Putnam
Limited Duration
Government
Income Fund*
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-04
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* Formerly Putnam Intermediate
U.S. Government Income Fund
From the Trustees
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Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including increasing the amount
of disclosure for our funds. For example, in the spring of 2004 we began
showing expense and risk comparisons in shareholder reports. We are now
including in this report portfolio turnover information for your fund,
which explains how the rate at which a fund buys and sells portfolio
securities might affect its return and its taxable distributions to
shareholders. We are also including additional disclosure about your
fund's management team. Following the Outlook for Your Fund, we list any
changes in your fund's Portfolio Leader and Portfolio Members during the
prior year period, as well as the current Portfolio Leader's and
Portfolio Members' other fund management responsibilities at Putnam. We
also show how much these individuals have invested in the fund (in
dollar ranges). Furthermore, fund ownership (in dollar ranges) is now
being shown for the members of Putnam's Executive Board.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, Putnam Limited
Duration Government Income Fund delivered respectable results. In the
following pages, the fund managers discuss fund performance, strategy,
and their outlook for fiscal 2005.
We thank you for your support of the Putnam funds throughout 2004 and
wish you all the best in 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 19, 2005
Report from Fund Management
Fund highlights
* For the fiscal year ended November 30, 2004, class A shares of Putnam
Limited Duration Gov ern ment Income Fund returned 2.00% without sales
charges and -1.24% with maximum sales charges reflected.
* The fund's benchmark, the Lehman Intermediate Government Bond Index,
gained 2.57% over the same period.
* The average return for the fund's Lipper category, Short-Intermediate
U.S. Government Funds, was 1.81%.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
After a three-year bull run, the upward momentum of U.S. bond markets
subsided in the year ended November 30, 2004. Investors' concerns about
inflation and potential erosion of bond prices were renewed amid signs
of steady U.S and global economic expansion and expectations -- which
were met in the year's second half -- that the Federal Reserve Board
would begin to lift short-term interest rates. Investment-grade bond
markets posted modest, low-single-digit gains for the year. Your fund's
management team kept duration, or interest-rate sensitivity, short
during the year to protect against loss of principal, but the lower
income produced by shorter-maturity securities caused the fund to lag
its benchmark. However, the fund's performance at NAV (net asset value)
was in line with that of its Lipper peer group average.
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TOTAL RETURN FOR
PERIODS ENDED 11/30/04
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Class A
(inception 2/16/93) NAV POP
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1 year 2.00% -1.24%
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5 years 29.06 24.91
Annual average 5.23 4.55
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10 years 80.06 74.38
Annual average 6.06 5.72
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Annual average
(life of fund) 5.23 4.93
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Data is historical. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Investment
return and principal value will fluctuate and you may have a gain or a
loss when you sell your shares. Performance assumes reinvestment of
distributions and does not account for taxes. Returns at NAV do not
reflect a sales charge of 3.25%. For the most recent month-end
performance, visit www.putnaminvestments.com. For a portion of the
period, this fund limited expenses, without which returns would have
been lower. A 2% short-term trading fee may be applied to shares
exchanged or sold within 5 days of purchase.
FUND PROFILE
Putnam Limited Duration Govern ment Income Fund seeks as high a level of
current income as Putnam Management believes is consistent with preservation
of capital by allocating its assets among intermediate-maturity U.S.
Treasuries, mortgage-backed securities, and other U.S. government agency
securities. The fund may be appropriate for investors seeking current
income.
Market overview
Conflicting signals about the strength of U.S. economic growth drove
bond market performance during the year. While some signs pointed to
expansion -- a strong housing market, reports of solid corporate
profits, and respectable GDP growth -- others, such as disappointing job
growth and low capacity utilization, did not support perceptions of
economic growth. Bond investors watch these signals closely as they can
indicate the likely direction of interest rates.
Interest rates meandered up and down in response to contrasting economic
signals until April 2004, when investors bid up rates in the belief that
the Federal Reserve Board (the Fed) would need to raise short-term
interest rates aggressively to rein in growth. The Fed's approach,
however, proved to be more gradual: it raised rates four times over the
second half of the year, but in modest 0.25% increments.
As the Fed lifted short-term rates, yields on securities with shorter
maturities rose significantly, while yields at the long end of the
maturity spectrum remained fairly stable. The result was a flattening in
the shape of the yield curve (a graphical representation of the
difference between yields on short-term and long-term securities).
Lower volatility, the result of clear guidance on the direction of
interest rates from the Fed, created a favorable environment for
mortgage-backed securities (MBSs), enabling them to outperform
Treasuries and agencies, the other sectors in which your fund can
invest. Prices of MBSs also benefited from increased investor demand
worldwide, as their higher yields, and generally high credit quality,
proved especially attractive in a low-rate environment.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 11/30/04
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Bonds
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Lehman Intermediate Government Bond Index
(intermediate-maturity U.S. government bonds) 2.57%
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Lehman Aggregate Bond Index (broad bond market) 4.44%
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Lehman Municipal Bond Index (tax-exempt bonds) 4.07%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 12.61%
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Equities
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S&P 500 Index (broad stock market) 12.86%
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Russell 1000 Index (large-company stocks) 12.66%
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MSCI EAFE Index (international stocks) 24.19%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 11/30/04.
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Strategy overview
There are two key strategic decisions that we make in managing the fund.
The first is to estimate the direction of interest rates based on
factors such as economic indicators, Fed statements and strategy, and
market sentiment. We strive to position your fund to benefit from
expected changes in interest rates and in the shape of the yield curve.
Our second major decision is to allocate portfolio holdings by market
sector. We assess the relative attractiveness not only of sectors
included in the benchmark (U.S. Treasuries and agencies) but also those
that are not in the benchmark but that are allowable investments within
fund guidelines (MBSs).
In addition, we make several strategic decisions related specifically to
MBSs. We evaluate the relative appeal of pass-through securities issued
by the Government National Mortgage Association (known as Ginnie Maes),
the Federal National Mortgage Association (Fannie Maes), and the Federal
Home Loan Mortgage Corporation (Freddie Macs). We also seek to identify
securities with maturities (e.g., 30-year, 15-year, or adjustable-rate),
coupon levels (e.g., 5.5%, 6.5%, 7%), and seasoning (length of time in
the market) in order to determine what we believe are the best
risk/return trade-offs for the portfolio.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION COMPARED]
PORTFOLIO COMPOSITION COMPARED
as of 5/31/04 as of 11/30/04
U.S. Treasury securities 44.4% 48.5%
Fixed-rate mortgage-backed securities 39.2% 35.9%
Cash and short-term investments 10.4% 17.9%
U.S. government agency obligations 7.8% 8.7%
Adjustable-rate mortgage-backed securities 0.0% 2.1%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
Throughout the year, the portfolio had a shorter, more defensive
duration than that of the benchmark. This positioning variously boosted
or detracted from returns in the course of the year, depending on the
direction of interest rates; overall, however, the short positioning
detracted from relative performance for the year.
In mid-May, we positioned the fund to benefit from a flattening of the
yield curve, in the belief that the short end would rise much more than
the long end, a forecast that turned out to be accurate. In fact, as the
Fed raised rates over the next five months, long-term rates held steady
around a narrow range. Although we moved the fund's curve positioning
back to neutrality before the flattening had ceased, this strategy was
decidedly advantageous to the fund's relative performance.
In terms of sector allocation, we consistently emphasized
mortgage-backed securities (MBSs) over government agency securities
during the year. The market for MBSs is much larger and deeper than that
for agencies; there is also relatively greater opportunity for adding
value through security selection, by choosing among instruments that
reflect differing prepayment assumptions. Furthermore, MBSs, which by
definition are backed by mortgage obligations and do not rely entirely
on the issuing agency's credit for repayment, are less vulnerable than
unsecured agency bonds to negative news about individual issuers.
Midway through the fiscal year, we began to lighten our holdings in
conventional mortgage instruments in favor of other types of mortgage
derivative securities, which we saw as an attractive way to take
prepayment risk relative to mortgage securities. That strategy made a
positive contribution to fund performance in the second half of the
year.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
11/30/03 5/31/04 11/30/04
Average effective maturity in years 3.2 4.3 3.8
Duration in years 2.8 3.4 2.7
Footnotes read:
This chart compares changes in the fund's duration (a measure of its
sensitivity to interest-rate changes) and its average effective maturity
(a weighted average of the holdings' maturities).
Average effective maturity also takes into account put and call
features, where applicable, and reflects prepayments for mortgage-backed
securities.
We consistently emphasized Fannie Maes (both agencies and pass-throughs)
over Freddie Macs and Ginnie Maes during the year. The market for Fannie
Maes is relatively deeper and more liquid, typically resulting in lower
transaction costs. Also, we believed that investors were overpaying for
the explicit U.S. government guarantee of Ginnie Mae debt, versus the
implied warranty for Fannie Mae and Freddie Mac securities. That
decision, however, turned out to be unfavorable, as Ginnie Maes
outperformed during most of the year on robust demand from foreign
buyers -- central banks, commercial banks, and private investors.
With regard to maturity, our preference for most of the year was for
longer-dated, 30-year instruments. The higher yields on these securities
made them much sought after by income-oriented investors, so this bias
aided performance. We also favored higher-coupon issues. Although they
carry higher prepayment risk, we felt that investors had excessively
penalized such securities for that risk. For example, our holdings of
intermediate-maturity, FNMA 7.25% debentures due January 2010
contributed positively to performance. We also invested in 30 year FNMA
7.00%s for much of the year.
In terms of seasoning, our preference for older issues, which are less
exposed to prepayment risk than newer securities, was a slight positive.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
OF SPECIAL INTEREST
As part of Putnam's continuing effort to improve clarity in our fund
lineup, we have renamed your fund to more accurately reflect its
investment objectives and strategies. Effective November 30, 2004,
Putnam Intermediate U.S. Government Income Fund was renamed Putnam
Limited Duration Government Income Fund. In addition to the name change,
there are two changes to the fund's investment policies. Effective
January 21, 2005, the fund's policy, as stated in the fund's prospectus,
of maintaining a dollar-weighted maturity of three to ten years will be
removed. In addition, effective November 30, 2004, the fund will
normally maintain an average duration of one to three years, while
continuing to invest in securities with maturities between one and ten
years. The fund's objectives and investment team remain the same, so it
can continue to serve its intended role in your portfolio.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
We believe that interest rates will continue to rise as the Fed seeks to
manage the pace of economic growth with steady, modest increases to
short-term rates from current abnormally low levels. Therefore, your
fund's portfolio remains conservatively positioned with a short duration
in an effort to protect principal value from eroding as rates rise. We
have moved to a more neutral stance with regard to yield-curve
positioning because, although we expect the curve to continue to
flatten, we believe that the market has already anticipated much of this
flattening.
In terms of sector allocation, we continue to emphasize MBSs over
agencies relative to the benchmark. Although the mortgage sector
outperformed Treasuries by a substantial margin in 2004, it is our view
that select mortgage securities still offer value. Among the major
issuers of mortgage securities, we continue to favor Fannie Mae over
Ginnie Mae and Freddie Mac. We also continue to prefer longer-maturity
instruments, whose higher yields support their prices while enhancing
fund income, and favor higher-coupon, more seasoned securities for their
lesser exposure to prepayment risk.
In coming months we will seek to take advantage of income opportunities
that should accompany rising interest rates, while at the same time
striving to preserve capital and maintain prudent levels of risk
exposure.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Mutual funds that
invest in bonds are subject to certain risks, including interest-rate
risk, credit risk, and inflation risk. As interest rates rise, the
prices of bonds fall. Long-term bonds are more exposed to interest-rate
risk than short-term bonds. Unlike bonds, bond funds have ongoing fees
and expenses. Mutual funds that invest in government securities are not
guaranteed. Mortgage-backed securities are subject to prepayment risk.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income
Team. Kevin Cronin is the Portfolio Leader and Rob Bloemker is a
Portfolio Member of your fund. The Portfolio Leader and Portfolio Member
coordinate the team's management of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income
Team, including those who are not Portfolio Leaders or Portfolio Members
of your fund, visit Putnam's Individual Investor Web site at
www.putnaminvestments.com.
Fund ownership
The table below shows how much the fund's current Portfolio Leader and
Portfolio Member have invested in the fund (in dollar ranges).
Information shown is for the current and prior year ended November 30.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBER
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$1 - $10,001 - $50,001- $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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Kevin Cronin 2004 *
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Portfolio Leader 2003 *
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Rob Bloemker 2004 *
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Portfolio Member 2003 *
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Other funds managed by the Portfolio Leader and Portfolio Member
Kevin Cronin is also a Portfolio Leader of Putnam American Government
Income Fund, Putnam Global Income Trust, Putnam Income Fund, and Putnam
U.S. Government Income Trust. He is also a Portfolio Member of Putnam
Equity Income Fund and The George Putnam Fund of Boston.
Rob Bloemker is also a Portfolio Member of Putnam American Government
Income Fund, Putnam Income Fund, and Putnam U.S. Government Income
Trust.
Kevin Cronin and Rob Bloemker may also manage other accounts advised by
Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
Your fund's Portfolio Leader and Portfolio Member did not change during
the year ended November 30, 2004.
Fund ownership
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is for
the current and prior year ended December 31.
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PUTNAM EXECUTIVE BOARD
$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
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Philippe Bibi 2004 *
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Chief Technology Officer 2003 *
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John Boneparth 2004 *
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Head of Global Institutional Mgmt 2003 *
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Kevin Cronin 2004 *
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Deputy Head of Investments N/A
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Charles Haldeman, Jr. 2004 *
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President and CEO 2003 *
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Amrit Kanwal 2004 *
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Chief Financial Officer N/A
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Steven Krichmar 2004 *
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Chief of Operations N/A
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Francis McNamara, III 2004 *
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General Counsel N/A
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Richard Monaghan 2004 *
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Head of Retail Management 2003 *
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Stephen Oristaglio 2004 *
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Head of Investments 2003 *
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Richard Robie, III 2004 *
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Chief Administrative Officer N/A
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N/A indicates the individual was not a member of Putnam's Executive Board as of 12/31/03.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended November 30, 2004. In accordance with regulatory requirements, we
also include performance for the most current calendar quarter-end.
Performance should always be considered in light of a fund's investment
strategy. Data represents past performance. Past performance does not
guarantee future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. For the most
recent month-end performance, please visit www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 11/30/04
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Class A Class B Class C Class M Class R
(inception dates) (2/16/93) (2/16/93) (7/26/99) (4/3/95) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 2.00% -1.24% 1.38% -1.61% 1.24% 0.25% 1.85% -0.26% 1.78%
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5 years 29.06 24.91 25.42 25.42 24.24 24.24 28.23 25.64 27.46
Annual average 5.23 4.55 4.63 4.63 4.44 4.44 5.10 4.67 4.97
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10 years 80.06 74.38 69.80 69.80 66.36 66.36 77.86 74.49 75.64
Annual average 6.06 5.72 5.44 5.44 5.22 5.22 5.93 5.72 5.79
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Annual average
(life of fund) 5.23 4.93 4.61 4.61 4.40 4.40 5.09 4.91 4.98
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 3.25% and 2.00%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 3% in the first year, declining to 1% in the fourth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Class R share returns have no
initial sales charge or CDSC. Performance for class C, M, and R shares
before their inception is derived from the historical performance of
class A shares, adjusted for the applicable sales charge (or CDSC) and
higher operating expenses for such shares.
For a portion of the period, this fund limited expenses, without which
returns would have been lower.
A 2% short-term trading fee may be applied to shares exchanged or sold
within 5 days of purchase.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 11/30/94 to 11/30/04
Lehman Intermediate
Fund's class A Government
Date shares at POP Bond Index
11/30/94 9,675 10,000
11/30/95 11,027 11,366
11/30/96 11,538 12,009
11/30/97 12,404 12,763
11/30/98 13,338 13,905
11/30/99 13,370 14,071
11/30/00 14,604 15,227
11/30/01 15,645 16,882
11/30/02 16,888 18,085
11/30/03 17,094 18,695
11/30/04 $17,438 $19,177
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $16,980 and $16,636, respectively, and
no contingent deferred sales charges would apply. A $10,000 investment
in the fund's class M shares would have been valued at $17,786 ($17,449
at public offering price). A $10,000 investment in the fund's class R
shares would have been valued at $17,564. See first page of performance
section for performance calculation method.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/04
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Lipper Short-
Lehman Intermediate Intermediate U.S.
Government Government Funds
Bond Index category average*
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1 year 2.57% 1.81%
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5 years 36.28 29.51
Annual average 6.39 5.30
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10 years 91.77 75.69
Annual average 6.73 5.78
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Annual average
(life of fund) 5.92 5.20
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 11/30/04, there were 81,
70, and 42 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 11/30/04
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Class A Class B Class C Class M Class R
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Distributions (number) 12 12 12 12 12
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Income $0.082913 $0.051785 $0.044177 $0.075081 $0.071360
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Capital gains
Long-term 0.025000 0.025000 0.025000 0.025000 0.025000
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Short-term 0.015000 0.015000 0.015000 0.015000 0.015000
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Total $0.122913 $0.091785 $0.084177 $0.115081 $0.111360
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Share value: NAV POP NAV NAV NAV POP NAV
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11/30/03 $5.18 $5.35 $5.19 $5.18 $5.20 $5.31 --
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12/1/03* -- -- -- -- -- -- $5.18
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11/30/04 5.16 5.33 5.17 5.16 5.18 5.29 5.16
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Current return
(end of period)
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Current dividend rate 1 1.70% 1.65% 1.10% 0.95% 1.54% 1.51% 1.45%
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Current 30-day
SEC yield (with
expense limitation) 2,3 1.91 1.85 1.32 1.17 1.76 1.73 1.67
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Current 30-day
SEC yield (without
expense limitation) 2 1.83 1.77 1.23 1.09 1.68 1.64 1.58
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* Inception date of class R shares.
1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
3 For a portion of the period, this fund limited expenses, without which yields would have been lower.
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TOTAL RETURN FOR PERIODS ENDED 12/31/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception dates) (2/16/93) (2/16/93) (7/26/99) (4/3/95) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 2.05% -1.21% 1.22% -1.76% 1.09% 0.09% 1.89% -0.23% 1.81%
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5 years 30.63 26.37 26.94 26.94 25.74 25.74 29.77 27.12 28.97
Annual average 5.49 4.79 4.89 4.89 4.69 4.69 5.35 4.92 5.22
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10 years 80.60 74.88 70.30 70.30 66.73 66.73 78.36 74.95 76.11
Annual average 6.09 5.75 5.47 5.47 5.25 5.25 5.96 5.75 5.82
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Annual average
(life of fund) 5.24 4.95 4.62 4.62 4.41 4.41 5.10 4.93 4.99
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Understanding your fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. In the most
recent six-month period, your fund limited these expenses; had it not
done so, expenses would have been higher. Using the information below,
you can estimate how these expenses affect your investment and compare
them with the expenses of other funds. You may also pay one-time
transaction expenses, including sales charges (loads) and redemption
fees, which are not shown in this section and would have resulted in
higher total expenses. For more information, see your fund's prospectus
or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Limited Duration Government Income Fund from June
1, 2004, to November 30, 2004. It also shows how much a $1,000
investment would be worth at the close of the period, assuming actual
returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 11/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $5.10 $8.12 $8.87 $5.86 $6.36
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Ending value (after expenses) $1,020.00 $1,016.90 $1,016.30 $1,019.20 $1,018.60
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* Expenses for each share class are calculated using the fund's annualized
expense ratio for each class, which represents the ongoing expenses as a
percentage of net assets for the six months ended 11/30/04. The expense
ratio may differ for each share class (see the table at the bottom of the
next page). Expenses are calculated by multiplying the expense ratio by the
average account value for the period; then multiplying the result by the
number of days in the period; and then dividing that result by the number of
days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended
November 30, 2004, use the calculation method below. To find the value
of your investment on June 1, 2004, go to www.putnaminvestments.com and
log on to your account. Click on the "Transaction History" tab in your
Daily Statement and enter 06/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 6/1/04 [DIV] $1,000 x per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 x $5.10 (see table above) = $51.00
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below shows your fund's expenses based on a $1,000 investment, assuming
a hypothetical 5% annualized return. You can use this information to
compare the ongoing expenses (but not transaction expenses or total
costs) of investing in the fund with those of other funds. All mutual
fund shareholder reports will provide this information to help you make
this comparison. Please note that you cannot use this information to
estimate your actual ending account balance and expenses paid during the
period.
- --------------------------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 11/30/04
- --------------------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- --------------------------------------------------------------------------------------------
Expenses paid per $1,000* $5.10 $8.12 $8.87 $5.86 $6.36
- --------------------------------------------------------------------------------------------
Ending value (after expenses) $1,019.95 $1,016.95 $1,016.20 $1,019.20 $1,018.70
- --------------------------------------------------------------------------------------------
* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended
11/30/04. The expense ratio may differ for each share class (see the
table at the bottom of this page). Expenses are calculated by
multiplying the expense ratio by the average account value for the
period; then multiplying the result by the number of days in the period;
and then dividing that result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
- --------------------------------------------------------------------------------------------
EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
- --------------------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- --------------------------------------------------------------------------------------------
Your fund's annualized
expense ratio+ 1.01% 1.61% 1.76% 1.16% 1.26%
- --------------------------------------------------------------------------------------------
Average annualized expense
ratio for Lipper peer
group++ 1.04% 1.64% 1.79% 1.19% 1.29%
- --------------------------------------------------------------------------------------------
+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ Average of the expenses of front-end load funds viewed by Lipper as having
the same investment classification or objective as the fund, as of 9/30/04,
calculated in accordance with Lipper's standard reporting methodology for
comparing expenses within a given universe (excluding 12b-1 fees and without
giving effect to any expense offset and brokerage service arrangements that
may reduce fund expenses). To facilitate comparison, Putnam has adjusted
this average to reflect the 12b-1 fees carried by each class of shares. The
peer group may include funds that are significantly larger or smaller than
the fund, which may limit the comparability of the fund's expenses to the
Lipper average.
Understanding your fund's portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries,
economies, and markets. Portfolio turnover is a measure of how often a
fund's managers buy and sell securities for your fund. A portfolio
turnover of 100%, for example, means that the man agers sold and
replaced securities valued at 100% of a fund's assets within a one-year
period. Funds with high turnover may be more likely to generate capital
gains and dividends that must be distributed to shareholders as taxable
income. High turnover may also cause a fund to pay more brokerage
commissions and other transaction costs, which may detract from
performance.
Funds that invest in bonds may have higher turnover than funds that
invest only in stocks. Short-term bond funds tend to have higher
turnover than longer-term bond funds, because shorter-term bonds will
mature or be sold more frequently than longer-term bonds. You can use
the table below to compare your fund's turnover with the average
turnover for funds in its Lipper category.
- ------------------------------------------------------------------------------
TURNOVER COMPARISONS
percentage of holdings that change every year
- ------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------
Putnam Limited Duration
Government Income Fund 263% 509% 539% 224% 401%
- ------------------------------------------------------------------------------
Lipper Short-Intermediate
U.S. Government Funds
category average 204% 184% 167% 170% 133%
- ------------------------------------------------------------------------------
Turnover data for the fund is calculated based on the fund's fiscal-year
period, which ends on November 30. Turnover data for the fund's Lipper
category is calculated based on the average of the turnover of each fund
in the category for its fiscal year ended during the indicated year.
Fiscal years vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average. Comparative data for 2004 is based on information available as
of 9/30/04.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of December 31, 2004. A higher
Overall Morningstar Risk generally indicates that a fund's monthly
returns have varied more widely.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.08
Taxable bond
fund average 0.30
0% INCREASING RISK 100%
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of pur chase. POP performance
figures shown here assume the 3.25% maximum sales charge for class A
shares and 2.00% 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 3% maximum
during the first year to 1% during the fourth year. After the fourth
year, the CDSC no longer applies. The CDSC for class C shares is 1% for
one year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without 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 (except on certain
redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and
are available only to certain defined contribution plans.
Comparative indexes
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Intermediate Government Bond Index is an unmanaged index of
government bonds with maturities between 1 and 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 1000 Index is an unmanaged index of the largest 1,000 companies
in the Russell 3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, 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.
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Limited Duration Government Income Fund:
We have audited the accompanying statement of assets and liabilities of
Putnam Limited Duration Government Income Fund (formerly Putnam
Intermediate U.S. Government Income Fund), including the fund's
portfolio, as November 30, 2004, and the related statement of operations
for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the financial
highlights for each of the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 2004 by
correspondence with the custodian and brokers or by other appropriate
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Limited Duration Government Income Fund as
of November 30, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Boston, Massachusetts
January 13, 2005
The fund's portfolio
November 30, 2004
U.S. government and agency mortgage obligations (34.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
U.S. Government Guaranteed Mortgage Obligations (2.4%)
Government National Mortgage
Association Adjustable Rate
Mortgages
$114,553 7s, July 20, 2026 $115,703
14,427,981 4 1/2s, August 20, 2034 14,533,428
Government National Mortgage
Association Pass-Through
Certificates
2,160,823 7 1/2s, with due dates from December
15, 2023 to March 15, 2032 2,333,565
397,032 7s, with due dates from July 15,
2029 to May 15, 2032 424,273
--------------
17,406,969
U.S. Government Agency Mortgage Obligations (32.2%)
Federal Home Loan Mortgage
Corporation
69,649 7 1/2s, with due dates from April 1,
2016 to December 1, 2017 74,481
Federal National Mortgage
Association Pass-Through
Certificates
429 8s, May 1, 2013 464
375,826 7 1/2s, with due dates from October
1, 2022 to November 1, 2030 403,458
91,414,524 7s, with due dates from July 1, 2023
to October 1, 2034 97,139,465
896,015 7s, with due dates from September 1,
2007 to January 1, 2015 952,017
11,200,000 7s, TBA, December 1, 2034 11,880,749
4,962,594 6 1/2s, with due dates from
September 1, 2023 to July 1, 2034 5,223,296
2,180,605 6 1/2s, with due dates from February
1, 2014 to October 1, 2018 2,317,087
36,600,000 6 1/2s, TBA, December 1, 2034 38,401,408
949,109 6s, with due dates from March 1,
2014 to October 1, 2016 997,365
25,100,000 6s, TBA, December 1, 2034 25,903,983
377,039 5 1/2s, with due dates from June 1,
2013 to December 1, 2013 390,486
10,190,000 5 1/2s, TBA, December 1, 2034 10,303,046
348,286 5s, May 1, 2019 353,347
25,100,000 5s, TBA, December 1, 2034 24,758,796
9,000,000 5s, TBA, December 1, 2019 9,116,719
563,587 4s, June 1, 2019 548,044
--------------
228,764,211
--------------
Total U.S. government and agency
mortgage obligations
(cost $245,288,866) $246,171,180
U.S. government agency obligations (8.7%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$53,694,000 Fannie Mae 7 1/4s, January 15, 2010 $61,524,583
--------------
Total U.S. government agency
obligations (cost $61,255,423) $61,524,583
U.S. treasury obligations (48.5%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
U.S. Treasury Notes
$1,300,000 4 1/4s, August 15, 2014 $1,288,219
65,596,000 4 1/4s, August 15, 2013 65,452,509
25,000,000 4s, February 15, 2014 24,378,905
102,000,000 3 1/4s, August 15, 2008 101,330,625
40,500,000 1 7/8s, January 31, 2006 40,101,326
97,198,000 1 5/8s, January 31, 2005 97,122,069
15,000,000 1 1/8s, June 30, 2005 14,889,843
--------------
Total U.S. treasury obligations
(cost $346,637,869) $344,563,496
Collateralized mortgage obligations (6.9%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
Fannie Mae
$3,540,197 Ser. 03-W6, Class PT1, 9.37s, 2042 $3,981,159
2,668,429 Ser. 04-T3, Class 1A4, 7 1/2s, 2044 2,862,652
1,641,921 Ser. 02-T18, Class A4, 7 1/2s, 2042 1,759,227
4,882,351 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 5,231,751
9,583,763 Ser. 02-T16, Class A3, 7 1/2s, 2042 10,268,642
871,149 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 933,782
2,853,678 Ser. 02-W4, Class A5, 7 1/2s, 2042 3,055,904
119,190 Ser. 02-W1, Class 2A, 7 1/2s, 2042 127,118
442,160 Ser. 02-14, Class A2, 7 1/2s, 2042 473,350
2,649,679 Ser. 01-T10, Class A2, 7 1/2s, 2041 2,826,748
1,905,107 Ser. 02-T4, Class A3, 7 1/2s, 2041 2,037,448
682,159 Ser. 02-T6, Class A2, 7 1/2s, 2041 729,193
1,305,928 Ser. 01-T12, Class A2, 7 1/2s, 2041 1,396,740
737,828 Ser. 01-T8, Class A1, 7 1/2s, 2041 788,254
4,480,381 Ser. 01-T7, Class A1, 7 1/2s, 2041 4,782,333
16,565 Ser. 01-T3, Class A1, 7 1/2s, 2040 17,689
239,087 Ser. 99-T2, Class A1, 7 1/2s, 2039 255,751
3,307,045 Ser. 02-T1, Class A3, 7 1/2s, 2031 3,537,942
1,376,660 Ser. 00-T6, Class A1, 7 1/2s, 2030 1,469,440
150,005 Ser. 02-W7, Class A5, 7 1/2s, 2029 160,703
457,864 Ser. 02-W3, Class A5, 7 1/2s, 2028 490,161
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
1,205,655 Ser. T-58, Class 4A, 7 1/2s, 2043 1,289,536
657,070 Ser. T-42, Class A5, 7 1/2s, 2042 703,271
3,401 Ser. T-41, Class 3A, 7 1/2s, 2032 3,633
--------------
Total collateralized mortgage
obligations (cost $49,751,181) $49,182,427
Short-term investments (17.9%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$19,500,000 Federal National Mortgage
Association, 2.00%, December 13,
2004 $19,487,065
1,500,000 U.S. Treasury Bills zero %, December
30, 2004 (SEG) 1,497,807
106,100,000 Interest in $350,000,000 joint
tri-party repurchase agreement
dated November 30, 2004 with UBS
Securities due December 1, 2004 with
respect to various U.S. Government
obligations -- maturity value of
$106,106,101 for an effective yield
of 2.07% (collateralized by Fannie
Mae with yields ranging from 1.88%
to 7.00% and due dates ranging from
December 15, 2004 to November 15,
2030, valued at $357,004,016) 106,100,000
--------------
Total Short-term investments
(cost $127,084,872) $127,084,872
- -------------------------------------------------------------------------------
Total Investments
(cost $830,018,211) $828,526,558
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $710,622,275.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at November 30, 2004.
TBA after the name of a security represents to be announced securities
(Note 1).
Futures contracts outstanding at November 30, 2004
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
CBT Interest Rate
10 yr (Long) $92,413,875 $91,691,475 Dec-04 $722,400
Euro 90 day (Long) 17,554,050 17,596,365 Dec-04 (42,315)
Euro 90 day (Long) 5,341,050 5,362,790 Mar-05 (21,740)
Euro 90 day (Long) 5,326,200 5,341,527 Jun-05 (15,327)
Euro 90 day (Long) 5,313,550 5,322,527 Sep-05 (8,977)
Euro 90 day (Long) 5,302,825 5,305,665 Dec-05 (2,840)
Euro 90 day (Long) 1,925,200 1,921,130 Mar-06 4,070
Euro 90 day (Long) 1,922,700 1,917,130 Jun-06 5,570
U.S. Treasury Bond
10yr (Long) 77,192,750 77,869,005 Mar-05 (676,255)
U.S. Treasury Note
30 yr (Short) 53,190,375 54,411,457 Mar-05 1,221,082
U.S. Treasury Note
5 yr (Short) 25,901,094 26,019,088 Mar-05 117,994
- ------------------------------------------------------------------------------------------------------
$1,303,662
- ------------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at November 30, 2004
(proceeds receivable $25,911,595)
Principal Settlement
Agency amount date Value
- ------------------------------------------------------------------------------------------------------
FNMA, 6s, December 1, 2034 $25,100,000 12/13/04 $25,903,983
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at November 30, 2004
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A. dated
December 2, 2003 to pay semi-annually the
notional amount multiplied by 2.444% and
receive quarterly the notional amount
multiplied by the three month USD-LIBOR. $10,538,000 12/5/05 $(26,259)
Agreement with Bank of America N.A. dated
December 12, 2003 to pay semi-annually the
notional amount multiplied by 2.1125% and
receive quarterly the notional amount
multiplied by three month USD-LIBOR. 1,861,000 12/16/05 5,779
Agreement with Lehman Brothers Special
Financing, Inc. dated December 9, 2003 to
pay semi-annually the notional amount
multiplied by 4.64101% and receive quarterly
the notional amount multiplied by the three
month USD-LIBOR-BBA. 39,362,000 12/11/13 (623,942)
Agreement with Lehman Brothers Special
Financing, Inc. dated December 5, 2003 to
receive semi-annually the notional amount
multiplied by 2.23762% and pay quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 21,743,000 12/9/05 (20,203)
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 1.999% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 14,191,000 1/26/06 94,283
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 2.008% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 13,848,000 1/23/06 88,754
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 2.009% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 13,848,000 1/23/06 84,729
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 2.007% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 7,438,000 1/26/06 48,650
Agreement with Lehman Brothers Special
Financing, Inc. dated December 12, 2003 to
pay semi-annually the notional amount
multiplied by 4.579% and receive quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 5,783,000 12/16/13 (60,910)
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 4.375% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 4,692,000 1/26/14 45,048
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 4.408% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 4,578,000 1/23/14 29,475
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 4.419% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 4,578,000 1/23/14 25,876
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003 to
pay semi-annually the notional amount
multiplied by 4.71% and receive quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 4,268,000 12/15/13 (89,074)
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 4.379% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 2,403,000 1/26/14 22,316
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003 to
pay semi-annually the notional amount
multiplied by 2.235% and receive quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 1,020,000 12/15/05 1,240
- ------------------------------------------------------------------------------------------------------
$(374,238)
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
November 30, 2004
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$723,918,211) (Note 1) $722,426,558
- -------------------------------------------------------------------------------
Investments in repurchase agreements, at value (identified
cost $106,100,000) (Note 1) 106,100,000
- -------------------------------------------------------------------------------
Cash 129,929
- -------------------------------------------------------------------------------
Interest and other receivables 5,577,656
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 192,103
- -------------------------------------------------------------------------------
Receivable for securities sold 26,062,392
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 446,150
- -------------------------------------------------------------------------------
Total assets 860,934,788
Liabilities
- -------------------------------------------------------------------------------
Payable for variation margin (Note 1) 41,388
- -------------------------------------------------------------------------------
Distributions payable to shareholders 110,064
- -------------------------------------------------------------------------------
Payable for securities purchased 120,808,686
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,123,077
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 5) 607,995
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 411,531
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 63,342
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,438
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 289,554
- -------------------------------------------------------------------------------
Payable for open swaps (Note 1) 820,388
- -------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$25,911,595) (Note 1) 25,903,983
- -------------------------------------------------------------------------------
Other accrued expenses 130,067
- -------------------------------------------------------------------------------
Total liabilities 150,312,513
- -------------------------------------------------------------------------------
Net assets $710,622,275
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) $705,445,867
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,972,740
- -------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 3,758,285
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (554,617)
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $710,622,275
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($340,044,259 divided by 65,867,871 shares) $5.16
- -------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $5.16)* $5.33
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($180,802,181 divided by 34,941,824 shares)** $5.17
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($16,629,038 divided by 3,220,417 shares)** $5.16
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($8,399,180 divided by 1,620,478 shares) $5.18
- -------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $5.18)* $5.29
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($71,596 divided by 13,866 shares) $5.16
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($164,676,021 divided by 31,951,285 shares) $5.15
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended November 30, 2004
Interest income: $22,515,661
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,002,847
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 2,229,973
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 255,695
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 26,914
- -------------------------------------------------------------------------------
Administrative services (Note 2) 13,879
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 933,999
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,916,161
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 210,801
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 41,740
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 128
- -------------------------------------------------------------------------------
Other 307,397
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 5) 35,170
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 5) (35,170)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (760,323)
- -------------------------------------------------------------------------------
Total expenses 9,179,211
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (77,432)
- -------------------------------------------------------------------------------
Net expenses 9,101,779
- -------------------------------------------------------------------------------
Net investment income 13,413,882
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,602,041
- -------------------------------------------------------------------------------
Net realized loss on swap contracts (Note 1) (789,086)
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 2,068,124
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 1,144,671
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts, swap contracts and TBA sale commitments during the year (2,845,141)
- -------------------------------------------------------------------------------
Net gain on investments 2,180,609
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $15,594,491
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended November 30
Decrease in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $13,413,882 $12,925,449
- -------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 5,025,750 12,165,422
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,845,141) (1,734,560)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 15,594,491 23,356,311
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (5,996,426) (7,617,460)
- -------------------------------------------------------------------------------
Class B (2,253,619) (3,076,877)
- -------------------------------------------------------------------------------
Class C (180,753) (241,025)
- -------------------------------------------------------------------------------
Class M (151,327) (234,336)
- -------------------------------------------------------------------------------
Class R (354) --
- -------------------------------------------------------------------------------
Class Y (3,145,923) (2,897,316)
- -------------------------------------------------------------------------------
From net realized short-term gain on investments
Class A (1,228,110) (2,053,244)
- -------------------------------------------------------------------------------
Class B (804,888) (1,379,848)
- -------------------------------------------------------------------------------
Class C (76,640) (133,739)
- -------------------------------------------------------------------------------
Class M (37,371) (62,829)
- -------------------------------------------------------------------------------
Class R (3) --
- -------------------------------------------------------------------------------
Class Y (498,806) (765,454)
- -------------------------------------------------------------------------------
From net realized long-term gain on investments
Class A (2,046,848) (561,571)
- -------------------------------------------------------------------------------
Class B (1,341,480) (394,333)
- -------------------------------------------------------------------------------
Class C (127,732) (37,551)
- -------------------------------------------------------------------------------
Class M (62,286) (20,985)
- -------------------------------------------------------------------------------
Class R (5) --
- -------------------------------------------------------------------------------
Class Y (831,342) (179,914)
- -------------------------------------------------------------------------------
Redemption fees (Note 1) 2,627 --
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (229,596,455) (304,484,181)
- -------------------------------------------------------------------------------
Total decrease in net assets (232,783,250) (300,784,352)
- -------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------
Beginning of year 943,405,525 1,244,189,877
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $1,972,740 and
distributions in excess of net investment
income of $141,565, respectively) $710,622,275 $943,405,525
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- --------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.17 $5.10 $4.90 $4.81
- --------------------------------------------------------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------------------------------------------------------
Net investment income .10 (c) .06 .17 .26 (f) .28
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments -- (d) .04 .12 .19 .06
- --------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 .10 .29 .45 .34
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.06) (.20) (.25) (.25)
- --------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.09) (.22) (.25) (.25)
- --------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.16 $5.18 $5.17 $5.10 $4.90
- --------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.00 2.00 5.85 9.29 7.23
- --------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $340,044 $439,463 $588,232 $327,332 $217,197
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.01 (c) .98 .97 .96 1.00
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.82 (c) 1.26 3.18 5.15 5.84
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- --------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund for the period ended November 30, 2004 reflect a reduction of 0.10% based on average net
assets for class A shares (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term
trading strategy.
(f) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- --------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.19 $5.18 $5.11 $4.91 $4.81
- --------------------------------------------------------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------------------------------------------------------
Net investment income .06 (c) .03 .14 .23 (f) .25
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .01 .04 .12 .19 .07
- --------------------------------------------------------------------------------------------------------------
Total from
investment operations .07 .07 .26 .42 .32
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.03) (.17) (.22) (.22)
- --------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.06) (.19) (.22) (.22)
- --------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.17 $5.19 $5.18 $5.11 $4.91
- --------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.38 1.38 5.21 8.61 6.79
- --------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $180,802 $290,981 $410,169 $194,202 $103,543
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.61 (c) 1.58 1.57 1.56 1.60
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.21 (c) .65 2.47 4.49 5.24
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- --------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund for the period ended November 30, 2004 reflect a reduction of 0.10% based on average net
assets for class B shares (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term
trading strategy.
(f) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- --------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.17 $5.10 $4.90 $4.81
- --------------------------------------------------------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------------------------------------------------------
Net investment income .06 (c) .02 .13 .21 (f) .24
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments -- (d) .04 .12 .20 .06
- --------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 .06 .25 .41 .30
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.02) (.16) (.21) (.21)
- --------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.05) (.18) (.21) (.21)
- --------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.16 $5.18 $5.17 $5.10 $4.90
- --------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.24 1.23 5.06 8.46 6.38
- --------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $16,629 $28,346 $38,613 $18,335 $5,221
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.76 (c) 1.73 1.72 1.71 1.75
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.06 (c) .49 2.38 4.23 5.12
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- --------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund for the period ended November 30, 2004 reflect a reduction of 0.10% based on average net
assets for class C shares (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term
trading strategy.
(f) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- --------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.20 $5.18 $5.11 $4.92 $4.82
- --------------------------------------------------------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------------------------------------------------------
Net investment income .09 (c) .05 .16 .25 (f) .26
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 .06 .12 .18 .08
- --------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 .11 .28 .43 .34
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.06) (.19) (.24) (.24)
- --------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.09) (.21) (.24) (.24)
- --------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.18 $5.20 $5.18 $5.11 $4.92
- --------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.85 2.04 5.68 8.88 7.26
- --------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $8,399 $12,376 $21,874 $15,244 $9,121
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.16 (c) 1.13 1.12 1.11 1.15
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.66 (c) 1.12 3.07 4.95 5.69
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- --------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund for the period ended November 30, 2004 reflect a reduction of 0.10% based on average net
assets for class M shares (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term
trading strategy.
(f) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- -------------------------------------------------------------------
For the
period
December 1,
2003+ to
Per-share November 30
operating performance 2004
- -------------------------------------------------------------------
Net asset value,
beginning of period $5.18
- -------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------
Net investment income .08
- -------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01
- -------------------------------------------------------------------
Total from
investment operations .09
- -------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------
From net
investment income (.07)
- -------------------------------------------------------------------
From net realized
gain on investments (.04)
- -------------------------------------------------------------------
Total distributions (.11)
- -------------------------------------------------------------------
Redemption fees -- (d)
- -------------------------------------------------------------------
Net asset value,
end of period $5.16
- -------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.78
- -------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------
Net assets, end of period
(in thousands) $72
- -------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.26 (c)
- -------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.63 (c)
- -------------------------------------------------------------------
Portfolio turnover (%) 262.64
- -------------------------------------------------------------------
+ Commencement of operations.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended
November 30, 2004 reflect a reduction of less than 0.10% based on
average net assets for class R shares (Note 2).
(d) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- --------------------------------------------------------------------------------------------------------------
Per-share Year ended November 30
operating performance 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.17 $5.16 $5.09 $4.90 $4.80
- --------------------------------------------------------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------------------------------------------------------
Net investment income .11 (c) .07 .18 .27 (f) .29
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 .05 .12 .18 .07
- --------------------------------------------------------------------------------------------------------------
Total from
investment operations .12 .12 .30 .45 .36
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.08) (.21) (.26) (.26)
- --------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.03) (.02) -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.11) (.23) (.26) (.26)
- --------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.15 $5.17 $5.16 $5.09 $4.90
- --------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.28 2.27 6.13 9.35 7.73
- --------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $164,676 $172,240 $185,303 $171,498 $132,245
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .76 (c) .73 .72 .71 .75
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.07 (c) 1.51 3.55 5.41 6.11
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- --------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund for the period ended November 30, 2004 reflect a reduction of 0.10% based on average net
assets for class Y shares (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term
trading strategy.
(f) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the periods.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
November 30, 2004
Note 1
Significant accounting policies
Putnam Limited Duration Government Fund (the "fund"), a Massachusetts
business trust, formerly Putnam Intermediate U.S. Government Income
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 consistent with preservation of capital,
through investments primarily in U.S. government securities.
The fund offers class A, class B, class C, class M, class R and class Y
shares. The fund began offering class R shares on December 1, 2003.
Class A shares are sold with a maximum front-end sales charge of 3.25%.
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, class M and class R shares, and
are subject to a contingent deferred sales charge, if those shares are
redeemed within four years of purchase. Class C shares have a higher
ongoing distribution fee than class A, class B, class M and class R
shares and 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 2.00% and pay an ongoing distribution fee that
is higher than class A shares but lower than class B, class C and class
R shares. Class R shares are sold without a front-end sales charge and
pay an ongoing distribution fee that is higher than class A and class M
shares, but lower than class B and class C shares. Class R shares are
offered to qualified employee-benefit plans. Class Y shares, which are
sold at net asset value, are generally subject to the same expenses as
class A, class B, class C, class M and class R shares, but do not bear a
distribution fee. Class Y shares are sold to certain eligible pur
chasers including certain defined contribution plans (including
corporate IRAs), bank trust departments and trust companies.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam), a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchang ing into another fund)
within 5 days of purchase. The redemption fee is accounted for as an
addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses
of the fund are borne pro-rata based on the relative net assets of each
class to the total net assets of the fund, except that each class bears
expenses unique to that class (including the distribution fees
applicable to such classes). 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 account ing policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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, including mortgage backed securities,
are valued at fair value on the basis of valuations provided by an
independent pricing service, approved by the Trustees. Such service
providers use information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining
value.
Restricted securities are valued at fair value following procedures
approved by the Trustees. Such valuations and procedures are reviewed
periodically by the Trustees. Short-term investments having remaining
maturities of 60 days or less are valued at amortized cost, which
approximates fair value.
B) Joint trading account Pursuant to an Executive Order from the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances, including cash collateral received under security lending
arrange ments, into a joint trading account along with the cash of
other registered investment companies and certain other accounts managed
by Putnam Investment Management, LLC ("Putnam Management"), the fund's
manager, an indirect wholly-owned subsidiary of Putnam, LLC. These
balances may be invested in issuers of high-grade short-term investments
having maturities of up to 397 days for collateral received under
security lending arrangements and up to 90 days for other cash
investments.
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 recorded 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. All premiums/discounts are amortized/accreted on a
yield-to-maturity basis.
E) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. Risks may exceed amounts recognized on the statement
of assets and liabilities. When the contract is closed, the fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities. If a written call
option is exercised, the premium originally received is recorded as an
addition to sales proceeds. If a written put option is exercised, the
premium originally received is recorded as an addition to the cost of
investments.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
F) Interest rate swap contracts The fund may enter into interest rate swap
contracts, which are arrangements between two parties to exchange cash
flows based on a notional principal amount, to manage the fund's exposure
to interest rates. Interest rate swap contracts are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made are
recorded as realized gains or loss. The fund could be exposed to credit or
market risk due to unfavorable changes in the fluctuation of interest
rates or if the counterparty defaults on its obligation to perform. Risk
of loss may exceed amounts recognized on the statement of assets and
liabilities. Interest rate swap contracts outstanding at period end, if
any, are listed after the fund's portfolio.
G) TBA purchase commitments The fund may enter into "TBA" (to be
announced) commitments to purchase securities for a fixed unit price at
a future date beyond customary settlement time. Although the unit price
has been established, the principal value has not been finalized.
However, the amount of the commitments will not significantly differ
from the principal amount. The fund holds, and maintains until
settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at fair value of the underlying
securities, 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.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
H) 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 fair 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. TBA sale commitments outstanding at period end, if any, are listed
after the fund's portfolio.
I) 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 of 1986 (the "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 Code, 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.
J) Distributions to shareholders The fund declares a distribution each day
based upon the projected net investment income, for a specified period,
calculated as if earned pro-rata through out the period on a daily basis.
Such distributions are recorded daily and paid monthly. Distribu tions
from capital gains, 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. These
differences include temporary and permanent differences of losses on wash
sale transactions, dividends payable, realized and unrealized gains and
losses on certain futures contracts, tax equalization and income on swap
contract . Reclassi fications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. For the year ended November
30, 2004, the fund reclassified $428,825 to increase undistributed net
investment income and $683,645 to increase paid-in-capital, with an
decrease to accumulated net realized gains of $1,112,470.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $1,821,929
Unrealized depreciation (3,387,620)
------------
Net unrealized depreciation (1,565,691)
Undistributed short term gain 5,924,414
Cost for federal income
tax purposes $830,092,249
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the lesser of (i) the annual rate of 0.50% of the average
net assets of the fund or (ii) 0.60% of the first $500 million of
average net assets, 0.50% of the next $500 million, 0.45% of the next
$500 million, 0.40% of the next $5 billion, 0.375% of the next $5
billion, 0.355% of the next $5 billion, 0.34% of the next $5 billion,
and 0.33% thereafter.
Effective January 28, 2004, Putnam Management has agreed to waive fees
and reimburse expenses of the fund through November 30, 2005 to the
extent necessary to ensure that the fund's expenses do not exceed the
average expenses of the front-end load funds viewed by Lipper Inc. as
having the same investment classification or objective as the fund. The
expense reimbursement is based on a comparison of the fund's expenses
with the average annualized operating expenses of the funds in its
Lipper peer group for each calendar quarter during the fund's last
fiscal year, excluding 12b-1 fees and without giving effect to any
expense offset and brokerage service arrangements that may reduce fund
expenses. For the year ended November 30, 2004, Putnam Management waived
$760,323 of its management fee from the fund.
For the period ended November 30, 2004, Putnam Management has assumed
$35,170 of legal, shareholder servicing and communication, audit and
Trustee fees incurred by the fund in connection with certain legal and
regulatory matters (including those described in Note 5).
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, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the year ended November 30, 2004, the fund
paid PFTC $2,261,201 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended November 30, 2004,
the fund's expenses were reduced by $77,432 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,212, as a quarterly retainer, has been allocated to the fund,
and an additional fee for each Trustees meeting attended. 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities. The Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C, class M and class R shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose of the
Plans is to compensate Putnam Retail Management, a wholly-owned
subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for
services provided and expenses incurred in distributing shares of the
fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00%, and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 0.85%, 1.00%, 0.40%, and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the year ended November 30, 2004, Putnam Retail Management, acting
as underwriter, received net commissions of $36,395 and $557 from the
sale of class A and class M shares, respectively, and received $564,122
and $13,760 in contingent deferred sales charges from redemptions of
class B and class C shares, respectively. A deferred sales charge of up
to 1.00% and 0.40% is assessed on certain redemptions of class A and
class M shares, respectively. For the year ended November 30, 2004,
Putnam Retail Management, acting as underwriter, received $5,202 and no
monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended November 30, 2004, cost of purchases and proceeds
from sales of investment securities other than U.S. government
securities and short-term investments aggregated $1,111,709,235 and
$1,578,462,504, respectively. Purchases and sales of U.S. government
securities aggregated $573,375,611 and $388,920,530, respectively.
Note 4
Capital shares
At November 30, 2004 there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended November 30, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 15,553,592 $80,377,452
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,647,428 8,515,434
- ----------------------------------------------------------------
17,201,020 88,892,886
Shares repurchased (36,136,818) (186,767,835)
- ----------------------------------------------------------------
Net decrease (18,935,798) $(97,874,949)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 40,870,621 $212,807,861
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,766,174 9,186,018
- ----------------------------------------------------------------
42,636,795 221,993,879
Shares repurchased (71,702,985) (372,467,388)
- ----------------------------------------------------------------
Net decrease (29,066,190) $(150,473,509)
- ----------------------------------------------------------------
Year ended November 30, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 6,182,510 $31,994,563
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 697,613 3,617,674
- ----------------------------------------------------------------
6,880,123 35,612,237
Shares repurchased (27,966,127) (144,882,038)
- ----------------------------------------------------------------
Net decrease (21,086,004) $(109,269,801)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 27,051,608 $141,158,852
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 759,903 3,959,532
- ----------------------------------------------------------------
27,811,511 145,118,384
Shares repurchased (51,012,561) (265,593,909)
- ----------------------------------------------------------------
Net decrease (23,201,050) $(120,475,525)
- ----------------------------------------------------------------
Year ended November 30, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 1,270,041 $6,564,472
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 63,269 327,127
- ----------------------------------------------------------------
1,333,310 6,891,599
Shares repurchased (3,581,250) (18,538,634)
- ----------------------------------------------------------------
Net decrease (2,247,940) $(11,647,035)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 4,444,566 $23,154,160
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 64,617 335,942
- ----------------------------------------------------------------
4,509,183 23,490,102
Shares repurchased (6,513,079) (33,841,863)
- ----------------------------------------------------------------
Net decrease (2,003,896) $(10,351,761)
- ----------------------------------------------------------------
Year ended November 30, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 549,737 $2,860,401
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 45,045 227,790
- ----------------------------------------------------------------
594,782 3,088,191
Shares repurchased (1,353,201) (7,025,424)
- ----------------------------------------------------------------
Net decrease (758,419) $(3,937,233)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,060,755 $5,544,300
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 53,673 280,251
- ----------------------------------------------------------------
1,114,428 5,824,551
Shares repurchased (2,955,981) (15,431,383)
- ----------------------------------------------------------------
Net decrease (1,841,553) $(9,606,832)
- ----------------------------------------------------------------
For the period December 1, 2003
(commencement of operations)
to November 30, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 14,014 $71,093
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 70 359
- ----------------------------------------------------------------
14,084 71,452
Shares repurchased (218) (1,121)
- ----------------------------------------------------------------
Net increase 13,866 $70,331
- ----------------------------------------------------------------
Year ended November 30, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 2,776,775 $14,518,764
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 902,881 4,476,071
- ----------------------------------------------------------------
3,679,656 18,994,835
Shares repurchased (5,017,181) (25,932,603)
- ----------------------------------------------------------------
Net decrease (1,337,525) $(6,937,768)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 5,975,481 $31,054,809
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 738,901 3,836,429
- ----------------------------------------------------------------
6,714,382 34,891,238
Shares repurchased (9,349,490) (48,467,792)
- ----------------------------------------------------------------
Net decrease (2,635,108) $(13,576,554)
- ----------------------------------------------------------------
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") and the Massachusetts
Securities Division representing a final settlement of all charges
brought against Putnam Management by those agencies on October 28, 2003
in connection with excessive short-term trading by Putnam employees and,
in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans. The
settlement with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
The fund may experience increased redemptions as a result of these
matters, which could result in increased transaction costs and operating
expenses.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $588,190 as long term capital gain, for its
taxable year ended November 30, 2004.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
Results of November 11, 2004 shareholder meeting
(Unaudited)
A special meeting of shareholders of the fund was held on November 11,
2004. At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes Votes
for withheld
- -----------------------------------------------------------------
Jameson A. Baxter 74,783,919 15,685,530
Charles B. Curtis 74,819,539 15,649,910
Myra R. Drucker 74,722,852 15,746,597
Charles E. Haldeman, Jr. 74,777,277 15,692,172
John A. Hill 74,765,288 15,704,161
Ronald J. Jackson 74,825,309 15,644,140
Paul L. Joskow 74,791,278 15,678,171
Elizabeth T. Kennan 74,746,193 15,723,256
John H. Mullin, III 74,843,527 15,625,922
Robert E. Patterson 74,863,342 15,606,107
George Putnam, III 74,807,895 15,661,554
A.J.C. Smith 74,718,848 15,750,601
W. Thomas Stephens 74,829,917 15,639,532
Richard B. Worley 74,741,422 15,728,027
A proposal to amend the fund's fundamental investment restriction with
respect to borrowing to allow the fund the investment flexibility
permitted by the Investment Company Act was adjourned.*
A proposal to amend the fund's fundamental investment restriction with
respect to making loans to enhance the fund's ability to participate in an
interfund borrowing and lending program was adjourned.*
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments to enhance the fund's ability to
invest in registered investment companies such as Putnam Prime Money
Market Fund was adjourned.*
A proposal to amend the fund's Agreement and Declaration of Trust to
permit the fund to satisfy redemption requests other than in cash was
adjourned.*
* Since sufficient votes in favor of this proposal were not received as of
November 11, 2004, the shareholder meeting with respect to this proposal has
been adjourned until no later than January 10, 2005 to permit further
solicitation in the Trustees' discretion.
All tabulations are rounded to nearest whole number.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48), Trustee since 2004
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a
member of the Investment Committee of the Kresge Foundation (a
charitable trust). She is also Chair of the New York Stock Exchange
(NYSE) Pension Managers Advisory Committee and a member of the Executive
Committee of the Committee on Investment of Employee Benefit Assets.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of
the Board of Directors of General Motors Asset Management and Chief
Investment Officer of General Motors Trust Bank. Ms. Drucker also served
as a member of the NYSE Corporate Accountability and Listing Standards
Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) and was,
through 2004, a member of the Board of Overseers of the Peabody Essex
Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). Prior to 1990, he served as Executive Vice
President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company). Mr.
Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well,
Inc. (a diversified printing company). He served as Chairman of
Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest
products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45), Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48), Trustee since 2004
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Consultant to Marsh
& McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to November 2004, Mr. Smith was a Director of Marsh &
McLennan Companies, Inc. Prior to May 2000 and November 1999, Mr. Smith
was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of November 30, 2004, there were 110 Putnam Funds. All Trustees serve
as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman, Putnam, III, and Smith are deemed "interested persons"
by virtue of their positions as officers of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman
is President and Chief Executive Officer of Putnam Investments. Mr.
Smith serves as a Consultant to Marsh & McLennan Companies, Inc. and as
Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance
Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. During 2002, Chief
Operating Officer, Atalanta/Sosnoff Management
Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice
President, United Asset Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Putnam puts your interests first
In January 2004, Putnam announced a number of voluntary
initiatives designed to reduce fund expenses, provide
investors with more useful information, and help safeguard
the interests of all Putnam investors. Visit
www.putnaminvestments.com for details.
Cost-cutting initiatives
Reduced sales charges
The maximum sales charge for class A shares has been reduced
to 5.25% for equity funds (formerly 5.75%) and 4.50% for
most income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective
share class, the maximum amount that can be invested in
class B shares has been reduced to $100,000. (Larger trades
or accumulated amounts will be directed to class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including
management fees for all funds, will be maintained at or below the
average of each fund's industry peers in its Lipper load-fund
universe. For more information, please see the Statement of
Additional information.
Additional measures are being taken to reduce expenses for
shareholders in the six global and international funds that had
short-term trading issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being
revised to disclose additional information that will help
shareholders compare funds and weigh their costs and risks
along with their potential benefits. Shareholders will find
easy-to-understand information about fund expense ratios,
portfolio manager compensation, risk comparisons, brokerage
commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being
enhanced to alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a
fund's long-term strategy, a 2% short-term trading fee will be
imposed on any Putnam fund shares redeemed or exchanged within
five calendar days of purchase.
* The maximum sales charge for class A shares of Putnam
Limited Duration Government Income Fund (formerly Putnam
Intermediate U.S. Government Income Fund) and Putnam
Floating Rate Income Fund remains 3.25%.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Charles A. Ruys de Perez
Vice President and
Chief Compliance Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Limited
Duration Government Income Fund. It may also be used as sales literature
when preceded or accompanied by the current prospectus, the most recent
copy of Putnam's Quarterly Performance Summary, and Putnam's Quarterly
Ranking Summary. For more recent performance, please visit
www.putnaminvestments.com. Investors should carefully consider the
investment objective, risks, charges, and expenses of a fund, which are
described in its prospectus. For this and other information or to
request a prospectus, call 1-800-225-1581 toll free. Please read the
prospectus carefully before investing. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site
www.putnaminvestments.com.
AN036-216563 1/05
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Limited Duration Government Income Fund
(formerly Putnam Intermediate U.S. Government Income Fund)
Supplement to Annual Report dated 11/30/04
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their
holdings. Class Y shares are offered exclusively to clients that
meet the eligibility requirements specified in the fund's
prospectus for such shares. Performance of class Y shares, which
do not incur a front-end load, a distribution fee, or a
contingent deferred sales charge, will differ from the
performance of class A, B, C, M, and R shares, which are
discussed more extensively in the annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 11/30/04
NAV
1 year 2.28%
5 years 30.72
Annual average 5.50
10 years 83.03
Annual average 6.23
Life of fund (since class A inception, 2/16/93)
Annual average 5.38
Share value: NAV
11/30/03 $5.17
11/30/04 $5.15
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
12 $0.095855 $0.40 $0.135855
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results.
More recent returns may be more or less than those shown. Returns shown
for class Y shares for periods prior to their inception (10/1/97) are
derived from the historical performance of class A shares, and are not
adjusted to reflect the initial sales charge currently applicable to class
A shares. These returns have not been adjusted to reflect differences in
operating expenses which, for class Y shares, are lower than the operating
expenses applicable to class A shares. All returns assume reinvestment of
distributions at net asset value. Investment return and principal value
will fluctuate so your shares, when redeemed, may be worth more or less
than their original cost. See full report for information on comparative
benchmarks. If you have questions, please consult your fund prospectus or
call Putnam toll free at 1-800-752-9894.
Please see pages 13-14 of the accompanying shareholder report for a
discussion of the information appearing in the tables below:
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 11/30/04
Class Y
Expenses paid per $1,000* $3.84
Ending value (after expenses) $1,021.40
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 11/30/04
Class Y
Expenses paid per $1,000* $3.84
Ending value (after expenses) $1,021.20
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio+ 0.76%
Average annualized expense ratio for Lipper peer group ++ 0.79%
++ For class Y shares, Putnam has adjusted the Lipper total expense
average to reflect that class Y shares do not incur 12b-1 fees.
- ----------------------------------------------------------------------------
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person as
an audit committee financial expert pursuant to this Item 3 of Form N-CSR
does not impose on such person any duties, obligations or liability that
are greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
November 30, 2004 $30,177* $-- $3,800 $217
November 30, 2003 $25,300 $-- $3,300 $--
*Includes fees of $ 1,077 billed by the fund's independent auditor
to the fund for audit procedures necessitated by regulatory and
litigation matters. These fees were reimbursed to the fund by
Putnam.
For the fiscal years ended November 30, 2004 and November 30, 2003,
the fund's independent auditors billed aggregate non-audit fees in
the amounts of $4,017 and $3,300 , respectively, to the fund,
Putnam Management and any entity controlling, controlled by or
under common control with Putnam Management that provides ongoing
services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating
relating interfund trading .
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
November 30, 2004 $-- $-- $-- $--
November 30, 2003 $-- $-- $-- $--
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: January 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: January 28, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: January 28, 2005