American Government
Fund contained in the Registration Statement, the Prospectus or the Proxy
Statement, or any amendment or supplement to any thereof, or arising out of, or
based upon, the omission or alleged omission to state in any of the foregoing a
material fact relating to the American Government Fund required to be stated
therein or necessary to make the statements relating to the American Government
Fund therein not misleading, including without limitation any amounts paid by
any one or more of the Indemnified Parties in a reasonable compromise or
settlement of any such claim, action, suit or proceeding, or threatened claim,
action, suit or proceeding made with the consent of the American Government
Fund. The Indemnified Parties will notify the American Government Fund in
writing within ten days after the receipt by any one or more of the Indemnified
Parties of any notice of legal process or any suit brought against or claim made
against such Indemnified Party as to any matters covered by this Section 10(b).
The American Government Fund shall be entitled to participate at its own expense
in the defense of any claim, action, suit or proceeding covered by this Section
10(b), or, if it so elects, to assume at its expense by counsel satisfactory to
the Indemnified Parties the defense of any such claim, action, suit or
proceeding, and, if the American Government Fund elects to assume such defense,
the Indemnified Parties shall be entitled to participate in the defense of any
such claim, action, suit or proceeding at their own expense. The American
Government Fund's obligation under this Section 10(b) to indemnify and hold
harmless the Indemnified Parties shall constitute a guarantee of payment so that
the American Government Fund will pay in the first instance any expenses,
losses, claims, damages and liabilities required to be paid by it under this
Section 10(b) without the necessity of the Indemnified Parties' first paying the
same.
11. No broker, etc. Each of the High Quality Bond Fund and the American
Government Fund represents that there is no person who has dealt with it who by
reason of such dealings is entitled to any broker's or finder's or other similar
fee or commission arising out of the transactions contemplated by this
Agreement.
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<PAGE>
12. Termination. The High Quality Bond Fund and the American Government Fund
may, by mutual consent of their trustees, terminate this Agreement, and the High
Quality Bond Fund or the American Government Fund, after consultation with
counsel and by consent of their trustees or an officer authorized by such
trustees, may waive any condition to their respective obligations hereunder. If
the transactions contemplated by this Agreement have not been substantially
completed by October 31, 1999, this Agreement shall automatically terminate on
that date unless a later date is agreed to by the High Quality Bond Fund and the
American Government Fund.
13. Rule 145. Pursuant to Rule 145 under the 1933 Act, the American Government
Fund will, in connection with the issuance of any Merger Shares to any person
who at the time of the transaction contemplated hereby is deemed to be an
affiliate of a party to the transaction pursuant to Rule 145(c), cause to be
affixed upon the certificates issued to such person (if any) a legend as
follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO PUTNAM
AMERICAN GOVERNMENT INCOME FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (II) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO PUTNAM AMERICAN GOVERNMENT INCOME FUND SUCH
REGISTRATION IS NOT REQUIRED."
and, further, the American Government Fund will issue stop transfer instructions
to the American Government Fund's transfer agent with respect to such shares.
The High Quality Bond Fund will provide the American Government Fund on the
Exchange Date with the name of any High Quality Bond Fund shareholder who is to
the knowledge of the High Quality Bond Fund an affiliate of the High Quality
Bond Fund on such date.
14. Covenants, etc. deemed material. All covenants, agreements, representations
and warranties made under this Agreement and any certificates delivered pursuant
to this Agreement shall be deemed to have been material and relied upon by each
of the parties, notwithstanding any investigation made by them or on their
behalf.
15. Sole agreement; amendments. This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the laws of
The Commonwealth of Massachusetts.
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<PAGE>
16. Agreement and declaration of trust. Copies of the Agreements and
Declarations of Trust of the High Quality Bond Fund and the American Government
Fund are on file with the Secretary of State of The Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed by
the Trustees of each Fund, respectively, as Trustees and not individually and
that the obligations of this instrument are not binding upon any of the
Trustees, officers or shareholders of the High Quality Bond Fund or the American
Government Fund individually but are binding only upon the assets and property
of the High Quality Bond Fund and the American Government Fund, respectively.
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, shall be deemed to be an original.
PUTNAM AMERICAN
GOVERNMENT INCOME FUND
By:
---------------------------
Executive Vice President
PUTNAM HIGH QUALITY BOND FUND
By:
- ---------------------------
Executive Vice President
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<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
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<PAGE>
PUTNAM INVESTMENTS (LOGO)
This is your PROXY CARD.
Please vote this proxy, sign it below, and return it promptly in the envelope
provided.
Your vote is important.
PLEASE FOLD AT PERFORATION BEFORE DETACHING
- --------------------------------------------------------------------------------
Proxy for a meeting of shareholders, July 1, 1999, for Putnam High Quality Bond
Fund.
This proxy is solicited on behalf of the trustees of Putnam High Quality Bond
Fund
The undersigned shareholder hereby appoints George Putnam, Hans H. Estin, and
Robert E. Patterson, and each of them separately, proxies, with power of
substitution, and hereby authorizes them to represent and to vote, as designated
below, at the meeting of shareholders of Putnam High Quality Bond Fund on July
1, 1999, at 2:00 p.m., Boston time, and at any adjournments thereof, all of the
shares of the fund that the undersigned shareholder would be entitled to vote if
personally present.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
Please sign your name exactly as it appears on this card. If you are a joint
owner, each of you should sign. When signing as executor, administrator,
attorney, trustee, or guardian, or as custodian for a minor, please give your
full title as such. If you are signing for a corporation, please sign the full
corporate name and indicate the signer's office. If you are a partner, sign the
partnership name.
-------------------------------------------
Shareholder sign here Date
-------------------------------------------
Co-owner sign here Date
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<PAGE>
HAS YOUR ADDRESS CHANGED?
Please use this form to notify us of any change in address or telephone number
or to provide us with your comments. Detach this form from the proxy ballot and
return it with your signed proxy in the enclosed envelope.
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------------
Telephone
DO YOU HAVE ANY COMMENTS?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
Your vote is important. Please help us to eliminate the expense of follow-up
mailings by signing and returning this proxy as soon as possible. A postage-paid
envelope is enclosed for your convenience.
THANK YOU!
- --------------------------------------------------------------------------------
PLEASE FOLD AT PERFORATION BEFORE DETACHING
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<PAGE>
If you complete and sign the proxy, we'll vote it exactly as you tell us. If you
simply sign the proxy, it will be voted for Proposal 1. The Proxies will also be
authorized to vote upon such other matters as may come before the meeting.
THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL LISTED BELOW:
Please mark your choices x in blue or black ink.
1. Approval of the agreement and plan of reorganization providing for the
transfer of all of the assets of Putnam High Quality Bond Fund (the "Fund")
to Putnam American Government Income Fund ("the American Government Fund")
in exchange for shares of the American Government Fund and the assumption
by the American Government Fund of all of the liabilities of the Fund, and
the distribution of such shares to the shareholders of the Fund in
liquidation of the fund.
FOR AGAINST ABSTAIN
[BOX] [BOX] [BOX]
Note: If you have questions on the proposal, please call 1-800-225-1581.
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<PAGE>
PUTNAM AMERICAN GOVERNMENT INCOME FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
APRIL 15, 1999
This Statement of Additional Information contains material that may be of
interest to investors but that is not included in the Prospectus/Proxy Statement
(the "Prospectus") of Putnam American Government Income Fund (the "American
Government Fund") dated April 15, 1999 relating to the sale of all or
substantially all of the assets of Putnam High Quality Bond Fund (the "High
Quality Bond Fund") to the American Government Fund. The American Government
Fund's Statement of Additional Information dated January 30, 1999, and the High
Quality Bond Fund's Statement of Additional Information dated February 28, 1999,
have been filed with the Securities and Exchange Commission and are incorporated
herein by reference. This Statement is not a Prospectus and is authorized for
distribution only when it accompanies or follows delivery of the Prospectus.
This Statement should be read in conjunction with the Prospectus. Investors may
obtain a free copy of the Prospectus or either or both of the Statements of
Additional Information by writing Putnam Investor Services, One Post Office
Square, Boston, MA 02109 or by calling 1-800-225-1581.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP are the independent accountants for the American
Government Fund, providing audit services, tax return review and other tax
consulting services and assistance and consultation in connection with the
review of various Securities and Exchange Commission filings for the American
Government Fund. PricewaterhouseCoopers LLP are also the independent accountants
for the High Quality Bond Fund, providing audit services, tax return reviews and
other tax consulting services and assistance and consultation in connection with
the review of various Securities and Exchange Commission filings for the High
Quality Bond Fund. The following documents are incorporated by reference into
this Statement of Additional Information: (1) the Report of Independent
Accountants and financial statements included in the American Government Fund's
Annual Report for the fiscal year ended September 30, 1998, filed electronically
on November 18, 1998 (File No. 811-4178), and (ii) the Report of Independent
Accountants and financial statements included in the High Quality Bond Fund's
Annual Report for the fiscal year ended October 31, 1998, filed electronically
on December 16, 1998 (File No. 811-4178). The audited financial statements for
the American Government Fund and the High Quality Bond Fund incorporated by
reference into the Prospectus/Proxy Statement and this Statement of Additional
Information have been so included and incorporated in reliance upon the reports
of PricewaterhouseCoopers LLP, given on their authority as experts in auditing
and accounting.
-1-
<PAGE>
Table of Contents
Unaudited Pro Forma combined Financial Statements of the American Government
Fund and the High Quality Bond Fund................
-2-
<PAGE>
Putnam American Government Income Fund
and
Putnam High Quality Bond Fund
Proforma Combining Financial Statements
(Unaudited)
The accompanying unaudited proforma combining statements of investment
portfolios and assets and liabilities assumes that the exchange described in the
next paragraph occurred as of September 30, 1998, and the unaudited proforma
combining statement of operations for the twelve months ended September 30, 1998
presents the results of operations of Putnam American Government Income Fund
(the "American Government Fund") as if the combination with Putnam High Quality
Bond Fund (the "High Quality Bond Fund") had been consummated at October 1,
1997. The proforma results of operations are not necessarily indicative of
future operations or the actual results that would have occurred had the
combination been consummated at October 1, 1997. The historical statements have
been derived from the American Government Fund's books and records utilized in
calculating daily net asset value at September 30, 1998, and for the twelve
month period then ended.
The proforma statements give effect to the proposed transfer of all of the
assets of the High Quality Bond Fund to the American Government Fund in exchange
for the assumption by the American Government Fund of all of the liabilities of
the High Quality Bond Fund and for a number of the American Government Fund's
shares equal in value to the value of the net assets of the High Quality Bond
Fund's transferred to the American Government Fund. Under generally accepted
accounting principles, the historical cost of investment securities will be
carried forward to the surviving entity and the results of operations of the
American Government Fund for pre-combination periods will not be restated. The
proforma statement of operations does not reflect the expenses of either fund in
carrying out its obligations under the Agreement and Plan of Reorganization.
The unaudited proforma combining statements should be read in conjunction with
the separate financial statements of the American Government Fund and the High
Quality Bond Fund incorporated by reference in this statement of additional
information.
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<PAGE>
Putnam American Government Income Fund
Notes to Proforma Combining Statements
(Unaudited)
September 30, 1998
The proforma adjustments to these proforma financial statements are comprised of
the following:
(A) Elimination and reduction of duplicative expenses as a result of the
merger.
(B) $145,000 relates to proxy costs which will be borne by the Putnam High
Quality Bond Fund. The other $70,000 consists of $50,000 of legal
costs and $20,000 of accounting costs. These are related merger costs
which will be allocated ratably between the two funds upon
consummation of the merger.
(C) Issuance of class A, class B and class M shares of Putnam American
Government Income Fund to the holders of class A, class B and class M
shares of Putnam High Quality Bond Fund.
<PAGE>
AMERICAN GOVERNMENT INCOME FUND
Pro Forma Combining (Unaudited)
Statement of Assets and Liabilities
30-Sep-98
<TABLE>
<CAPTION>
American
Government High Quality Pro Forma Pro Forma
Income Fund Bond Fund Adjustments Combined
<S> <C> <C> <C> <C>
Assets
Investments in securities, at value
(identified cost $1,519,441,505, $363,648,938 and $1,578,959,023 $ 377,276,674 $1,956,235,697
$1,883,090,443 respectively)
Cash 377 3,585,479 3,585,856
Interest and other receivables 14,340,457 3,510,188 17,850,645
Receivable for shares of the fund sold 2,280,047 829,985 3,110,032
Receivable for investments sold -- 81,998,443 81,998,443
Receivable for open forward currency contracts -- 130,817 130,817
Receivable for variation margin -- 234,813 234,813
Total assets 1,595,579,904 467,566,399 2,063,146,303
Liabilities
Payable for securities purchased -- 66,076,735 66,076,735
Payable for shares of the fund repurchased 1,807,573 240,129 2,047,702
Payable for compensation of Manager 2,161,132 382,513 2,543,645
Payable for investor servicing and custodian fees 108,795 46,665 155,460
Payable for compensation of Trustees 52,093 3,660 55,753
Payable for administrative services 4,738 2,107 6,845
Payable for distribution fees 987,531 744,509 1,732,040
TBA sales commitments, at value
(proceeds receivable $7,568,881) -- 7,651,737 7,651,737
Payable for open forward currency contracts -- 271,468 271,468
Payable for closed forward currency contracts -- 1,319,125 1,319,125
Other accrued expenses 127,859 11,515,447 215,000 B 11,858,306
Total liabilities 5,249,721 88,254,095 215,000 93,718,816
Net assets $1,590,330,183 $379,312,304 (215,000) 1,969,427,487
Class A
Net assets $1,500,156,542 $346,796,460 (198,210)B $1,846,754,792
Shares outstanding 164,590,463 33,353,014 4,698,749 C 202,642,226
Net asset value per share $9.11 $10.40 $ 9.11
Class B
Net assets $86,302,398 $28,172,373 (14,838)B $ 114,459,933
Shares outstanding 9,501,518 $2,719,978 381,410 C 12,602,906
Net asset value per share $9.08 $10.36 $ 9.08
Class M
Net assets $3,871,243 $4,343,471 (1,952)B $ 8,212,762
Shares outstanding 423,654 417,624 57,393 C 898,671
Net asset value per share $9.14 $10.40 $ 9.14
</TABLE>
<PAGE>
The Proforma Combining Investment Portfolio
of Putnam High Quality Bond Fund and
Putnam American Government Income Fund
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
American Government High Quality Proforma
Income Fund Bond Fund Combined
U.S. Governement and Principal 91.6%* Principal 66.4%* Principal 86.9%*
Agency Obligations Amount Value Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp.
5 3/4s, due April 15, 2008 $ 100,000,000 $ 105,719,000 $ 100,000,000 $105,719,000
5 1/2s, with due dates from March 1, 2011
to April 1, 2011 $ 8,276,173 $ 8,245,137 8,276,173 8,245,137
Federal Home Loan Mortgage Corp.
Pass-through Certificates
7s, with due dates from August 1, 2012
to November 1, 2012 30,041,863 30,858,402 30,041,863 30,858,402
Federal National Mortgage Association
7s, Dwarf TBA, October 15, 2013 1,050,000 1,077,888 1,050,000 1,077,888
6 1/2s, Dwarf TBA, October 15, 2013 18,630,000 19,019,920 18,630,000 19,019,920
6s, Dwarf TBA, October 15, 2013 7,360,000 7,435,882 7,360,000 7,435,882
Federal National Mortgage Association
Pass-through Certificates
6 1/2s, Dwarf, with due dates from
October 1, 2010 to September 2013 142,522,023 145,505,009 142,522,023 145,505,009
6 1/2s, Dwarf, with due dates from
October 1, 2010 to August 1, 2028 20,852,192 21,223,185 20,852,192 21,223,185
6 1/2s, with due dates from July 1, 2028
to August 1, 2028 4,713,851 4,793,374 4,713,851 4,793,374
5 1/2s, Dwarf, with due dates from
June 1, 2009 to March 1, 2012 21,379,040 21,292,026 21,379,040 21,292,026
Government National Mortgage Association
Pass-through Certificates
9s, with due dates from November 15, 2008
to July 15, 2024 42,210,526 45,353,563 42,210,526 45,353,563
8 1/2s, with due dates from February 15, 2005
to December 15, 2024 9,448,417 9,998,023 9,448,417 9,998,023
8s, with due dates from August 15, 2006
to March 15, 2028 29,424,998 30,764,466 29,424,998 30,764,466
8s, with due dates from January 15, 2001
to February 15, 2028 26,076,262 27,268,747 26,076,262 27,268,747
7 1/2s, with due dates from
February 15, 2022 to January 15, 2028 127,091,400 131,803,378 127,091,400 131,803,378
7s, with due dates from August 15, 2025
to June 15, 2028 65,247,385 67,348,511 65,247,385 67,348,511
7s, with due dates from February 15, 2024
to July 15, 2028 399,573,621 412,435,174 399,573,621 412,435,174
6 1/2s, with due dates from March 15, 2028
to June 15, 2028 6,149,440 6,285,834 6,149,440 6,285,834
6 1/2s, with due dates from February 15, 2028
to May 15, 2028 29,660,775 30,318,651 29,660,775 30,318,651
Government National Mortgage Association Adjustable Rate Mortgages
7s, October 20, 2024 2,347,042 2,403,512 2,347,042 2,403,512
5 1/2s, April 15, 2028 78,932 79,105 78,932 79,105
U.S. Treasury Bonds
11 7/8s, November 15, 2003 # 13,740,000 18,368,594 13,740,000 18,368,594
11 5/8s, November 15, 2004 11,900,000 16,422,000 11,900,000 16,422,000
9 7/8s, November 15, 2015 50,000,000 77,297,000 50,000,000 77,297,000
8 1/8s, August 15, 2019 3,935,000 5,390,320 3,935,000 5,390,320
7 1/2s, November 15, 2024 7,988,000 10,600,316 7,988,000 10,600,316
6 1/8s, November 15, 2027 5,665,000 6,530,669 5,500,000 6,340,455 11,165,000 12,871,124
5 1/2s, August 15, 2028 200,000,000 216,188,000 12,272,000 13,265,296 212,272,000 229,453,296
U.S. Treasury Notes
6 1/4s, June 30, 2002 1,145,000 1,218,532 1,145,000 1,218,532
5 7/8s, September 30, 2002 2,830,000 2,985,650 2,830,000 2,985,650
5 5/8s, May 15, 2008 36,040,000 39,418,750 13,505,000 14,771,094 49,545,000 54,189,844
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
5 1/2s, May 31, 2003 9,575,000 10,044,750 9,575,000 10,044,750
5 3/8s, June 30, 2003 136,000,000 142,226,080 136,000,000 142,226,080
5 1/4s, August 15, 2003 955,000 997,679 955,000 997,679
Total U.S. Governement and Agency Obligations $1,456,971,473 $254,322,499 $1,711,293,972
(cost $1,397,453,955, $250,193,361
and $1,647,647,316 respectively)
<CAPTION>
Principal -%* Principal 15.4%* Principal 3.0%*
Corporate Bonds and Notes Amount Value Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arco Chemical deb. 9.8s, 2020 820,000 817,335 820,000 817,335
AT&T Capital Corp. notes 6 6s, 2005 1,420,000 1,477,581 1,420,000 1,477,581
AirTouch Communications notes 6.65s, 2008 1,750,000 1,889,755 1,750,000 1,889,755
Amvescap PLC 6.6s, 2005 (United Kingdom) 1,730,000 1,749,463 1,730,000 1,749,463
Canadian Pacific Ltd. deb. 9.45s,
2021 (Canada) 1,430,000 1,782,538 1,430,000 1,782,538
Chrysler Corp. deb. Ser. B, 7.45s, 2097 430,000 473,920 430,000 473,920
Coastal Corp. deb. 6 1/2s, 2008 1,600,000 1,638,992 1,600,000 1,638,992
Coastal Corp. bonds 6.95s, 2028 1,735,000 1,677,901 1,735,000 1,677,901
Continental Airlines pass-through
certificates Ser. 97CI, 7.42s, 2007 1,645,000 1,735,047 1,645,000 1,735,047
Dell Computer Corp. deb. 7.1s, 2028 1,320,000 1,375,361 1,320,000 1,375,361
Edison Mission Energy 144A
company guaranty 7.33s, 2008 1,070,000 1,201,064 1,070,000 1,201,064
Enron Corp. notes 6.4s, 2006 550,000 562,942 550,000 562,942
Enron Corp. notes 6.95s, 2028 1,090,000 1,080,517 1,090,000 1,080,517
Executive Risk Capital Trust
company guaranty Ser. B, 8.675s, 2027 1,700,000 1,710,574 1,700,000 1,710,574
First Financial Caribbean Corp.
sr. notes 7.84s, 2006 1,865,000 1,999,467 1,865,000 1,999,467
Fleet Financial Group, Inc. sub.
deb. 6 7/8s, 2028 1,670,000 1,707,542 1,670,000 1,707,542
Global Marine Inc. notes 7s, 2028 2,595,000 2,464,757 2,595,000 2,464,757
Markel Capital Trust I
company guaranty Ser. B, 8.71s, 2046 1,675,000 1,692,923 1,675,000 1,692,923
Neiman-Marcus Group, Inc. deb. 7 1/8s, 2028 1,725,000 1,673,612 1,725,000 1,673,612
News America Holdings, Inc. deb. 7.7s, 2025 840,000 898,296 840,000 898,296
News America Holdings, Inc. deb. 7 3/4s, 2045 1,705,000 1,801,384 1,705,000 1,801,384
OMEGA Healthcare Investors, Inc.
notes 6.95s, 2007 (R) 1,235,000 1,198,642 1,235,000 1,198,642
PT Alatief Freeport sr. notes
9 3/4s, 2001 (Netherlands) 1,770,000 1,268,205 1,770,000 1,268,205
Paine Webber Group, Inc. sr.
notes 6.55s, 2008 1,750,000 1,760,780 1,750,000 1,760,780
Peoples Bank-Bridgeport sub.
notes 7.2s, 2006 1,700,000 1,687,828 1,700,000 1,687,828
Petro Geo-Services AS ADR notes
7 1/2s, 2007 (Norway) 1,885,000 2,010,767 1,885,000 2,010,767
St. Paul Bancorp sr. notes 7 1/8s, 2004 1,795,000 1,933,879 1,795,000 1,933,879
Salton Sea Funding Corp. company
guaranty Ser. E, 8.3s, 2011 2,010,000 2,335,982 2,010,000 2,335,982
Sun Communities 7 5/8s, 2003 (R) 2,020,000 2,180,974 2,020,000 2,180,974
TCI Communications, Inc. sr.
notes 8.65s, 2004 1,555,000 1,793,957 1,555,000 1,793,957
Teco Energy, Inc. notes 5.54s, 2001 1,850,000 1,870,813 1,850,000 1,870,813
Texas Utilities Electric Capital Trust
V company guaranty 8.175s, 2037 1,720,000 1,772,116 1,720,000 1,772,116
Time Warner Inc. 7 3/4s, 2005 840,000 936,499 840,000 936,499
Time Warner Entertainment sr.
notes 8 3/8s, 2033 1,685,000 2,056,879 1,685,000 2,056,879
Union Pacific Resources Group Inc.
notes 6 3/4s, 2008 1,920,000 1,959,226 1,920,000 1,959,226
Wilmington Trust Corp. sub. notes
6 5/8s, 2008 2,590,000 2,742,784 2,590,000 2,742,784
Total Corporate Bonds and Notes $58,920,302 $58,920,302
(cost $-, $53,692,696 and $53,692,696 respectively)
<CAPTION>
Principal -%* Principal 14.2%* Principal 2.8%*
Collateralized Mortgage Obligations Amount Value Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------------
Amresco Commercial Mortgage Funding I
<S> <C> <C> <C> <C> <C> <C>
Ser. 97-C1, Class A1, 6.73s, 2029 684,386 711,146 684,386 711,146
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Chase Mortgage Finance Corp.
Ser. 1998-S2, Class A14, 6 3/4s, 2028 720,000 742,922 720,000 742,922
Ser. 1994-G, Class B3, 7s, 2025 1,299,214 1,274,448 1,299,214 1,274,448
Interest Only (IO) Ser. 1993-3,
Class B6, 7.46s, 2024 826,711 875,735 826,711 875,735
IO Ser. 1993-3, Class B7, 7.46s, 2024 3,501,413 3,709,046 3,501,413 3,709,046
CMC Securities Corp. III Ser. 1994-F,
Class B2, 6 1/4s, 2014 1,015,940 1,001,653 1,015,940 1,001,653
Commercial Mortgage Acceptance Corp.
6.03s, 2008 2,670,000 2,741,756 2,670,000 2,741,756
Ser. 97-ML1, Class A2, 6.53s, 2007 75,000 79,113 75,000 79,113
Ser. 97-ML1, Class A3, 6.57s, 2007 1,080,000 1,143,450 1,080,000 1,143,450
Ser. 97-ML1, Class D, 7.11s, 2030 1,010,000 1,065,234 1,010,000 1,065,234
Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2011 3,280,000 3,355,850 3,280,000 3,355,850
Ser. 98-C1, Class B, 7s, 2011 1,310,000 1,285,233 1,310,000 1,285,233
Fannie Mae Strip
Zero %, 294-1 Principal Only (PO),
February 1, 2028 1,370,744 1,222,746 1,370,744 1,222,746
6 1/2s,290 IO, December 1, 2024 1,529,526 247,114 1,529,526 247,114
First Union-Lehman Brothers
Commercial Mortgage Co.
Ser. 97-C2, Class A3, 6.65s, 2007 1,725,000 1,823,716 1,725,000 1,823,716
Ser. 97-C2, Class D, 7.12s, 2012 1,160,000 1,184,922 1,160,000 1,184,922
Ser. 98-C2, Class D, 6.778s, 2013 1,270,000 1,257,449 1,270,000 1,257,449
Ser. 98-C2, Class IO, 0.816s, 2028 30,185,000 1,321,773 30,185,000 1,321,773
Freddie Mac Strip
Ser. 194, IO 6 1/2s, 2028 4,203,989 707,453 4,203,989 707,453
Ser. 199, IO 6 1/2s, 2028 985,737 165,881 985,737 165,881
GMAC Commercial Mortgage Securities Inc.
Ser. 98-C1, Class A1, 6.44s, 2030 1,785,686 1,853,835 1,785,686 1,853,835
Ser. 98-C1, Class E, 7.153s, 2011 1,278,000 1,329,719 1,278,000 1,329,719
GS Mortgae Securities Corp. II
Ser. 98-GLII, Class A2, 6.562s, 2031 1,030,000 1,080,856 1,030,000 1,080,856
Ser. 98-GLII, Class D, 7.191s, 2031 565,000 573,828 565,000 573,828
Housing Securities Inc. Ser. 1993-J,
Class J2, 6.66s, 2009 2,487,753 2,612,918 2,487,753 2,612,918
Merrill Lynch Mortgage Investors, Inc.
Ser. 98-C2, Class D, 7.116s, 2030 159,000 165,087 159,000 165,087
Morgan Stanley Capital I
Ser. 96-WF1, Class A2, 7.218s, 2006 610,000 655,178 610,000 655,178
Ser. 98-XL1, Class E, 6.989s, 2030 315,000 327,403 315,000 327,403
Prudential Home Mortgage Securities
Ser. 1994-28, Class B2, 6.803s, 2001 2,632,131 2,606,632 2,632,131 2,606,632
Ser. 94-D, Class 3B, 6.312s, 2009 4,307,378 4,275,746 4,307,378 4,275,746
Ser. 93-31, Class B1, 6s, 2000 3,633,057 3,580,831 3,633,057 3,580,831
Residential Funding Mortgage Securities
Ser. 93-S17, Class M3, 7s, 2008 890,489 910,386 890,489 910,386
Ser. 93-S23, Class M3, 6 1/2s, 2008 681,688 687,760 681,688 687,760
RFM-98 SB 6 3/4s, 2008 1,740,000 1,829,036 1,740,000 1,829,036
Sears Mortgage Securities, Ser. 1993-7,
Class T-7, 7s, 2007 750,000 764,498 750,000 764,498
Securitized Asset Sales, Inc.
Ser. 93-J, Class 2B, 6.808s, 2023 3,337,412 3,374,958 3,337,412 3,374,958
Mtge. Pass Thru Certifcates Ser. 1994-3,
Class B1, 6.11s, 1999 1,801,857 1,787,217 1,801,857 1,787,217
Total Collateralized Mortgage Obligations $ 54,332,528 $ 54,332,528
(cost $-, $50,856,745 and $50,856,475,
respectively)
Foreign Government Bonds and Notes Principal -%* Principal 2.2%* Principal 0.4%*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Value Amount Value Amount Value
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Germany (Federal Republic of)
bonds Ser. 98, 5 5/8s, 2028 6,390,000 4,305,306 6,390,000 4,305,306
Ontario (Province of)
sr. unsub. 5 1/2s, 2008 4,010,000 4,077,769 4,010,000 4,077,769
Total Foreign Government
Bonds and Notes 10,400,000 $ 8,383,075 10,400,000 $ 8,383,075
(cost $-, $7,615,741
and $7,615,741)
<CAPTION>
Asset Backed Securities
(cost $-, $1,290,395 and Principal -%* Principal 0.3%*Principal 0.1%
$1,290,395, respectively) Amount Value Amount Value Amount Value
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Green Tree Recreational Equipment &
Cons. Ser. 98-A, Class A1C, 6.18s, 2019 $1,290,395 $ 1,318,270 $1,290,395 $ 1,318,270
<CAPTION>
Short Term Securities Principal 7.7%* Principal -%* Principal 6.2%
Amount Value Amount Value Amount Value
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest in $750,000,000 joint tri-party
repurchase agreement dated
September 30, 1998 with
Goldman Sachs & Co. due
October 1, 1998 with respect
to various U.S. Treasury
obligations -- maturity value
of $60,009,083 for an effective
yield of 5.45% $ 60,000,000 $ 60,009,083 $ 60,000,000 $ 60,009,083
Interest in $458,140,000 joint repurchase
agreement dated September 30, 1998
with Swiss Bank due October 1, 1998 with
respect to various U.S. Treasury
obligations -- maturity value of
$61,978,467 for an effective yield of 5.50% 61,969,000 61,978,467 61,969,000 61,978,467
Total Short Term Investments $ 121,987,550 $ 121,987,550
(cost $121,987,550, $- and $121,987,550,
respectively)
Total Investments
(cost $1,519,441,505, $363,648,938 and
$1,883,090,443, respectively) $ 1,578,959,023 $ 377,276,674 $1,956,235,697
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain securities of the High Quality Bond Fund do not conform to the
investment policies of the American Government Income Fund.
*Percentages indicated are based on net assets as follows:
- -------------------------------------------------------------
- -------------------------------------------------------------
<TABLE>
<CAPTION>
Net Assets
- -------------------------------------------------------------
<S> <C>
American Government Income Fund $ 1,590,330,183
High Quality Bond Fund 379,312,304
Proforma $ 1,969,427,487
- -------------------------------------------------------------
</TABLE>
# A portion of this security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at September 30, 1998.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified institutional
buyers.
TBA after the name of a security represents to be announced securities.
ADR after the name of a foreign holding stands for American Depository Receipts
representing ownership of foreign securities on deposit with a domestic
custodian bank.
<PAGE>
<TABLE>
<CAPTION>
039
Putnam High Quality Bond Fund
Forward Currency Contracts to Buy at September 30, 1998
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutschemarks $ 3,776,909 $ 3,646,092 12/16/98 $ 130,817
- ------------------------------------------------------------------------------------------
$ 130,817
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
039
Putnam High Quality Bond Fund
Forward Currency Contracts to Sell at September 30, 1998
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutschemarks $ 7,714,354 $ 7,442,886 12/16/98 $ (271,468)
- ------------------------------------------------------------------------------------------
$ (271,468)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
039
Putnam High Quality Bond Fund
TBA Commitments to Sell Outstanding at September 30, 1998
(proceeds receivable $7,568,881)
Agency Principal Amount Settlement date Market Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA 6 1/2s, October 15, 2028 7,325,000 7,448,573
GNMA 8s, October 15, 2028 195,000 203,165
- ------------------------------------------------------------------------------------------
$7,651,738
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
039
Putnam High Quality Bond Fund
Futures Contracts Outstanding at September 30, 1998
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Bonds 20yr 13,278,344 12,618,764 Dec 98 659,580
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Proforma Combining
Statement of Operations
Twelve months ended September 30, 1998 (Unaudited)
American
Government High Quality Pro Forma Pro Forma
Income Fund Bond Fund Adjustments Combined
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest (net of foreign tax of $-, $52,428 and
$52,428, respectively) $102,619,416 $24,374,694 $126,994,110
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Income 102,619,416 24,374,694 0 $126,994,110
Expenses:
Compensation of Manager 8,502,645 2,262,421 (504,984)A 10,260,082
Investor servicing and custodian fees 2,286,373 682,170 (56,413)A 2,912,130
Compensation of Trustees 40,996 15,647 56,643
Administrative Services 19,019 7,129 (215)A 25,933
Distiribution Fee - Class A 3,738,144 917,534 4,655,678
Distribution Fee - Class B 407,482 157,046 564,528
Distribution Fee - Class M 8,892 7,219 16,111
Reports to Shareholders 134,829 40,141 (34,484)A 140,486
Registration Fee 75 (75)A -
Auditing Fee 46,236 50,398 (50,398)A 46,236
Legal Fee 13,416 8,460 21,876
Postage Fee 375,789 70,252 446,041
Other Expenses 312,734 92,461 405,195
- -------------------------------------------------------------------------------------------------------------------------
Total Expenses 15,886,555 4,310,953 (646,569) 19,550,939
=========================================================================================================================
Expense reduction (733,802) (323,703) (1,057,505)
=========================================================================================================================
Net expenses 15,152,753 3,987,250 (646,569) 18,493,434
=========================================================================================================================
Net investment income 87,466,663 20,387,444 646,569 108,500,676
=========================================================================================================================
Net realized gain on investments 42,372,651 10,886,433 53,259,084
Net realized loss on futures contracts (883,765) (883,765)
Net realized gain on foreign currency transactions 545,735 545,735
Net unrealized appreciation of assets and libilities
in foreign currencies during the year 244,010 244,010
Net unrealized appreciation of investments, futures
and TBA sale commitments during the year 43,680,120 (4,995,949) 38,684,171
=========================================================================================================================
Net gain on investments 86,052,771 5,796,464 0 91,849,235
=========================================================================================================================
Net increase in net assets
resulting from operations $173,519,434 $26,183,908 $ 646,569 $200,349,911
=========================================================================================================================
</TABLE>
<PAGE>
PUTNAM AMERICAN GOVERNMENT INCOME FUND
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
The information required by this item is incorporated herein by reference to the
Registrant's Initial Registration Statement on Form N-1A under the Securities
Act of 1933 (File No. 2-95127) and the Investment Company Act of 1940 (File No.
811-4178).
Item 16. Exhibits
1. Agreement and Declaration of Trust dated October 1, 1992 --
Incorporated by reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement.
2. By-Laws, as amended through February 4, 1994 -- Incorporated by
reference to Post-Effective Amendment No. 12 to the Registrant's
Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization -- constitutes Exhibit A to Part
A hereof.
5a. Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights --Incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement..
5b. Portions of By-Laws Relating to Shareholders' Rights --Incorporated by
reference to Post-Effective Amendment No. 12 to the Registrant's
Registration Statement.
6. Form of Management Contract dated March 5, 1998 --Incorporated by
reference to Post-Effective Amendment No. 16 to the Registrant's
Registration Statement.
7a. Distributor's Contract dated May 6, 1994 -- Incorporated by reference
to Post-Effective Amendment No. 12 to the Registrant's Registration
Statement.
7b. Form of Specimen Dealer Sales Contract --Incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's Registration
Statement.
-4-
<PAGE>
7c. Form of Specimen Financial Institution Sales Contract -- Incorporated
by reference to Post-Effective Amendment No. 16 to the Registrant's
Registration Statement.
8. Trustee Retirement Plan dated October 4, 1996 -- Incorporated by
reference to Post-Effective Amendment No. 14 to the Registrant's
Registration Statement.
9. Custodian Agreement with Putnam Fiduciary Trust Company dated May 3,
1991, as amended July 13, 1992 -- Incorporated by reference to
Post-Effective Amendment No. 11 to the Registrant's Registration
Statement.
10a. Class A Distribution Plan and Agreement dated May 5, 1994 --
Incorporated by reference to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement.
10b. Class B Distribution Plan and Agreement dated May 15, 1994 --
Incorporated by reference to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement.
10c. Class M Distribution Plan and Agreement dated January 31, 1995 --
Incorporated by reference to Post-Effective Amendment No. 12 to the
Registrant's Registration Statement.
10d. Rule 18f-3 Plan -- Incorporated by reference to Post-Effective
Amendment No. 13 to the Registrant's Registration Statement.
11. Form of Opinion of Ropes & Gray, including consent --Exhibit 1.
12. Form of Opinion of Ropes & Gray as to Tax Matters -- Exhibit 2.
13a. Form of Specimen Dealer Service Agreement - Incorporated by reference
to Post-Effective Amendment No. 15 to the Registrant's Registration
Statement.
13b. Form of Specimen Financial Institution Service Agreement --
Incorporated by reference to Post-Effective Amendment No. 15 to the
Registrant's Registration Statement.
14a. Consent of PricewaterhouseCoopers LLP Independent Accountants to the
Putnam High Quality Bond Fund -- Exhibit 3.
14b. Consent of PricewaterhouseCoopers LLP Independent Accountants to
Putnam American Government Income Fund -- Exhibit 4.
15. Not applicable.
16a. Power of Attorney -- Exhibit 5
-5-
<PAGE>
Item 17. Undertakings
(a) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c) under the Act, the reoffering prospectus will contain
the information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(b) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (a) above will be filed as a part of an
amendment to this Registration Statement and will not be used until
the amendment is effective, and that, in determining any liability
under the Act, each post-effective amendment shall be deemed to be a
new Registration Statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
(c) The Registrant agrees to file an opinion of counsel supporting the
tax consequences of the proposed reorganization as an amendment to
this Registration Statement within a reasonable time after receipt of
such opinion.
- --------------------------------------------------------------------------------
-6-
<PAGE>
NOTICE
A copy of the Amended and Restated Agreement and Declaration of Trust, as
amended, of Putnam American Government Income Fund, is on file with the
Secretary of State of The Commonwealth of Massachusetts, and notice is hereby
given that this Registration Statement has been executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually,
and the obligations of or arising out of this Registration Statement are not
binding upon any of the Trustees, officers, or shareholders of the Registrant
individually, but are binding only upon the assets and property of the
Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts on February 19, 1999.
PUTNAM AMERICAN GOVERNMENT INCOME FUND
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form N-14 has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
George Putnam President and Chairman of the Trustees;
Principal Executive Officer; Trustee
John A. Hill Vice Chairman and Trustee
William F. Pounds Vice Chairman and Trustee
John D. Hughes Principal Financial Officer; Senior Vice
President; Treasurer
Paul G. Bucuvalas Principal Accounting Officer; Assistant
Treasurer
Jameson A. Baxter Trustee
-7-
<PAGE>
Ronald J. Jackson Trustee
Paul L. Joskow Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Donald S. Perkins Trustee
George Putnam, III Trustee
W. Nicholas Thorndike Trustee
</TABLE>
By: Gordon H. Silver, as
Attorney-in-Fact
February 19, 1999
-8-
<PAGE>
EXHIBIT INDEX
11. Form of Opinion of Ropes & Gray, including consent -- Exhibit 1.
12. Form of Opinion of Ropes & Gray as to Tax Matters, including consent
-- Exhibit 2.
14a. Consent of PricewaterhouseCoopers LLP Independent Accountants to the
Putnam High Quality Bond Fund -- Exhibit 3.
14b. Consent of PricewaterhouseCoopers LLP Independent Accountants to the
Putnam American Government Income Fund - - Exhibit 4.
16a. Power of Attorney -- Exhibit 5.
-9-
EXHIBIT 1
________ __, 1999
Putnam American Government Income Fund
One Post Office Square
Boston, Massachusetts 02109
Ladies and Gentlemen:
We have acted as counsel to Putnam American Government Income Fund
(the "Fund"), in connection with the Registration Statement of the Fund on Form
N-14 (the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Act"), relating to the proposed combination of the Fund with
Putnam High Quality Bond Fund (the "High Quality Bond Fund"), and the issuance
of shares of the Fund in connection therewith (the "Shares"), all in accordance
with the terms of the Agreement and Plan of Reorganization between the Fund and
the High Quality Bond Fund dated as of March __, 1999 (the "Agreement").
We have examined the Fund's Agreement and Declaration of Trust on file
in the office of the Secretary of State of The Commonwealth of Massachusetts and
the Clerk of the City of Boston and the Fund's By-Laws, as amended, and are
familiar with the actions taken by the Fund's Trustees in connection with the
issuance and sale of the Shares. We have also examined such other documents and
records as we have deemed necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a duly organized and validly existing unincorporated
association under the laws of The Commonwealth of Massachusetts and is
authorized to issue an unlimited number of its shares of beneficial
interest.
2. The Shares have been duly authorized and, when issued in accordance with
the Agreement, will be validly issued, fully paid, and nonassessable by the
Fund.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Fund and requires that notice of such disclaimer
be given in each note, bond, contract, instrument, certificate, or undertaking
entered into or executed by the Trust or its Trustees. The Agreement and
Declaration of Trust
-10-
<PAGE>
provides for indemnification out of the property of the Fund for all loss and
expense of any shareholder of the Fund held personally liable solely by reason
of his being or having been a shareholder. Thus, the risk of a shareholder's
incurring financial loss on account of being a shareholder is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Act. We consent
to the filing of this opinion with and as part of the Registration Statement and
to the references to our firm in the related prospectus under the caption
"Information about the merger -- Federal income tax consequences."
Very truly yours,
Ropes & Gray
-11-
EXHIBIT 2
_________, 1999
Putnam High Quality Bond Fund
Putnam American Government Income Fund
One Post Office Square
Boston, MA 02109
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of ______, 1999 (the "Agreement"), between Putnam
American Government Income Fund ("Acquiring Fund"), a Massachusetts business
trust, and Putnam High Quality Bond Fund ("Target Fund"), a Massachusetts
business trust. The Agreement describes a proposed transaction (the
"Transaction") to occur on ______, 1999, or such other date as may be decided by
the Trust (the "Exchange Date"), pursuant to which Acquiring Fund will acquire
substantially all of the assets of Target Fund in exchange for shares of
beneficial interest in Acquiring Fund (the "Acquiring Fund Shares") and the
assumption by Acquiring Fund of all of the liabilities of Target Fund following
which the Acquiring Fund Shares received by Target Fund will be distributed by
Target Fund to its shareholders in liquidation and termination of Target Fund.
This opinion as to certain federal income tax consequences of the Transaction is
furnished to you pursuant to Sections 8(g) and 9(g) of the Agreement.
Capitalized terms not defined herein are defined in the Agreement.
Target Fund is a series of the Trust which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Shares of Target Fund are redeemable at net asset
value at each shareholder's option. Target Fund has elected to be a regulated
investment company for federal income tax purposes under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of the Trust which is registered under the 1940
Act as an open-end management investment company. Shares of Acquiring Fund are
redeemable at net asset value at each shareholder's option.
<PAGE>
Putnam High Quality Bond Fund _________, 1999
Putnam American Government Income Fund
-2-
For purposes of this opinion, we have considered the Agreement, the Proxy
Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you provided us with a letter dated as of the date
hereof, representing as to certain facts, occurrences and information upon which
you have indicated that we may rely in rendering this opinion (whether or not
contained or reflected in the documents and items referred to above).
Based on the foregoing representations and our review of the documents and
items referred to above, we are of the opinion that for federal income tax
purposes:
(i) The Transaction will constitute a reorganization within the meaning
of Section 368(a) of the Code. The Target Fund and the Acquiring
Fund will each be a "party to a reorganization" within the meaning
of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Target Fund upon the transfer
of Target Fund's assets to Acquiring Fund in exchange for Acquiring
Fund Shares and the assumption by Acquiring Fund of the liabilities
of Target Fund, or upon the distribution of Acquiring Fund Shares
by Target Fund to its shareholders in liquidation;
(iii) No gain or loss will be recognized by the Target Fund shareholders
upon the exchange of their Target Fund Shares for Acquiring Fund
Shares;
(iv) The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same as the
basis of his or her Target Fund Shares exchanged therefor;
(v) A Target Fund shareholder's holding period for his or her Acquiring
Fund Shares will be determined by including the period for which he
or she held the Target Fund Shares exchanged therefor, provided
that he or she held such Target Fund Shares as capital assets;
(vi) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring Fund
Shares and the assumption by Acquiring Fund of the liabilities of
Target Fund;
(vii) The basis in the hands of Acquiring Fund of the assets of Target
Fund transferred to Acquiring Fund in the Transaction will be the
same as the basis of such assets in the hands of Target Fund
immediately prior to the transfer; and
<PAGE>
Putnam High Quality Bond Fund _________, 1999
Putnam American Government Income Fund
-3-
(viii) The holding periods of the assets of Target Fund in the hands of
Acquiring Fund will include the periods during which such assets
were held by Target Fund.
Very truly yours,
Ropes & Gray
EXHIBIT 3
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-14 (the "Registration
Statement") of Putnam High Quality Bond Fund of our report dated December 10,
1998 relating to the financial statements and financial highlights appearing in
the October 31, 1998 Annual Report to the Shareholders of Putnam High Quality
Bond Fund, which is incorporated by reference into such Statement of Additional
Information, and to the incorporation by reference of such report into the
Prospectus/Proxy Statement which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants and Financial Statements" in such Statement of Additional
Information.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
EXHIBIT 4
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-14 (the "Registration
Statement") of Putnam American Government Income Fund of our report dated
November 11, 1998 relating to the financial statements and financial highlights
appearing in the September 30, 1998 Annual Report to the Shareholders of Putnam
American Government Income Fund, which is incorporated by reference into such
Statement of Additional Information, and to the incorporation by reference of
such report into the Prospectus/Proxy Statement which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants and Financial Statements" in such Statement of
Additional Information.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
EXHIBIT 5
POWER OF ATTORNEY
We, the undersigned Officers and Trustees of Putnam American Government
Income Fund, hereby severally constitute and appoint George Putnam, Charles E.
Porter, Gordon H. Silver, Timothy W. Diggins and John W. Gerstmayr, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them, to sign for us, and in our names and in the capacities indicated below,
the Registration Statement on Form N-14 of Putnam American Government Income
Fund and any and all amendments (including post-effective amendments) to said
Registration Statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto our said attorneys, and each of them acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in the premises, as fully to all intents and purposes as he or she
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS our hands and common seal on the date set forth below.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ George Putnam President and Chairman of the February 18, 1999
- ------------------------------ Trustees
George Putnam Principal Executive Officer; Trustee
/s/ John A. Hill Vice Chairman and Trustee February 18, 1999
- ------------------------------
John A. Hill
/s/ William F. Pounds Vice Chairman and Trustee February 18, 1999
- ------------------------------
William F. Pounds
-14-
<PAGE>
/s/ John D. Hughes
- ------------------------------ Principal Financial Officer; Senior February 18, 1999
John D. Hughes Vice President; Treasurer
/s/ Paul G. Bucuvalas Principal Accounting Officer; February 18, 1999
- ------------------------------ Assistant Treasurer
Paul G. Bucuvalas
/s/ Jameson A. Baxter Trustee February 18, 1999
- ------------------------------
Jameson A. Baxter
Trustee February 18, 1999
- ------------------------------
Hans H. Estin
/s/ Ronald J. Jackson Trustee February 18, 1999
- ------------------------------
Ronald J. Jackson
/s/ Paul L. Joskow Trustee February 18, 1999
- ------------------------------
Paul L. Joskow
/s/ Elizabeth T. Kennan Trustee February 18, 1999
- ------------------------------
Elizabeth T. Kennan
/s/ Lawrence J. Lasser Trustee February 18, 1999
- ------------------------------
Lawrence J. Lasser
Trustee February 18, 1999
- ------------------------------
John H. Mullin, III
-15-
<PAGE>
Trustee February 18, 1999
- ------------------------------
Robert E. Patterson
/s/ Donald S. Perkins Trustee February 18, 1999
- ------------------------------
Donald S. Perkins
/s/ George Putnam III Trustee February 18, 1999
- ------------------------------
George Putnam III
Trustee February 18, 1999
- ------------------------------
A.J.C. Smith
Trustee February 18, 1999
- ------------------------------
W. Thomas Stephens
/s/ W. Nicholas Thorndike Trustee February 18, 1999
- ------------------------------
W. Nicholas Thorndike
</TABLE>
-16-
