Putnam
American Government
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
year 2000. In the following report, the fund's managers discuss
performance for the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
American Government Income Fund that I will be signing. After more than
30 years as Chairman of the Trustees and President of the Putnam Funds,
the time has come for me to step aside. In June, John Hill will become
Chairman. John is currently an independent Trustee and has served on the
board for the past 14 years. In addition, my son, George Putnam, III,
will take on the role of President. I am confident that the leadership
of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 17, 2000
Report from the Fund Managers
Michael Martino
Kevin M. Cronin
During the first half of its fiscal year, Putnam American Government
Income Fund outperformed its peer group average, benefiting from an
overweighted position in mortgage-backed securities in the final quarter
of 1999 and declining interest rates in the first quarter of 2000. The
bond market was characterized by a marked split in the two quarters of
the six-month period, as interest rates climbed steadily from October
1999 through the new year only to turn downward after mid January 2000.
Total return for 6 months ended 3/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------
1.84% -3.00% 1.45% -3.49% 1.39% 0.40% 1.57% -1.69%
- ------------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* STRONG ECONOMY, RISING RATES CHARACTERIZED FOURTH QUARTER OF 1999
The U.S. economy continued its expansion into a record tenth consecutive
year, growing at a torrid 7.3% annualized rate in the fourth quarter of
1999. First-quarter 2000 growth is expected to be in the 4.5% to 5%
range, which is strong compared to the historical average of 2% to 3%.
The economy's strength has fueled the stock market, drawing investment
assets away from bonds. Concurrently the growth has spooked bond
investors, who have been wary of the effects that a hot economy can have
on inflation. The Federal Reserve Board has shared this concern, raising
interest rates five times since June 1999 in an attempt to slow the rate
of growth.
During the fourth quarter of last year, concerns about the U.S.
economy's growth helped propel interest rates upward. The yield on the
10-year Treasury bond, which has become a benchmark for the bond market,
rose from 5.88% on September 30, 1999, to 6.79% on January 20, 2000 --
nearly a full percentage point. On average, interest rates for Treasury
bonds of all maturities rose about half a percentage point during this
period.
[GRAPHIC OMITTED: vertical bar chart AVERAGE EFFECTIVE MATURITY AND
DURATION]
AVERAGE EFFECTIVE MATURITY AND DURATION *
3/31/99 9/30/99 3/31/00
Average effective maturity 10.3 Years 9.1 Years 9.1 Years
Duration 5.3 Years 5.2 Years 5.7 Years
Footnote reads:
*This chart depicts the fund's average effective maturity and duration
at 6-month intervals over the 12 months ended 3/31/00. Average effective
maturity and duration stated in years are derived from calculations
that incorporate assumptions about prepayment rates and cash flow of
mortgage-backed securities. Measures of effective maturity duration
and the assumptions on which they are based will vary over time.
The Treasury portion of your fund's portfolio, which had a longer
average duration than those of its peers, was negatively affected by the
sharp rise in interest rates. Duration is a measure of interest-rate
sensitivity that factors in a bond's coupon and its maturity. When
interest rates rise, a bond with a longer duration generally will
experience a greater price decline than a bond with a shorter duration.
A positive counterweight during the semiannual period came from the
mortgage-backed securities (MBSs) in the portfolio. Compared to its
peers, the fund was overweighted in MBS holdings, which were relatively
unaffected by the rate increases. This positioning helped the fund
outperform during the final calendar quarter of last year.
[GRAPHIC OMITTED: pie chart PORTFOLIO ALLOCATIONS (3/31/00)]
PORTFOLIO ALLOCATIONS (3/31/00)*
Cash and short-term investments 6.5%
U.S. Treasury securities 14.9%
Mortgage-backed securities 78.6%
Footnote reads:
* Based on total market value of assets. The allocation to
mortgage-backed securities is primarily concentrated in bonds
issued by the Federal Home Loan Mortgage Corporation (Freddie Mac),
the Federal National Mortgage Association (Fannie Mae), and the
Government National Mortgage Association (Ginnie Mae). Allocations
will vary over time.
* INVERSION OF YIELD CURVE IS SIGNIFICANT FIRST QUARTER EVENT
An important event in the first quarter of 2000 was an inversion in the
yield curve, which was caused by increasing short-term interest rates
and a sharp decline in the yield on the 30-year Treasury bond. The Fed,
in an attempt to slow economic growth, raised short-term interest rates
three times during the period -- in November, early February, and March.
Each increase amounted to 25 basis points, bringing the federal funds
rate to 6.00% by March 31.
"Just as in the fall of '98, when Russia's financial spiral brought the
global capital markets along for the ride, U.S. Treasury securities
benefited from wobbly equity and shakiness in other sectors of the debt
market."
- -- Barron's, April 3, 2000
During the period, long-term interest rates declined primarily because
of the federal government's buyback of 30-year Treasury bonds -- the
result of a decision to use the budget surplus to pay down federal debt.
The increase in demand caused by these purchases pushed long-term prices
up, bringing yields down.
Intermediate-maturity bonds also benefited from this trend. If this debt
buyback had not occurred, we believe the yield curve would still be
somewhat inverted but not as dramatically so. Historically an inverted
yield curve has been viewed as a predictor of a slowing economy. Under
such a scenario, investors buy longer-term bonds (pushing their yields
down) under the assumption that the economy would slow, which could push
yields lower still. In addition, an inverted yield curve has been viewed
as a precursor to a stock market decline.
[GRAPHIC OMITTED: line chart U.S. TREASURY YIELD CURVE AT 9/30/99 AND 3/31/00]
U.S. TREASURY YIELD CURVE AT 9/30/99 AND 3/31/00
9/30/99 3/31/2000
3 mo. 4.85% 5.89%
6 mo. 4.96% 6.14%
1 yr. 5.18% 6.24%
2 yr. 5.60% 6.48%
5 yr. 5.76% 6.32%
10 yr. 5.88% 6.02%
30 yr. 6.053% 5.837%
Source: Bloomberg, Inc.
* DECLINING RATES HELPED TREASURY HOLDINGS, HURT MORTGAGE-BACKED
HOLDINGS IN 2000
Interest rates reversed direction in the second half of the period,
partially in response to reports of continued benign inflation. While
oil prices rose in the first quarter, inflation has been staved off by
rising productivity brought on by technology advances as well as by the
price-lowering effects of global competition.
We attribute the decline in rates to three factors. First, the buyback
of long-term government bonds influenced the Treasury market overall.
Second, bond investors became more convinced that the economy could
begin to slow down and that inflation might not increase as a result of
continued Fed tightening. Finally, the stock market's gains this year
have been tempered by the Fed's actions, reducing the wealth effect that
Chairman Alan Greenspan contends has been a primary driver of the
economic engine and a potential source of higher inflation.
While the fund's Treasury holdings benefited from the decline in rates,
its MBS holdings, which had boosted performance for the first three
months of the period, did not. As Treasury yields declined, the
difference, or spread, between Treasuries and MBSs increased, hurting
the latter's relative performance. During this part of the period, we
kept the fund's MBS weighting neutral, or about the same as its peer
group average. We also utilized a barbell strategy, in which positions
are established in bonds of both short- and long-term maturities, to
take advantage of the yield curve inversion.
* OUTLOOK OF CAUTIOUS OPTIMISM
Going into the second calendar quarter, we will be more inclined to add
to the fund's MBS weightings, since the recent widening of spreads has
resulted in more attractive price levels. In fact, the spread between
MBSs and Treasuries is near an all-time high, which was in the mid
1980s, when this market first became popular for investors. As we begin
the second half of fiscal 2000, the portfolio's overall duration is
being kept neutral relative to its peers, as the immediate direction of
interest rates at this point remains unclear.
We anticipate that the Fed will probably raise short-term interest rates
at least two more times by the end of June 2000, which should help slow
the growth of the economy and ease inflation fears. We believe it is
possible for the economy to attain a soft landing from the blistering
pace it has set in the past few quarters. In the near term, we may see
interest rates rise a little, particularly if first-quarter growth is
strong. However, we believe that the Fed tightening should start to have
a slowing effect on the economy over the next six months and that toward
the latter part of the year, rates may drop back down.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 3/31/00, there is no guarantee the fund will
continue to hold these securities in the future. While U.S. government
backing of individual securities does not insure your principal, which
will fluctuate with market conditions, it does guarantee that the fund's
government-backed holdings will make timely payments of interest and
principal. The fund may invest in securities other than those issued or
backed by the full faith and credit of the U.S. government.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
American Government Income Fund is designed for investors seeking high
current income primarily through U.S. government securities with
preservation of capital as its secondary objective.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 3/31/00
Class A Class B Class C Class M
(inception dates) (3/1/85) (5/20/94) (7/26/99) (2/14/95)
NAV POP NAV CDSC NAV CDSC NAV POP
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
6 months 1.84% -3.00% 1.45% -3.49% 1.39% 0.40% 1.57% -1.69%
- ----------------------------------------------------------------------------------------
1 year 0.92 -3.92 0.29 -4.48 0.40 -0.55 0.64 -2.59
- ----------------------------------------------------------------------------------------
5 years 37.65 31.13 32.87 30.87 32.35 32.35 36.17 31.69
Annual average 6.60 5.57 5.85 5.53 5.77 5.77 6.37 5.66
- ----------------------------------------------------------------------------------------
10 years 87.29 78.40 73.42 73.42 73.46 73.46 82.88 76.90
Annual average 6.48 5.96 5.66 5.66 5.66 5.66 6.22 5.87
- ----------------------------------------------------------------------------------------
Life of fund 190.23 176.38 155.70 155.70 158.74 158.74 176.58 167.63
Annual average 7.32 6.97 6.42 6.42 6.51 6.51 6.98 6.75
- ----------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/00
Lehman Brothers
Intermediate Treasury Consumer
Bond Index price index
- ------------------------------------------------------------------------------
6 months 1.67% 2.03%
- ------------------------------------------------------------------------------
1 year 2.58 3.69
- ------------------------------------------------------------------------------
5 years 36.57 13.15
Annual average 6.43 2.50
- ------------------------------------------------------------------------------
10 years 102.35 33.02
Annual average 7.30 2.89
- ------------------------------------------------------------------------------
Life of fund 232.68 61.51
Annual average 8.29 3.23
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B and class
M shares the higher operating expenses applicable to such shares. For
class C shares, returns for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect
both the CDSC currently applicable to class C shares, which is 1% for
the first year and is eliminated thereafter, and the higher operating
expenses applicable to class C shares. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/00
Class A Class B Class C Class M
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Distributions (number) 6 6 6 6
- -------------------------------------------------------------------------------------
Income $0.240 $0.208 $0.213 $0.228
- -------------------------------------------------------------------------------------
Capital gains -- -- -- --
- -------------------------------------------------------------------------------------
Total $0.240 $0.208 $0.213 $0.228
- -------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- -------------------------------------------------------------------------------------
9/30/99 $8.42 $8.84 $8.39 $8.41 $8.45 $8.73
- -------------------------------------------------------------------------------------
3/31/00 8.33 8.75 8.30 8.31 8.35 8.63
- -------------------------------------------------------------------------------------
Current return (end of period)
- -------------------------------------------------------------------------------------
Current dividend rate 1 5.76% 5.49% 5.06% 5.20% 5.46% 5.28%
- -------------------------------------------------------------------------------------
Current 30-day SEC yield 2 5.91 5.72 5.16 5.18 5.67 5.55
- -------------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
</TABLE>
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Comparative benchmarks
Lehman Brothers Intermediate Treasury Bond Index is an unmanaged list of
Treasury bonds; it is used as a general gauge of the market for
intermediate-term fixed-income securities. The index does not take into
account brokerage commissions or other costs, may include bonds
different from those in the fund, and may pose different risks than the
fund. Securities indexes assume reinvestment of all distributions and
interest payments, and the performance of the fund will differ. It is
not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
The fund's portfolio
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (99.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
U.S. Government Agency Mortgage Obligations (83.4%)
- ----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
$20,019,899 7s, with due dates from August 1, 2012 to
November 1, 2012 $ 19,650,732
45,640,000 6 7/8s, 2005 45,211,897
100,000,000 5 3/4s, April 15, 2008 91,328,000
6,622,844 5 1/2s, with due dates from March 1, 2011 to
April 1, 2011 6,105,401
Federal National Mortgage Association
Pass-Through Certificates
4,995,309 8s, with due dates from September 1, 2029 to
November 1, 2029 5,009,345
200,000,000 7 1/4s, January 15, 2010 201,344,000
14,850,580 7s, with due dates from January 1, 2011 to
February 1, 2030 14,289,877
4,106,020 6 1/2s, with due dates from December 1, 2008 to
May 1, 2011 3,953,317
414,365,515 6s, with due dates from July 1, 2013 to April 1, 2030 380,020,459
Financing Corp. Strip
23,816,000 zero %, with due dates from October 6, 2011 to May 2, 2016 9,648,047
3,130,000 Ser. A, zero %, August 8, 2013 1,289,591
4,571,000 Ser. C, zero %, with due dates from November 30, 2011 to
May 30, 2014 2,029,485
8,622,000 Ser. 1, zero %, with due dates from May 11, 2011 to
May 11, 2013 3,805,806
1,000,000 Ser. 2, zero %, May 30, 2012 416,100
183,000 Ser. 3, zero %, November 30, 2013 73,905
1,250,000 Ser. 4, zero %, October 6, 2012 506,600
709,000 Ser. 5, zero %, with due dates from August 8, 2011 to
August 8, 2013 297,344
2,374,000 Ser. 6, zero %, with due dates from August 3, 2011 to
February 3, 2014 995,806
3,461,000 Ser. 11, zero %, with due dates from February 8, 2012 to
February 8, 2014 1,331,561
31,071,000 Ser 13, zero % with due dates from June 27, 2012 to
December 27, 2015 10,578,387
15,956,000 Ser.16, zero %, with due dates from April 5, 2013 to
October 5, 2013 6,665,738
1,654,000 Ser. 17, zero %, October 5, 2011 718,663
13,820,000 Ser. 19, zero %, June 6, 2012 5,736,820
5,234,000 Financing Corp Tiger Strip, zero %, August 8, 2011 2,458,829
Government National Mortgage Association
Pass-Through Certificates
4,790,973 9 1/2s, with due dates from November 15, 2028 to
March 15, 2029 5,065,684
1,460,716 9s, with due dates from November 15, 2008 to
July 15, 2024 1,512,667
Government National Mortgage Association
Pass-Through Certificates
5,394,531 8 1/2s, with due dates from February 15, 2005 to
December 15, 2024 5,545,003
31,649,051 8s, with due dates from January 15, 2001 to
December 15, 2027 32,130,558
71,279,578 7 1/2s, with due dates from February 15, 2022 to
January 15, 2028 70,935,080
169,454,136 7s, with due dates from November 15, 2022 to
December 15, 2028 164,208,365
133,184,365 6 1/2s, with due dates from October 15, 2025 to
May 15, 2029 125,610,939
114,129,277 6s, with due dates from October 15, 2023 to
July 15, 2029 104,428,286
----------------
1,322,902,292
U.S. Treasury Obligations (15.8%)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
55,000,000 6 1/8s, August 15, 2029 56,057,100
14,000,000 6 1/8s, November 15, 2027 14,137,760
31,831,000 5 1/2s, August 15, 2028 29,513,385
U.S. Treasury Notes
50,000,000 6 1/2s, February 15, 2010 51,750,000
635,000 6s, August 15, 2009 626,958
100,000,000 5 7/8s, November 15, 2004 98,187,000
----------------
250,272,203
----------------
Total U.S. Government and Agency Obligations
(cost $1,593,515,409) $ 1,573,174,495
SHORT-TERM INVESTMENTS (6.9%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$59,097,000 Interest in $779,235,000 joint repurchase agreement
dated March 31, 2000 with S.B.C. Warburg Inc.
due April 3, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $59,127,041 for an
effective yield of 6.10% $ 59,097,000
50,000,000 Interest in $1,000,000,000 joint repurchase agreement
dated March 31, 2000 with Goldman Sachs & Co.
due April 3, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $50,025,375 for an
effective yield of 6.09% 50,000,000
----------------
Total Short-Term Investments (cost $109,097,000) $ 109,097,000
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,702,612,409) (b) $ 1,682,271,495
- ----------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,585,287,211.
(b) The aggregate identified cost on a tax basis is $1,702,651,472,resulting in gross unrealized appreciation and depreciation
of $13,598,924 and $33,978,901, respectively, or net unrealized depreciation of $20,379,977.
- --------------------------------------------------------------------
TBA Sale Commitments at March 31, 2000 (Unaudited)
(Proceeds receivable $102,595,779)
Principal Settlement Market
Amount Date Value
- --------------------------------------------------------------------
GNMA, 6.5s, April 2030 $109,911,782 4/19/00 $103,677,586
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 2000 (Unaudited)
Assets
- ----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $1,702,612,409) (Note 1) $1,682,271,495
- ----------------------------------------------------------------------------------------------
Cash 356
- ----------------------------------------------------------------------------------------------
Interest and other receivables 14,942,275
- ----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 975,695
- ----------------------------------------------------------------------------------------------
Receivable for securities sold 102,990,075
- ----------------------------------------------------------------------------------------------
Total assets 1,801,179,896
Liabilities
- ----------------------------------------------------------------------------------------------
Payable for securities purchased 100,086,243
- ----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 8,553,702
- ----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,221,619
- ----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 145,420
- ----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 93,627
- ----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,423
- ----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,023,565
- ----------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $102,595,779) 103,677,586
- ----------------------------------------------------------------------------------------------
Other accrued expenses 86,500
- ----------------------------------------------------------------------------------------------
Total liabilities 215,892,685
- ----------------------------------------------------------------------------------------------
Net assets $1,585,287,211
Represented by
- ----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $1,985,035,313
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (10,687)
- ----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (378,314,694)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (21,422,721)
- ----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,585,287,211
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,454,595,648 divided by 174,635,845 shares) $8.33
- ----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.33)* $8.75
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($122,773,674 divided by 14,796,721 shares)** $8.30
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($1,144,345 divided by 137,703 shares)** $8.31
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($6,773,544 divided by 810,885 shares) $8.35
- ----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.35)* $8.63
- ----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales,
the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
sales charge.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 2000 (Unaudited)
<S> <C>
Interest income: $ 55,802,202
- ----------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,596,927
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,031,652
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 32,172
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,436
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,882,105
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 725,930
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 3,172
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 18,259
- ----------------------------------------------------------------------------------------------
Reports to shareholders 27,567
- ----------------------------------------------------------------------------------------------
Auditing 25,310
- ----------------------------------------------------------------------------------------------
Legal 9,833
- ----------------------------------------------------------------------------------------------
Postage 97,827
- ----------------------------------------------------------------------------------------------
Other 82,404
- ----------------------------------------------------------------------------------------------
Total expenses 8,540,594
- ----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (235,396)
- ----------------------------------------------------------------------------------------------
Net expenses 8,305,198
- ----------------------------------------------------------------------------------------------
Net investment income 47,497,004
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (41,761,928)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and TBA sale commitments
during the period 20,387,504
- ----------------------------------------------------------------------------------------------
Net loss on investments (21,374,424)
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 26,122,580
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
2000* 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 47,497,004 $ 83,035,546
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (41,761,928) (26,790,166)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 20,387,504 (89,045,787)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 26,122,580 (32,800,407)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (43,618,800) (76,799,616)
- -------------------------------------------------------------------------------------------------------
Class B (3,673,805) (5,462,673)
- -------------------------------------------------------------------------------------------------------
Class C (15,701) (6,381)
- -------------------------------------------------------------------------------------------------------
Class M (199,385) (239,117)
- -------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (7,299,290)
- -------------------------------------------------------------------------------------------------------
Class B -- (519,191)
- -------------------------------------------------------------------------------------------------------
Class C -- (607)
- -------------------------------------------------------------------------------------------------------
Class M -- (22,726)
- -------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4 and 5) (123,750,459) 263,242,606
- -------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (145,135,570) 140,092,598
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 1,730,422,781 1,590,330,183
- -------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net
investment income of $10,687 and $--, respectively) $1,585,287,211 $1,730,422,781
- -------------------------------------------------------------------------------------------------------
* Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.42 $9.11 $8.65 $8.39 $8.65 $8.21
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .24(c) .46(c) .50(c) .54 .52 .55
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.09) (.65) .49 .23 (.21) .50
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 (.19) .99 .77 .31 1.05
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.46) (.53) (.51) (.53) (.56)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.04) -- -- (.04) --
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (.05)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.50) (.53) (.51) (.57) (.61)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.33 $8.42 $9.11 $8.65 $8.39 $8.65
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.84* (2.12) 11.83 9.49 3.64 13.42
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,454,596 $1,557,539 $1,500,157 $1,553,706 $1,800,683 $2,183,766
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .48* .98 1.01 .97 .95 .94
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.90* 5.30 5.72 6.34 6.14 6.62
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 229.22* 240.06(d) 316.47 253.26 245.46 468.86
- --------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements with PFTC. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(d) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam High Quality Bond Fund.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.39 $9.08 $8.61 $8.35 $8.62 $8.19
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .21(c) .39(c) .41(c) .48 .49 .46(c)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.09) (.64) .53 .23 (.26) .51
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .12 (.25) .94 .71 .23 .97
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.40) (.47) (.45) (.46) (.49)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.04) -- -- (.04) --
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (.05)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.44) (.47) (.45) (.50) (.54)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.30 $8.39 $9.08 $8.61 $8.35 $8.62
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.45* (2.83) 11.20 8.72 2.77 12.32
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $122,774 $165,020 $86,302 $30,935 $23,067 $9,099
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86* 1.73 1.76 1.72 1.70 1.68
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.53* 4.56 4.87 5.59 5.46 5.76
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 229.22* 240.06(d) 316.47 253.26 245.46 468.86
- --------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements with PFTC. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(d) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam High Quality Bond Fund.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 July 26, 1999+
operating performance (Unaudited) to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.41 $8.42
- ------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(c) .21 .07
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.10) --
- ------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .11 .07
- ------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.07)
- ------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.01)
- ------------------------------------------------------------------------------------------------------------------------
From return of capital -- --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.08)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.31 $8.41
- ------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.39* 0.80*
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,144 $240
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86* .32*
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.50* .87*
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 229.22* 240.06(d)
- ------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements with PFTC. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(d) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam High
Quality Bond Fund.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ----------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Feb. 14, 1995+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- ----------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.45 $9.14 $8.66 $8.38 $8.65 $8.14
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .23(c) .44(c) .46(c) .53 .53 .29(c)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.10) (.65) .53 .24 (.26) .62
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .13 (.21) .99 .77 .27 .91
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.44) (.51) (.49) (.50) (.37)
- ----------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.04) -- -- (.04) --
- ----------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (.03)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.48) (.51) (.49) (.54) (.40)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.35 $8.45 $9.14 $8.66 $8.38 $8.65
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.57* (2.36) 11.76 9.45 3.24 11.44*
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,774 $7,624 $3,871 $1,170 $1,108 $672
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .61* 1.23 1.26 1.22 1.20 .78*
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.78* 5.06 5.34 6.10 5.94 4.03*
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 229.22* 240.06(d) 316.47 253.26 245.46 468.86
- ----------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements with PFTC. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(d) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam High Quality Bond Fund.
</TABLE>
Notes to financial statements
March 31, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam American Government Income Fund (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The fund seeks high current
income, with preservation of capital as its secondary objective.
The fund offers class A, class B, class C and class M shares. Class A
shares are sold with a maximum front-end sales charge of 4.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge, but pay a higher ongoing
distribution fee than class A shares, and are subject to a contingent
deferred sales charge, if those shares are redeemed within six years of
purchase. Class C shares are subject to the same fees and expenses as
class B shares, except that class C shares have a one year 1.00%
contingent deferred sales charge and do not convert to class A shares.
Class M shares are sold with a maximum front-end sales charge of 3.25%
and pay an ongoing distribution fee that is higher than class A but
lower than class B and class C shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Short-term investments
having remaining maturities of 60 days or less are stated at amortized
cost, which approximates market value. Other investments, including
restricted securities, are stated at fair value following procedures
approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis. Interest income is recorded on the accrual
basis. Discounts on zero coupon bonds are accreted according to the
yield-to-maturity basis. Discounts on original issue discount bonds are
accreted according to the yield-to-maturity basis.
E) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is
"marked-to-market" daily and the change in market value is recorded by
the fund as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
fund realizes a gain or loss. If the fund delivers securities under the
commitment, the fund realizes a gain or a loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into.
F) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At September 30, 1999, the fund had a capital loss carryover of
approximately $301,280,000 available to offset future net capital gain,
if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ------------------
$37,523,000 September 30, 2001
7,767,000 September 30, 2002
255,990,000 September 30, 2003
G) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. Capital gain distributions, if
any, are recorded on the ex-dividend date and paid at least annually.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5 billion,
0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of
the next $5 billion, and 0.38% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the six months ended March 31, 2000, fund expenses were reduced by
$235,396 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,781
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C and class M shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00%, 1.00% and 1.00% of the average net assets attributable to class
A, class B, class C and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%
and 0.50% of the average net assets attributable to class A, class B,
class C and class M shares respectively.
For the six months ended March 31, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $58,292 and $266 from
the sale of class A and class M shares, respectively, and received
$314,999 and $250 in contingent deferred sales charges from redemptions
of class B and class C shares, respectively. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the
six months ended March 31, 2000, Putnam Mutual Funds Corp., acting as
underwriter received $24,909 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2000, cost of purchases and
proceeds from sales of U.S. government and agency obligations other than
short-term investments aggregated $3,663,962,303 and $3,590,593,110,
respectively.
Note 4
Capital shares
At March 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 24,278,238 $201,851,935
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,118,159 25,787,133
- ---------------------------------------------------------------------------
27,396,397 227,639,068
Shares
repurchased (37,652,350) (311,622,034)
- ---------------------------------------------------------------------------
Net decrease (10,255,953) $(83,982,966)
- ---------------------------------------------------------------------------
Year ended September 30, 1999
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 68,464,446 $600,200,128
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High
Quality Bond
Fund 36,135,089 306,786,904
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,397,009 46,830,368
- ---------------------------------------------------------------------------
109,996,544 953,817,400
Shares
repurchased (89,695,209) (782,899,168)
- ---------------------------------------------------------------------------
Net increase 20,301,335 $170,918,232
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 3,589,422 $29,653,123
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 337,351 2,781,559
- ---------------------------------------------------------------------------
3,926,773 32,434,682
Shares
repurchased (8,797,454) (72,347,680)
- ---------------------------------------------------------------------------
Net decrease (4,870,681) $(39,912,998)
- ---------------------------------------------------------------------------
Year ended September 30, 1999
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 20,474,709 $178,407,530
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High
Quality Bond
Fund 4,188,773 35,437,018
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 520,684 4,483,875
- ---------------------------------------------------------------------------
25,184,166 218,328,423
Shares
repurchased (15,018,282) (130,345,803)
- ---------------------------------------------------------------------------
Net increase 10,165,884 $87,982,620
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class C Amount Shares
- ---------------------------------------------------------------------------
Shares sold 166,300 $1,374,537
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,889 15,551
- ---------------------------------------------------------------------------
168,189 1,390,088
Shares
repurchased (59,034) (487,923)
- ---------------------------------------------------------------------------
Net increase 109,155 $902,165
- ---------------------------------------------------------------------------
For the period July 26,1999
(commencement of operations) to
September 30, 1999
- ---------------------------------------------------------------------------
Class C Amount Shares
- ---------------------------------------------------------------------------
Shares sold 133,079 $1,114,472
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 768 6,385
- ---------------------------------------------------------------------------
133,847 1,120,857
Shares
repurchased (105,299) (882,713)
- ---------------------------------------------------------------------------
Net increase 28,548 $238,144
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 132,765 $1,104,681
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 19,136 158,746
- ---------------------------------------------------------------------------
151,901 1,263,427
Shares
repurchased (243,733) (2,020,087)
- ---------------------------------------------------------------------------
Net decrease (91,832) $(756,660)
- ---------------------------------------------------------------------------
Year ended September 30, 1999
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 563,063 $4,932,289
- ---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High
Quality Bond
Fund 323,217 2,750,574
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 23,681 204,944
- ---------------------------------------------------------------------------
909,961 7,887,807
Shares
repurchased (430,898) (3,784,197)
- ---------------------------------------------------------------------------
Net increase 479,063 $4,103,610
- ---------------------------------------------------------------------------
Note 5
Acquisition of Putnam High Quality Bond Fund
On July 12, 1999, the fund issued 36,135,089, 4,188,773, and 323,217 of
class A, class B, and class M shares respectively, in exchange for
31,929,070, 3,705,276, and 286,163 of class A, class B, and class M
shares of Putnam High Quality Bond Fund to acquire that fund's net
assets in a tax-free exchange approved by the shareholders. The net
assets of the fund and Putnam High Quality Bond Fund on July 9, 1999,
were $1,452,560,868 and $344,974,496 respectively. On July 9, 1999,
Putnam High Quality Bond Fund had unrealized depreciation of
$12,281,956.
The aggregate net assets of the fund immediately following the
acquisition were $1,797,535,364.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Michael Martino
Vice President and Fund Manager
Kevin M. Cronin
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam American
Government Income Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details
of sales charges, investment objectives, and operating policies of the
fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information or to request a prospectus, call toll
free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board,
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA027-60364 033/292/895 5/00
