Putnam
Limited Duration
Government
Income Fund*
Item 1. Report to Stockholders:
- -------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-05
[GRAPHIC OMITTED: LOCK]
* Formerly Putnam Intermediate
U.S. Government Income Fund
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the period ended May 31, 2005, the Federal Reserve Board's series
of gradual increases in the federal funds rate occupied investors'
attention. The Fed's more restrictive monetary policy, along with high
energy prices, has moderated the pace of the economic expansion. Recent
reports show the economy is growing at a respectable rate of about 3.5%
annually, but some investors believe that this pace cannot sustain
corporate profits near their robust levels of late. This concern has
held the stock market in check and focused attention on credit risk in
the bond market, even as long-term bond yields remained low. Major
credit rating agencies underscored market concerns in early May by
downgrading bonds issued by Ford and General Motors. Amid the
uncertainties of this environment, security selection takes on even
greater importance and the in-depth, professional research and active
management that mutual funds can provide makes them an intelligent
choice for today's investors.
We want you to know that Putnam Investments' management team, under the
leadership of Chief Executive Officer Ed Haldeman, continues to focus on
investment performance and remains committed to putting the interests of
shareholders first. In keeping with these goals, we are including
additional disclosure about your fund's management team in this report.
Following the Outlook for Your Fund, we provide manager compensation
information that pertains to your fund. In addition, on page 19 of this
report we provide information about the 2004 approval by the Trustees of
your fund's management contract with Putnam.
We would also like to take this opportunity to announce the retirement
of one of your fund's Trustees, Ronald J. Jackson, who has been an
independent Trustee of the Putnam funds since 1996. We thank him for his
service.
In the following pages, members of your fund's management team discuss
the fund's performance, the strategies used to pursue the fund's
investment objectives during the reporting period, and the team's
outlook for the months ahead.
As always, we thank you for your continuing confidence in Putnam.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 20, 2005
Report from Fund Management
Fund highlights
* During the semiannual period ended May 31, 2005, Putnam Limited
Duration Government Income Fund's class A shares had a total return of
1.26% without sales charges.
* The fund's primary benchmark, the Lehman Intermediate Government Bond
Index, returned 1.84%.
* The average return for the fund's Lipper category, Short-Intermediate
U.S. Government Funds, was 1.31%.
* Your fund's name and investment strategy have changed. See page 5 for
details.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
Your fund earned a modestly positive return for the period, reflecting a
generally favorable environment. Bond markets showed surprising
resilience in the face of a solidly growing economy (which often exerts
upward pressure on bond yields and downward pressure on bond prices),
continued increases in the federal funds rate by the Federal Reserve
Board (the Fed), and inflationary pressures. However, the fund's
performance lagged that of its benchmark for the period. A key reason
was the fund's duration position, which we kept conservatively short to
protect against potential loss of principal in the event of rising
interest rates. (Bond prices move in the opposite direction of interest
rates.) Over the period long-term rates declined and long-term bond
prices rose. This trend constrained the portfolio's returns compared to
the benchmark, which contained relatively more long-term securities. The
fund's performance at net asset value (NAV, or without sales charges)
was in line with that of its Lipper peer group average.
- --------------------------------------------------
TOTAL RETURN FOR
PERIODS ENDED 5/31/05
- --------------------------------------------------
Class A
(inception 2/16/93) NAV POP
- --------------------------------------------------
6 months 1.26% -1.97%
- --------------------------------------------------
1 year 3.28 -0.05
- --------------------------------------------------
5 years 29.21 25.02
Annual average 5.26 4.57
- --------------------------------------------------
10 years 69.99 64.44
Annual average 5.45 5.10
- --------------------------------------------------
Annual average
(life of fund) 5.12 4.83
- --------------------------------------------------
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 short-term trading fee of up to 2% may apply.
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
The Fed continued to lift short-term interest rates in small, gradual
increments throughout the period. These actions extended the cycle of
monetary tightening the central bank initiated in June 2004 in its
efforts to slow the pace of economic growth. Longer-term rates, however,
were another story. Confounding the expectations of most analysts, these
rates fell in the period's first months. In February, Fed Chairman Alan
Greenspan said that he was baffled by the decline, and in March the Fed
signaled greater concern about inflationary pressures in the economy. In
reaction, interest rates rose across the board in the following weeks.
However, by early April, the downward trend in longer-term bond yields
had resumed, a slide that persisted through the period's end.
This three-stage pattern also held for the yield premiums of
nongovernment bonds over U.S. Treasuries. Early in the period, the gap
between yields of Treasuries and those of securities in the so-called
"spread" sectors, such as agencies and mortgage-backed securities,
continued to narrow. When rates spiked in February and March, yield
spreads widened. And when rates recommenced their retreat in April and
May, spreads contracted once again. As a result, most spread sectors
outperformed Treasuries for the period.
Amid decidedly mixed interest-rate trends -- shorter-term rates rising
even as longer-term rates fell -- most bond-market indexes posted gains
for the period.
- -------------------------------------------------------------------------------
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 5/31/05
- -------------------------------------------------------------------------------
Bonds
- -------------------------------------------------------------------------------
Lehman Intermediate Government Bond Index
(intermediate-maturity U.S. Treasury and agency securities) 1.84%
- -------------------------------------------------------------------------------
Lehman Aggregate Bond Index (broad bond market) 2.90%
- -------------------------------------------------------------------------------
Lehman Municipal Bond Index (tax-exempt bonds) 3.52%
- -------------------------------------------------------------------------------
JP Morgan Global High Yield Index (global high-yield
corporate bonds) 0.99%
- -------------------------------------------------------------------------------
Equities
- -------------------------------------------------------------------------------
S&P 500 Index (broad stock market) 2.42%
- -------------------------------------------------------------------------------
Russell 1000 Index (large-company stocks) 3.31%
- -------------------------------------------------------------------------------
MSCI EAFE Index (international stocks) 1.81%
- -------------------------------------------------------------------------------
These indexes provide an overview of performance in different market
sectors for the six months ended 5/31/05.
- -------------------------------------------------------------------------------
Strategy overview
We make two key strategic decisions in managing your 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.
Based on these estimates, we then strive to position the portfolio 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 (for example, mortgage-backed
securities, or 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 11/30/04 as of 5/31/05
Fixed-rate
mortgage-backed
securities 35.9% 42.5%
U.S. Treasury
securities 48.5% 38.3%
Cash and short-term
investments 17.9% 10.7%
U.S. government
agency obligations 8.7% 6.4%
Adjustable rate
mortgage-backed
securities 2.1% 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. A portion of the short-term investments
reflects amounts used to settle TBA purchase commitments.
How fund holdings affected performance
In keeping with its objective of capital preservation, the fund
maintained a duration profile throughout the period that was shorter
than that of the benchmark. As mentioned in the Performance Commentary
section, this conservative positioning dampened fund returns versus the
benchmark, as longer-term interest rates fell during the period.
In terms of sector allocations, the fund's holdings in mortgage-backed
securities (MBSs), which outpaced Treasuries for the period, aided
performance. MBS prices benefited from the attraction of their
relatively higher yields as interest rates declined. The downgrades of
General Motors and Ford Motor bonds to below-investment-grade status in
early May hurt the MBS market in sympathy for a few weeks, but the
adverse effects of the downgrades had evaporated by the end of the
period. Holdings in mortgage interest-only securities also fared well,
as the greater yields offered by these securities became more appealing
to investors.
The fund was underweighted in agency securities during the period,
reflecting our belief that securities offering comparable risk/reward
profiles could be obtained in the MBS market at more attractive prices.
This underweight positioning proved detrimental to performance during
the period as intense demand from Asian investors drove agency bond
prices higher. We still believe that over the long term, MBSs offer
better relative value than agencies. Another, longer-term reason for
preferring MBS over agencies is that foreign central banks are gradually
expanding their investment universe from Treasuries and agencies to MBSs
as they become more sophisticated about U.S. income investments.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
11/30/04 5/31/05
Average effective
maturity in years 3.8 3.9
Duration in years 2.7 1.8
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.
In terms of issuers, we continued to prefer Fannie Mae securities over
Ginnie Maes and Freddie Macs during the period, a strategy that slightly
aided returns. In our view, Ginnie Maes have tended to be overpriced due
to robust demand from Asian banks and constricted supply. The market for
Fannie Maes is also larger and more liquid than those for Ginnie Maes
and Freddie Macs, facilitating transactions.
The portfolio's emphasis on longer-maturity securities (specifically,
30-year versus 15-year securities) was also a slight positive, as
investors were drawn to the higher yields of longer-dated paper. We also
continued to favor older, more seasoned mortgages, a positioning that
was especially beneficial within our interest-only mortgage holdings. We
believe the market is not correctly pricing for older securities'
relative lack of volatility and lower prepayment risk.
At the beginning of the period, the fund was weighted toward
premium-coupon securities such as FNMA 6.5%s and 7.0%s. These securities
underperformed in the period's first weeks, and as the period progressed
we gradually sold them in favor of seasoned interest-only and
lower-coupon bonds; by the end of May, 5.5%s were heavily represented in
the portfolio. We have tended to avoid 5%s, which have been in such
great demand that they have become richly priced, in our opinion.
In the first months of the period we positioned the portfolio to benefit
from yield-curve flattening, a strategy that slightly enhanced returns.
We gradually moved to a neutral stance by the end of April and remained
in that position through the end of the period.
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
Effective November 30, 2004, Putnam Intermediate U.S. Government Income
Fund was renamed Putnam Limited Duration Government Income Fund to more
accurately reflect its investment objectives and strategies. The fund's
investment policy was also amended at that time. The former policy, as
stated in the fund's prospectus, called for maintaining a
dollar-weighted maturity of three to ten years. After January 21, 2005,
under the new policy, the fund has typically maintained 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 have
remained the same.
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.
Our economists foresee continued steady, moderate economic growth with a
slight increase in inflation. Such an environment is consistent with
further short-term interest-rate increases by the Fed and with rising
long-term bond yields, despite recent anomalous trends to the contrary.
Given today's historically low interest rates, we believe it is prudent
to protect the fund from rising interest rates -- that is, to maintain a
short duration profile -- as in our view interest rates are likelier to
rise than to fall over the next several months.
With regard to sectors, we continue to emphasize MBSs over agencies.
Although the mortgage sector has outperformed Treasuries for well over a
year, 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 maintain a
preference for longer-maturity instruments, whose higher yields support
their prices while enhancing fund income, and for more seasoned
securities as they are less exposed to prepayment risk.
In coming months, we will strive to preserve capital while seeking
opportunities for greater income.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Mutual funds that
invest in government securities are not guaranteed. Mortgage-backed
securities are subject to prepayment risk. 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.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income
Team. Kevin Cronin is the Portfolio Leader of the fund. Rob Bloemker and
Daniel Choquette are Portfolio Members. The Portfolio Leader and
Portfolio Members 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 Members have invested in the fund (in dollar ranges).
Information shown is as of May 31, 2005, and May 31, 2004.
- -------------------------------------------------------------------------------------------------------------
FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
- -------------------------------------------------------------------------------------------------------------
$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
- -------------------------------------------------------------------------------------------------------------
Kevin Cronin 2005 *
- -------------------------------------------------------------------------------------------------------------
Portfolio Leader 2004 *
- -------------------------------------------------------------------------------------------------------------
Rob Bloemker 2005 *
- -------------------------------------------------------------------------------------------------------------
Portfolio Member 2004 *
- -------------------------------------------------------------------------------------------------------------
Daniel Choquette 2005 *
- -------------------------------------------------------------------------------------------------------------
Portfolio Member N/A
- -------------------------------------------------------------------------------------------------------------
N/A indicates the individual was not a Portfolio Leader or Portfolio
Member as of 5/31/04.
Fund manager compensation
The total 2004 fund manager compensation that is attributable to your
fund is approximately $380,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in
this section for their portfolio management responsibilities, calculated
based on the fund assets they manage taken as a percentage of the total
assets they manage. The compensation amount also includes a portion of
the 2004 compensation paid to the Chief Investment Officer of the team
and the Group Chief Investment Officer of the fund's broader investment
category for their oversight responsibilities, calculated based on the
fund assets they oversee taken as a percentage of the total assets they
oversee. This amount does not include compensation of other personnel
involved in research, trading, administration, systems, compliance, or
fund operations; nor does it include non-compensation costs. These
percentages are determined as of the fund's fiscal period-end. For
personnel who joined Putnam Management during or after 2004, the
calculation reflects annualized 2004 compensation or an estimate of 2005
compensation, as applicable.
Other Putnam funds managed by the Portfolio Leader and Portfolio Members
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 The
George Putnam Fund of Boston and Putnam Equity Income Fund.
Rob Bloemker is also a Portfolio Member of Putnam American Government
Income Fund, Putnam Diversified Income Trust, Putnam Income Fund, Putnam
Master Intermediate Income Trust, Putnam Premier Income Trust, and
Putnam U.S. Government Income Trust.
Daniel Choquette is also a Portfolio Member of Putnam American
Government Income Fund and Putnam U.S. Government Income Trust.
Kevin Cronin, Rob Bloemker, and Daniel Choquette may also manage other
accounts and variable trust funds advised by Putnam Management or an
affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the year ended May 31, 2005, Portfolio Member Daniel Choquette
joined your fund's management team.
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 as of
May 31, 2005, and May 31, 2004.
- --------------------------------------------------------------------------------------------------
PUTNAM EXECUTIVE BOARD
- --------------------------------------------------------------------------------------------------
$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
- --------------------------------------------------------------------------------------------------
Philippe Bibi 2005 *
- --------------------------------------------------------------------------------------------------
Chief Technology Officer 2004 *
- --------------------------------------------------------------------------------------------------
John Boneparth 2005 *
- --------------------------------------------------------------------------------------------------
Head of Global Institutional Mgmt 2004 *
- --------------------------------------------------------------------------------------------------
Joshua Brooks 2005 *
- --------------------------------------------------------------------------------------------------
Deputy Head of Investments N/A
- --------------------------------------------------------------------------------------------------
Kevin Cronin 2005 *
- --------------------------------------------------------------------------------------------------
Head of Investments 2004 *
- --------------------------------------------------------------------------------------------------
Charles Haldeman, Jr. 2005 *
- --------------------------------------------------------------------------------------------------
President and CEO 2004 *
- --------------------------------------------------------------------------------------------------
Amrit Kanwal 2005 *
- --------------------------------------------------------------------------------------------------
Chief Financial Officer 2004 *
- --------------------------------------------------------------------------------------------------
Steven Krichmar 2005 *
- --------------------------------------------------------------------------------------------------
Chief of Operations 2004 *
- --------------------------------------------------------------------------------------------------
Francis McNamara, III 2005 *
- --------------------------------------------------------------------------------------------------
General Counsel 2004 *
- --------------------------------------------------------------------------------------------------
Richard Monaghan 2005 *
- --------------------------------------------------------------------------------------------------
Head of Retail Management 2004 *
- --------------------------------------------------------------------------------------------------
Richard Robie, III 2005 *
- --------------------------------------------------------------------------------------------------
Chief Administrative Officer 2004 *
- --------------------------------------------------------------------------------------------------
Edward Shadek 2005 *
- --------------------------------------------------------------------------------------------------
Deputy Head of Investments N/A
- --------------------------------------------------------------------------------------------------
N/A indicates the individual was not a member of Putnam's Executive
Board as of 5/31/04.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended May 31, 2005. 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.
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 5/31/05
- ---------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------
NAV POP NAV CDSC NAV CDSC NAV POP NAV
- ---------------------------------------------------------------------------------------------------------------------------
6 months 1.26% -1.97% 0.96% -2.03% 0.88% -0.12% 1.18% -0.93% 1.14%
- ---------------------------------------------------------------------------------------------------------------------------
1 year 3.28 -0.05 2.66 -0.34 2.52 1.52 3.10 1.15 3.02
- ---------------------------------------------------------------------------------------------------------------------------
5 years 29.21 25.02 25.32 25.32 24.17 24.17 28.14 25.51 27.74
Annual average 5.26 4.57 4.62 4.62 4.42 4.42 5.08 4.65 5.02
- ---------------------------------------------------------------------------------------------------------------------------
10 years 69.99 64.44 60.30 60.30 57.02 57.02 67.87 64.47 65.72
Annual average 5.45 5.10 4.83 4.83 4.62 4.62 5.32 5.10 5.18
- ---------------------------------------------------------------------------------------------------------------------------
Annual average
(life of fund) 5.12 4.83 4.50 4.50 4.29 4.29 4.98 4.81 4.86
- ---------------------------------------------------------------------------------------------------------------------------
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 shares 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.
- -----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/05
- -----------------------------------------------------------------------
Lipper Short-
Lehman Intermediate Intermediate U.S.
Government Government Funds
Bond Index category average*
- -----------------------------------------------------------------------
6 months 1.84% 1.31%
- -----------------------------------------------------------------------
1 year 4.06 3.06
- -----------------------------------------------------------------------
5 years 36.67 29.75
Annual average 6.45 5.34
- -----------------------------------------------------------------------
10 years 79.67 66.06
Annual average 6.03 5.19
- -----------------------------------------------------------------------
Annual average
(life of fund) 5.83 5.12
- -----------------------------------------------------------------------
Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 5/31/05, there
were 80, 80, 67, and 47 funds, respectively, in this Lipper category.
- -----------------------------------------------------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/05
- -----------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- -----------------------------------------------------------------------------------------------------------------------------
Distributions (number) 6 6 6 6 6
- -----------------------------------------------------------------------------------------------------------------------------
Income $0.051073 $0.035691 $0.031947 $0.047193 $0.044689
- -----------------------------------------------------------------------------------------------------------------------------
Capital gains
- -----------------------------------------------------------------------------------------------------------------------------
Long-term -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Short-term $0.043000 $0.043000 $0.043000 $0.043000 $0.043000
- -----------------------------------------------------------------------------------------------------------------------------
Total $0.094073 $0.078691 $0.074947 $0.090193 $0.087689
- -----------------------------------------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP NAV
- -----------------------------------------------------------------------------------------------------------------------------
11/30/04 $5.16 $5.33 $5.17 $5.16 $5.18 $5.29 5.16
- -----------------------------------------------------------------------------------------------------------------------------
5/31/05 5.13 5.30 5.14 5.13 5.15 5.26 5.13
- -----------------------------------------------------------------------------------------------------------------------------
Current return
(end of period)
- -----------------------------------------------------------------------------------------------------------------------------
Current dividend rate 1 2.55% 2.47% 1.95% 1.80% 2.39% 2.34% 2.30%
- -----------------------------------------------------------------------------------------------------------------------------
Current 30-day
SEC yield 2 2.85 2.75 2.25 2.09 2.70 2.64 2.60
- -----------------------------------------------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/05 (MOST RECENT CALENDAR QUARTER)
- ---------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------
NAV POP NAV CDSC NAV CDSC NAV POP NAV
- ---------------------------------------------------------------------------------------------------------------------------
6 months 0.68% -2.54% 0.59% -2.41% 0.31% -0.69% 0.61% -1.49% 0.57%
- ---------------------------------------------------------------------------------------------------------------------------
1 year 2.97 -0.35 2.53 -0.47 2.20 1.20 2.79 0.84 2.70
- ---------------------------------------------------------------------------------------------------------------------------
5 years 27.34 23.27 23.75 23.75 22.62 22.62 26.29 23.74 25.82
Annual average 4.95 4.27 4.35 4.35 4.16 4.16 4.78 4.35 4.70
- ---------------------------------------------------------------------------------------------------------------------------
10 years 67.34 61.98 58.15 58.15 54.59 54.59 65.32 61.98 63.19
Annual average 5.28 4.94 4.69 4.69 4.45 4.45 5.16 4.94 5.02
- ---------------------------------------------------------------------------------------------------------------------------
Annual average
(life of fund) 5.08 4.80 4.48 4.48 4.26 4.26 4.94 4.78 4.83
- ---------------------------------------------------------------------------------------------------------------------------
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
December 1, 2004, to May 31, 2005. It also shows how much a $1,000
investment would be worth at the close of the period, assuming actual
returns and expenses.
- -----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 5/31/05
- -----------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- -----------------------------------------------------------------------------
Expenses paid per
$1,000* $5.17 $8.17 $8.91 $5.92 $6.42
- -----------------------------------------------------------------------------
Ending value (after
expenses) $1,012.60 $1,009.60 $1,008.80 $1,011.80 $1,011.40
- -----------------------------------------------------------------------------
* 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 5/31/05.
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 May
31, 2005, use the calculation method below. To find the value of your
investment on December 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 12/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
- -----------------------------------------------------------------------------
HOW TO CALCULATE THE EXPENSES YOU PAID
- -----------------------------------------------------------------------------
Total
Value of your Expenses paid expenses
investment on 12/1/04 [DIV] $1,000 X per $1,000 = paid
- -----------------------------------------------------------------------------
Example Based on a $10,000 investment in class A shares of your fund.
- -----------------------------------------------------------------------------
$10,000 [DIV] $1,000 X $5.17 (see table above) = $51.70
- -----------------------------------------------------------------------------
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 5/31/05
- ------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ------------------------------------------------------------------------------
Expenses paid per
$1,000* $5.19 $8.20 $8.95 $5.94 $6.44
- ------------------------------------------------------------------------------
Ending value (after
expenses) $1,019.80 $1,016.80 $1,016.06 $1,019.05 $1,018.55
- ------------------------------------------------------------------------------
* 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 5/31/05.
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 the average of its peer
group, as defined 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 1.03% 1.63% 1.78% 1.18% 1.28%
- ------------------------------------------------------------------------------
Average annualized expense
ratio for Lipper peer
group+ 1.04% 1.64% 1.79% 1.19% 1.29%
- ------------------------------------------------------------------------------
+ Simple average of the expenses of all front-end load funds in the fund's
Lipper peer group, calculated in accordance with Lipper's standard
method for comparing fund expenses (excluding 12b-1 fees and without
giving effect to any expense offset and brokerage service arrangements
that may reduce fund expenses). This average reflects each fund's
expenses for its most recent fiscal year available to Lipper as of
3/31/05. 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 smaller or larger than the
fund, which may limit the comparability of the fund's expenses to the
simple average, which typically is higher than the asset-weighted
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 managers 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 or other fixed-income instruments 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 139% 175% 166% 158% 129%
- ------------------------------------------------------------------------------
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 compatibility of the fund's portfolio turnover rate to the Lipper
average. Comparative data for 2004 is based on information available as
of 3/31/05.
* Portfolio turnover excludes certain Treasury note transactions
executed in connection with a short-term trading strategy.
Risk comparison
This risk comparison is designed 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.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.07
Taxable bond
fund average 0.30
0% INCREASING RISK 100%
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 June 30, 2005. A higher
Overall Morningstar Risk generally indicates that a fund's monthly
returns have varied more widely.
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 purchase. 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 of global
high-yield fixed-income securities.
Lehman Aggregate Bond Index is an unmanaged index of U.S.
investment-grade fixed-income securities.
Lehman Intermediate Government Bond Index is an unmanaged index of U.S.
Treasury and agency securities 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 equity securities from developed countries in Western Europe,
the Far East, and Australasia.
Russell 1000 Index is an unmanaged index of the 1,000 largest 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.
Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of
each fund and, as required by law, determines annually whether to
approve the continuance of each fund's management contract with Putnam
Management. In this regard the Board of Trustees, with the assistance of
its Contract Committee consisting solely of Independent Trustees,
requests and evaluates all information it deems reasonably necessary in
the circumstances. Over the course of several months beginning in March
and ending in June of 2004, the Contract Committee reviewed the
information provided by Putnam Management and other information
developed with the assistance of the Board's independent counsel and
independent staff. The Contract Committee reviewed and discussed key
aspects of this information with all of the Independent Trustees. Upon
completion of this review, the Contract Committee recommended and the
Independent Trustees approved the continuance of your fund's contract,
effective July 1, 2004.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
reasonable compensation in light of the nature and quality of the
services being provided to the fund, the fees paid by competitive funds
and the costs incurred by Putnam Management in providing such service,
and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may
exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any
single factor. Some of the factors that figured particularly in the
Trustees' deliberations are described below.
Model fee schedules and categories; total expenses
The Trustees, working in cooperation with Putnam Management, have
developed and implemented a series of model fee schedules for the Putnam
funds designed to ensure that each fund's management fee is consistent
with the fees for similar funds in the Putnam complex and compares
favorably with fees paid by competitive funds sponsored by other advisors.
The Trustees reviewed the model fee schedule currently in effect for the
fund, including fee levels and breakpoints, and the assignment of the fund
to a particular fee category under this structure. The Trustees also
reviewed comparative fee and expense information for competitive funds.
The Trustees concluded that no changes should be made in the fund's
current fee schedule at this time. The Trustees noted that expense ratios
for a number of Putnam funds had been increasing recently as a result of
declining net assets and the natural operation of fee breakpoints. They
noted that such expense ratio increases were currently being controlled by
expense limitations implemented in January 2004. They also noted that the
competitive landscape regarding mutual fund fees may be changing as a
result of fee reductions accepted by various other fund groups in
connection with recent regulatory settlements and greater focus on fees
and expenses in the mutual fund industry generally. The Trustees indicated
an intention to monitor these developments closely.
Economies of scale
As noted above, the Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies
of scale at current asset levels. The Trustees indicated their intention
to continue their ongoing consideration of economies of scale and in
particular to consider further the possible operation of such economies
in the event that a significant recovery in the equity markets or net
fund sales were to raise asset levels substantially above current
levels. In this regard, the Trustees noted that they had reviewed data
relating to the substantial increase in asset levels of the Putnam funds
that occurred during the years leading up to the market peak in 2000,
the subsequent decline in assets and the resulting impact on revenues
and expenses of Putnam Management. The Trustees also noted that recent
declines in net assets in many Putnam funds, together with significant
changes in the cost structure of Putnam Management have altered the
economics of Putnam Management's business in significant ways. The
Trustees concluded that they would monitor these changes carefully and
evaluate the resulting impact on Putnam Management's economics and the
sharing of economies of scale between the parties.
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under the Management Contracts.
The Trustees recognized that a high quality investment process -- as
measured by the experience and skills of the individuals assigned to the
management of fund portfolios, the resources made available to such
personnel, and in general the ability of Putnam Management to attract
and retain high-quality personnel -- does not guarantee favorable
investment results for every fund in every time period. The Trustees
considered the investment performance of each fund over multiple time
periods and considered information comparing the fund's performance with
various benchmarks and with the performance of competitive funds. The
Trustees noted the satisfactory investment performance of many Putnam
funds.
They also noted the disappointing investment performance of certain
funds in recent years and continued to discuss with senior management of
Putnam Management the factors contributing to such under-performance and
actions being taken to improve performance. The Trustees recognized
that, in recent years, Putnam Management has made significant changes in
its investment personnel and processes and in the fund product line in
an effort to address areas of underperformance. The Trustees indicated
their intention to continue to monitor performance trends to assess the
effectiveness of these changes and to evaluate whether additional
remedial changes are warranted. As a general matter, the Trustees
concluded that consultation between the Trustees and Putnam Management
represents the most effective way to address investment performance
problems. The Trustees believe that investors in the Putnam funds and
their financial advisors have, as a general matter, effectively placed
their trust in the Putnam organization, under the supervision of the
funds' Trustees, to make appropriate decisions regarding the management
of the funds. The Trustees believe that the termination of the
Management Contract and engagement of a new investment adviser for
under-performing funds, with all the attendant disruptions, would not
serve the interests of fund shareholders at this time and would not
necessarily provide any greater assurance of improved investment
performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam
Management may receive in connection with the services it provides under
the Management Contract with your fund. These include principally
benefits related to brokerage and soft-dollar allocations, which pertain
mainly to funds investing in equity securities. The Trustees believe
that soft-dollar credits and other potential benefits associated with
the allocation of fund brokerage represent assets of the funds that
should be used for the benefit of fund shareholders. The Trustees noted
recent trends in the allocation of fund brokerage, including commission
costs, the allocation of brokerage to firms that provide research
services to Putnam Management, and the sources and application of
available soft-dollar credits. Effective December 31, 2003, reflecting a
decision made by the Trustees earlier that year, Putnam Management
ceased allocating brokerage in connection with the sale of fund shares.
In addition, in preparing its budget for commission allocations in 2004,
Putnam Management voluntarily reduced substantially the allocation of
brokerage commissions to acquire research services from third-party
service providers. In light of evolving best practices in the mutual
fund industry, the Trustees concluded that this practice should be
further curtailed and possibly eliminated in the near future. The
Trustees indicated that they would continue to monitor the allocation of
the funds' brokerage to ensure that the principle of "best price and
execution" remains paramount in the portfolio trading process.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of the annual contract
reviews included information regarding fees charged by Putnam Management
and its affiliates to institutional clients such as defined benefit
pension plans and college endowments. This information included
comparison of such fees with fees charged to the Putnam funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees devoted special attention to
these issues and reviewed recent articles by critics of mutual fund
fees, articles by the ICI defending such fee differences, and relevant
guidance provided by decisions of the courts. The Trustees observed, in
this regard, that the differences in fee rates between institutional
clients and mutual funds are by no means uniform when examined by
individual asset sectors, suggesting that differences in the pricing of
investment management services to these types of clients reflects to a
substantial degree historical competitive forces operating in separate
market places. In reaching their conclusions, the Trustees considered
the fact that fee rates across all asset sectors are higher on average
for mutual funds than for institutional clients, and also considered the
differences between the services that Putnam provides to the Putnam
funds and those that it provides to institutional clients of the firm.
Settlement of regulatory charges related to market timing
Finally, in reaching their conclusions, the Trustees considered all
matters pertinent to the administrative charges filed against Putnam
Management by the SEC and the Commonwealth of Massachusetts in October
2003 relating to market timing, the firm's settlement of those charges,
and the conclusions and recommendations of the Trustees' Audit and
Pricing Committee based on its review of these matters. The Trustees
considered the actions taken by the owner of Putnam Management and its
new senior management to terminate or discipline the individuals
involved, to implement new compliance systems, to indemnify the funds
against all costs and liabilities related to these matters, and
otherwise to ensure that the interests of the funds and their
shareholders are fully protected. The Trustees noted that, in addition
to the settlements of the regulatory charges which will provide
comprehensive restitution for any losses suffered by shareholders, the
new senior management of Putnam Management has moved aggressively to
control expense ratios of funds affected by market timing, to reduce
charges to new investors, to improve disclosure of fees and expenses,
and to emphasize the paramount role of investment performance in
achieving shareholders' investment goals.
Other information for shareholders
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
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
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,
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 period.
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.
The fund's portfolio
May 31, 2005 (Unaudited)
U.S. government and agency mortgage obligations (81.9%) (a)
Principal amount Value
U.S. Government Guaranteed Mortgage Obligations (2.4%)
- -------------------------------------------------------------------------------
Government National Mortgage
Association Adjustable Rate
Mortgages
$13,530,412 4 1/2s, August 20, 2034 $13,563,338
97,080 3 3/4s, July 20, 2026 98,306
Government National Mortgage
Association Pass-Through
Certificates
1,669,948 7 1/2s, with due dates from December
15, 2023 to March 15, 2032 1,798,970
279,871 7s, with due dates from July 15,
2029 to May 15, 2032 297,902
--------------
15,758,516
U.S. Government Agency Mortgage Obligations (79.5%)
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation
67,239 7 1/2s, with due dates from April 1,
2016 to December 1, 2017 71,146
21,909,904 6 1/2s, with due dates from March 1,
2029 to March 1, 2035 22,773,549
88,500,281 5 1/2s, with due dates from November
1, 2008 to May 1, 2020 91,129,717
Federal National Mortgage
Association Pass-Through
Certificates
305,075 7 1/2s, with due dates from October
1, 2022 to November 1, 2030 327,150
22,455,290 7s, with due dates from July 1, 2023
to April 1, 2034 23,734,079
728,134 7s, with due dates from September 1,
2007 to January 1, 2015 765,451
4,800,000 7s, TBA, June 1, 2035 5,064,750
26,948,920 6 1/2s, with due dates from November
1, 2023 to October 1, 2034 28,031,435
1,654,416 6 1/2s, with due dates from February
1, 2014 to February 1, 2017 1,731,551
798,087 6s, with due dates from March 1,
2014 to October 1, 2016 827,950
4,406,840 5 1/2s, with due dates from April 1,
2020 to April 1, 2035 4,533,708
40,012,636 5 1/2s, with due dates from January
1, 2009 to March 1, 2020 41,151,419
109,577,000 5 1/2s, TBA, June 1, 2035 111,057,999
88,500,000 5 1/2s, TBA, June 1, 2020 90,864,614
319,320 5s, May 1, 2019 323,361
28,600,000 5s, TBA, June 1, 2035 28,568,717
66,600,000 4 1/2s, TBA, June 1, 2020 66,282,611
530,592 4s, June 1, 2019 518,799
--------------
517,758,006
--------------
Total U.S. government and agency
mortgage obligations
(cost $530,096,318) $533,516,522
U.S. government agency obligations (6.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
Freddie Mac
$24,400,000 6 7/8s, September 15, 2010 $27,770,372
12,580,000 6 5/8s, September 15, 2009 13,870,162
--------------
Total U.S. government agency
obligations (cost $41,380,350) $41,640,534
U.S. Treasury obligations (38.3%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
U.S. Treasury Notes
$1,300,000 4 1/4s, August 15, 2014 $1,325,188
65,596,000 4 1/4s, August 15, 2013 67,092,409
25,000,000 4s, February 15, 2014 25,070,313
102,000,000 3 1/4s, August 15, 2008 100,764,841
40,500,000 1 7/8s, January 31, 2006 40,126,639
15,000,000 1 1/8s, June 30, 2005 14,982,422
--------------
Total U.S. Treasury obligations
(cost $249,352,823) $249,361,812
Collateralized mortgage obligations (8.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
Fannie Mae
$2,883,020 Ser. 03-W6, Class PT1, 9.43s, 2042 $3,145,388
564,049 Ser. 04-W8, Class 3A, 7 1/2s, 2044 605,513
2,183,404 Ser. 04-T3, Class 1A4, 7 1/2s, 2044 2,342,360
467,604 Ser. 04-T2, Class 1A4, 7 1/2s, 2043 502,890
159,729 Ser. 03-W4, Class 4A, 7 1/2s, 2042 170,535
1,361,470 Ser. 02-T18, Class A4, 7 1/2s, 2042 1,457,573
3,887,388 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 4,161,156
7,960,879 Ser. 02-T16, Class A3, 7 1/2s, 2042 8,520,055
718,973 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 769,955
2,358,949 Ser. 02-W4, Class A5, 7 1/2s, 2042 2,522,669
97,857 Ser. 02-W1, Class 2A, 7 1/2s, 2042 104,046
369,346 Ser. 02-14, Class A2, 7 1/2s, 2042 394,778
2,239,808 Ser. 01-T10, Class A2, 7 1/2s, 2041 2,389,026
1,549,924 Ser. 02-T4, Class A3, 7 1/2s, 2041 1,653,661
564,881 Ser. 02-T6, Class A2, 7 1/2s, 2041 602,253
1,059,824 Ser. 01-T12, Class A2, 7 1/2s, 2041 1,131,016
609,827 Ser. 01-T8, Class A1, 7 1/2s, 2041 649,504
3,769,647 Ser. 01-T7, Class A1, 7 1/2s, 2041 4,011,331
13,911 Ser. 01-T3, Class A1, 7 1/2s, 2040 14,811
204,089 Ser. 99-T2, Class A1, 7 1/2s, 2039 218,221
626,043 Ser. 03-W10, Class 1A1, 7 1/2s, 2032 668,620
2,722,694 Ser. 02-T1, Class A3, 7 1/2s, 2031 2,907,035
1,158,128 Ser. 00-T6, Class A1, 7 1/2s, 2030 1,232,379
396,965 Ser. 02-W7, Class A5, 7 1/2s, 2029 424,724
375,188 Ser. 02-W3, Class A5, 7 1/2s, 2028 401,022
1,821,000 Ser. 05-45, Class OX, Interest Only
(IO), 7s, 2035 306,752
348,334 Ser. 318, Class 2, IO, 6s, 2032 61,299
13,001,995 Ser. 350, Class 2, IO, 5 1/2s, 2034 2,375,042
6,721,837 Ser. 338, Class 2, IO, 5 1/2s, 2033 1,249,341
6,891,782 Ser. 333, Class 2, IO, 5 1/2s, 2033 1,282,564
2,594,681 Ser. 329, Class 2, IO, 5 1/2s, 2033 480,247
1,886,718 Ser. 343, Class 25, IO, 4 1/2s, 2018 265,958
13,557,000 IFB Ser. 05-45, Class EW, 3.63s,
2035 818,573
2,014,673 Ser. 352, Class 1, Principal Only
(PO), zero %, 2034 1,660,694
2,951,218 Ser. 353, Class 1, PO, zero %, 2034 2,308,022
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
984,134 Ser. T-58, Class 4A, 7 1/2s, 2043 1,051,116
539,199 Ser. T-42, Class A5, 7 1/2s, 2042 576,002
250,850 Ser. T-41, Class 3A, 7 1/2s, 2032 267,377
Freddie Mac
1,045,210 Ser. 224, IO, 6s, 2033 166,251
6,337,217 Ser. 226, IO, 5 1/2s, 2034 1,204,016
1,283,834 Ser. 223, IO, 5 1/2s, 2032 226,898
205,347 Ser. 2600, Class CI, IO, 5 1/2s,
2029 43,120
2,971,661 Ser. 227, IO, 5s, 2034 656,985
--------------
Total Collateralized mortgage
obligations (cost $58,373,550) $56,000,778
Short-term investments (5.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$13,000,000 Federal Home Loan Bank for an
effective yield of 3.00%, June 10,
2005 $12,990,396
11,000,000 Federal Home Loan Bank for an
effective yield of 2.95%, June 3,
2005 10,998,225
1,025,000 U.S. Treasury Bills for an effective
rate of 2.77 %, June 30, 2005 (SEG) 1,022,731
50,000 U.S. Treasury Bills for an effective
rate of 2.77 %, June 23, 2005 (SEG) 49,915
11,704,000 Interest in $335,000,000 tri-party
joint repurchase agreement dated
May 31, 2005 with Merrill Lynch
Government Securities due June 1,
2005 with respect to various U.S.
government obligations -- maturity
value of $11,704,998 for an
effective yield of 3.07%
(collateralized by Fannie Maes and
Freddie Macs with yields ranging
from 4.00% to 10.50% and due dates
ranging from November 1, 2005 to
June 1, 2035, valued at
$341,702,255) 11,704,000
--------------
Total Short-term investments
(cost $36,765,267) $36,765,267
- -------------------------------------------------------------------------------
Total Investments
(cost $915,968,308) $917,284,913
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $651,656,495.
(SEG) These securities were pledged and segregated with the custodian to
cover margin requirements for futures contracts at May 31, 2005.
TBA after the name of a security represents to be announced securities
(Note 1).
At May 31, 2005, liquid assets totaling $181,916,059 have been
designated as collateral for forward commitments, open swap contracts,
and futures contracts.
Futures contracts outstanding at May 31, 2005
Unrealized
Number of Expiration appreciation/
contracts Value date (depreciation)
- ------------------------------------------------------------------------------------------------------
CBT Interest Rate
10 yr (Long) 825 $92,889,844 Jun-05 $3,079,978
Euro 90 day (Long) 46 11,106,700 Jun-05 (28,817)
Euro 90 day (Long) 46 11,070,475 Sep-05 (24,742)
Euro 90 day (Long) 45 10,813,500 Dec-05 (11,963)
Euro 90 day (Long) 31 7,444,263 Mar-05 10,522
Euro 90 day (Long) 8 1,919,900 Jun-05 2,770
U.S. Treasury Long
Bond (Short) 384 45,096,000 Sep-05 (394,680)
U.S. Treasury Note
2 yr (Short) 169 35,104,469 Sep-05 (39,690)
U.S. Treasury Note
5 yr (Short) 332 36,110,188 Sep-05 (89,184)
- ------------------------------------------------------------------------------------------------------
$2,504,194
- ------------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at May 31, 2005
(proceeds receivable $297,023,047)
Principal Settlement
Agency amount date Value
- ------------------------------------------------------------------------------------------------------
FHLMC, 5 1/2s, June 1, 2020 $88,500,000 6/16/05 $90,871,526
FNMA, 5 1/2s, June 1, 2020 132,800,000 6/16/05 136,348,256
FNMA, 5s, June 1, 2035 27,200,000 6/13/05 27,170,249
FNMA, 4 1/2s, June 1, 2020 44,700,000 6/16/05 44,486,978
- ------------------------------------------------------------------------------------------------------
$298,877,009
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at May 31, 2005
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 $11,784
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 the three month USD-LIBOR. 1,861,000 12/16/05 8,738
Agreement with Lehman Brothers Special
Financing, Inc. dated February 2, 2005 to
receive semi-annually the notional amount
multiplied by 4.089% and pay quarterly the
notional amount multiplied by the three
month USD-LIBOR-BBA. 91,000,000 2/4/10 827,653
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 (1,449,816)
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 the three month
USD-LIBOR-BBA. 21,743,000 12/9/05 (67,325)
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 94,712
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 88,500
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 88,500
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 49,128
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 the three
month USD-LIBOR-BBA. 5,783,000 12/16/13 (186,277)
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 (70,960)
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 (80,844)
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 (84,295)
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003 to pay
semi-annually the notional amount multiplied
by 4.710% and receive quarterly the notional
amount multiplied by the three month USD-LIBOR-BBA. 4,268,000 12/15/13 (179,787)
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 (35,617)
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 the three month USD-LIBOR-BBA. 1,020,000 12/15/05 3,460
- ------------------------------------------------------------------------------------------------------
$(982,446)
- ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at May 31, 2005
Unrealized
Notional appreciation/
amount (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A. effective April 4, 2005,
maturing on June 20, 2010, to receive quarterly the notional
amount times 23.25 basis points per annum. Upon a credit default
event of FNMA, 5.375%, November 11, 2010, the fund makes a
payment of the proportional notional amount times the difference
between the par value and the then-market value of FNMA, 5.375%,
November 11, 2010. $10,600,000 $19,673
Agreement with Bank of America, N.A. effective March 20, 2010,
maturing on December 20, 2009, to receive quarterly 18.5 basis
points times the notional amount. Upon a credit default event of
any FNMA senior note, the fund makes a payment of the proportional
notional amount times the difference between the par value and
the then-market value of any FNMA senior note. 9,700,000 (2,784)
Agreement with Bank of America, N.A. effective February 25, 2005,
maturing on March 20, 2010, to receive quarterly the notional
amount times 18.75 basis points per annum. Upon a credit default
event of FNMA, 5.375%, November 15, 2011, the fund makes a payment
of the proportional notional amount times the difference between
the par value and the then-market value of FNMA, 5.375%,
November 15, 2011. 6,500,000 (1,122)
Agreement with Credit Suisse First Boston International effective
January 26, 2005, maturing on March 20, 2010, to receive quarterly
the notional amount times 20.5 basis points per annum. Upon a credit
default event of FNMA, 5.25%, August 1, 2012, the fund makes a
payment of the proportional notional amount times the difference
between the par value and the then-market value of FNMA, 5.25%, 20,500,000 9,018
August 1, 2012.
Agreement with Credit Suisse First Boston International effective
February 18, 2005, maturing on March 20, 2010, to receive quarterly
the notional amount times 19 basis points per annum. Upon a credit
default event of FNMA, 5.25%, August 1, 2012, the fund makes a
payment of the proportional notional amount times the difference
between the par value and the then-market value of FNMA, 5.25%,
August 1, 2012. 3,300,000 (818)
- ------------------------------------------------------------------------------------------------------
$23,967
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
May 31, 2005 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $915,968,308) $917,284,913
- -------------------------------------------------------------------------------
Cash 32,910,468
- -------------------------------------------------------------------------------
Interest and other receivables 3,507,637
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 294,385
- -------------------------------------------------------------------------------
Receivable for securities sold 34,667,632
- -------------------------------------------------------------------------------
Receivable for delayed delivery securities sold 297,659,339
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,172,475
- -------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 28,691
- -------------------------------------------------------------------------------
Total assets 1,287,525,540
Liabilities
- -------------------------------------------------------------------------------
Payable for variation margin (Note 1) 19,405
- -------------------------------------------------------------------------------
Distributions payable to shareholders 159,765
- -------------------------------------------------------------------------------
Payable for securities purchased 32,560,814
- -------------------------------------------------------------------------------
Payable for delayed delivery securities purchased 299,699,470
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 957,415
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 832,620
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 191,552
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 66,860
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,899
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 257,546
- -------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 2,154,921
- -------------------------------------------------------------------------------
Payable for open credit default contracts (Note 1) 4,724
- -------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$297,023,047) (Note 1) 298,877,009
- -------------------------------------------------------------------------------
Other accrued expenses 84,045
- -------------------------------------------------------------------------------
Total liabilities 635,869,045
- -------------------------------------------------------------------------------
Net assets $651,656,495
- -------------------------------------------------------------------------------
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Notes 1 and
4) $651,464,728
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,700,322
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,516,913)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,008,358
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $651,656,495
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($320,072,163 divided by 62,427,144 shares) $5.13
- -------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $5.13)* $5.30
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($145,723,486 divided by 28,355,731 shares)** $5.14
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($15,254,170 divided by 2,974,727 shares)** $5.13
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($7,148,996 divided by 1,388,679 shares) $5.15
- -------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $5.15)*** $5.26
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($107,825 divided by 21,027 shares) $5.13
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($163,349,855 divided by 31,913,540 shares) $5.12
- -------------------------------------------------------------------------------
* 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.
*** On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales, the offering price is reduced.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended May 31, 2005 (Unaudited)
Interest income: $10,883,608
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,690,291
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 779,166
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 99,142
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 15,111
- -------------------------------------------------------------------------------
Administrative services (Note 2) 20,976
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 410,110
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 686,993
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 75,715
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 15,240
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 221
- -------------------------------------------------------------------------------
Other 86,541
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 5) 5,922
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 5) (5,922)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (45,405)
- -------------------------------------------------------------------------------
Total expenses 3,834,101
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (63,075)
- -------------------------------------------------------------------------------
Net expenses 3,771,026
- -------------------------------------------------------------------------------
Net investment income 7,112,582
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 532,080
- -------------------------------------------------------------------------------
Net realized loss on swap contracts (Note 1) (1,302,199)
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (648,636)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts and TBA sale commitments during
the period 1,562,975
- -------------------------------------------------------------------------------
Net gain on investments 144,220
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $7,256,802
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
Decrease in net assets 2005* 2004
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $7,112,582 $13,413,882
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,418,755) 5,025,750
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 1,562,975 (2,845,141)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 7,256,802 15,594,491
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (3,274,610) (5,996,426)
- -------------------------------------------------------------------------------
Class B (1,108,686) (2,253,619)
- -------------------------------------------------------------------------------
Class C (95,070) (180,753)
- -------------------------------------------------------------------------------
Class M (69,556) (151,327)
- -------------------------------------------------------------------------------
Class R (798) (354)
- -------------------------------------------------------------------------------
Class Y (1,836,280) (3,145,923)
- -------------------------------------------------------------------------------
From net realized short-term gain on investments
Class A (2,798,804) (1,228,110)
- -------------------------------------------------------------------------------
Class B (1,479,054) (804,888)
- -------------------------------------------------------------------------------
Class C (133,600) (76,640)
- -------------------------------------------------------------------------------
Class M (68,468) (37,371)
- -------------------------------------------------------------------------------
Class R (602) (3)
- -------------------------------------------------------------------------------
Class Y (1,375,915) (498,806)
- -------------------------------------------------------------------------------
From net realized long-term gain on investments
Class A -- (2,046,848)
- -------------------------------------------------------------------------------
Class B -- (1,341,480)
- -------------------------------------------------------------------------------
Class C -- (127,732)
- -------------------------------------------------------------------------------
Class M -- (62,286)
- -------------------------------------------------------------------------------
Class R -- (5)
- -------------------------------------------------------------------------------
Class Y -- (831,342)
- -------------------------------------------------------------------------------
Redemption fees (Note 1) 1,978 2,627
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (53,983,117) (229,596,455)
- -------------------------------------------------------------------------------
Total decrease in net assets (58,965,780) (232,783,250)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 710,622,275 943,405,525
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $2,700,322, and
$1,972,740, respectively) $651,656,495 $710,622,275
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.16 $5.18 $5.17 $5.10 $4.90 $4.81
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .06 (c) .10 (c) .06 .17 .26 (f) .28
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments -- (d) -- (d) .04 .12 .19 .06
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 .10 .10 .29 .45 .34
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.08) (.06) (.20) (.25) (.25)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.04) (.03) (.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.12) (.09) (.22) (.25) (.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- (d) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.13 $5.16 $5.18 $5.17 $5.10 $4.90
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.26* 2.00 2.00 5.85 9.29 7.23
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $320,072 $340,044 $439,463 $588,232 $327,332 $217,197
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .52* (c) 1.01 (c) .98 .97 .96 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.10* (c) 1.82 (c) 1.26 3.18 5.15 5.84
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.94* (g) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary contractual expense limitation in effect
during the period. As a result of such limitation, the expenses of the
fund for the periods ended May 31, 2005 and November 31, 2004 reflect a
reduction of 0.01% and 0.10%, respectively, of 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.
(g) Portfolio turnover excludes dollar roll transactions.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.17 $5.19 $5.18 $5.11 $4.91 $4.81
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .04 (c) .06 (c) .03 .14 .23 (f) .25
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 .01 .04 .12 .19 .07
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .05 .07 .07 .26 .42 .32
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.05) (.03) (.17) (.22) (.22)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.04) (.03) (.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.09) (.06) (.19) (.22) (.22)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- (d) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.14 $5.17 $5.19 $5.18 $5.11 $4.91
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.96* 1.38 1.38 5.21 8.61 6.79
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $145,723 $180,802 $290,981 $410,169 $194,202 $103,543
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81* (c) 1.61 (c) 1.58 1.57 1.56 1.60
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .80* (c) 1.21 (c) .65 2.47 4.49 5.24
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.94* (g) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary contractual expense limitation in effect
during the period. As a result of such limitation, the expenses of the
fund for the periods ended May 31, 2005 and November 31, 2004 reflect a
reduction of 0.01% and 0.10%, respectively, of 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.
(g) Portfolio turnover excludes dollar roll transactions.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.16 $5.18 $5.17 $5.10 $4.90 $4.81
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .04 (c) .06 (c) .02 .13 .21 (f) .24
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments -- (d) -- (d) .04 .12 .20 .06
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .04 .06 .06 .25 .41 .30
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.03) (.04) (.02) (.16) (.21) (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.04) (.03) (.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.08) (.05) (.18) (.21) (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- (d) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.13 $5.16 $5.18 $5.17 $5.10 $4.90
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.88* 1.24 1.23 5.06 8.46 6.38
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $15,254 $16,629 $28,346 $38,613 $18,335 $5,221
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89* (c) 1.76 (c) 1.73 1.72 1.71 1.75
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .73* (c) 1.06 (c) .49 2.38 4.23 5.12
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.94* (g) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary contractual expense limitation in effect
during the period. As a result of such limitation, the expenses of the
fund for the periods ended May 31, 2005 and November 31, 2004 reflect a
reduction of 0.01% and 0.10%, respectively, of 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.
(g) Portfolio turnover excludes dollar roll transactions.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.20 $5.18 $5.11 $4.92 $4.82
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .06 (c) .09 (c) .05 .16 .25 (f) .26
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments -- (d) .01 .06 .12 .18 .08
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 .10 .11 .28 .43 .34
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.08) (.06) (.19) (.24) (.24)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.04) (.03) (.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.12) (.09) (.21) (.24) (.24)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- (d) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.15 $5.18 $5.20 $5.18 $5.11 $4.92
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.18* 1.85 2.04 5.68 8.88 7.26
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,149 $8,399 $12,376 $21,874 $15,244 $9,121
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .59* (c) 1.16 (c) 1.13 1.12 1.11 1.15
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.02* (c) 1.66 (c) 1.12 3.07 4.95 5.69
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.94* (g) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary contractual expense limitation in effect
during the period. As a result of such limitation, the expenses of the
fund for the periods ended May 31, 2005 and November 31, 2004 reflect a
reduction of 0.01% and 0.10%, respectively, of 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.
(g) Portfolio turnover excludes dollar roll transactions.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- ---------------------------------------------------------------------------------------
Six months For the period
ended December 1,
November 30 2003+ to
Per-share (Unaudited) November 30
operating performance 2005 2004
- ---------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.16 $5.18
- ---------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------
Net investment income .05 (c) .08 (c)
- ---------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments .01 .01
- ---------------------------------------------------------------------------------------
Total from
investment operations .06 .09
- ---------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------
From net
investment income (.05) (.07)
- ---------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.04)
- ---------------------------------------------------------------------------------------
Total distributions (.09) (.11)
- ---------------------------------------------------------------------------------------
Redemption fees -- (d) -- (d)
- ---------------------------------------------------------------------------------------
Net asset value,
end of period $5.13 $5.16
- ---------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.14* 1.78
- ---------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $108 $72
- ---------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .64* (c) 1.26 (c)
- ---------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .99* (c) 1.63 (c)
- ---------------------------------------------------------------------------------------
Portfolio turnover (%) 163.94* (e) 262.64
- ---------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary contractual expense limitation in effect
during the period. As a result of such limitation, the expenses of the
fund for the periods ended May 31, 2005 and November 31, 2004 reflect a
reduction of 0.01% and 0.10%, respectively, of average net assets for
class R shares (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes dollar roll transactions.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.15 $5.17 $5.16 $5.09 $4.90 $4.80
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .07 (c) .11 (c) .07 .18 .27 (f) .29
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments -- (d) .01 .05 .12 .18 .07
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .07 .12 .12 .30 .45 .36
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.10) (.08) (.21) (.26) (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.04) (.04) (.03) (.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.14) (.11) (.23) (.26) (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (d) -- (d) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.12 $5.15 $5.17 $5.16 $5.09 $4.90
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.37* 2.28 2.27 6.13 9.35 7.73
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $163,350 $164,676 $172,240 $185,303 $171,498 $132,245
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .39* (c) .76 (c) .73 .72 .71 .75
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.23* (c) 2.07 (c) 1.51 3.55 5.41 6.11
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.94* (g) 262.64 509.05 (e) 538.64 (e) 224.31 (e) 401.30
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary contractual expense limitation in effect
during the period. As a result of such limitation, the expenses of the
fund for the periods ended May 31, 2005 and November 31, 2004 reflect a
reduction of 0.01% and 0.10%, respectively, of 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.
(g) Portfolio turnover excludes dollar roll transactions.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
May 31, 2005 (Unaudited)
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. Class A and class M shares are sold with a maximum front-end
sales charge of 3.25% and 2.00%, respectively, and do not pay a
contingent deferred sales charge. Class B shares, which convert to class
A shares after approximately eight years, do not pay a front-end sales
charge and are subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. Class C shares have a
one-year 1.00% contingent deferred sales charge and do not convert to
class A shares. Class R shares, which are offered to qualified
employee-benefit plans are sold without a front-end sales charge or a
contingent deferred sales charge. The expenses for class A, class B,
class C, class M and class R shares may differ based on each class'
distribution fee, which is identified in Note 2. 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
purchasers including certain defined contribution plans (including
corporate IRAs), bank trust departments and trust companies.
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.
In the normal course of business, the fund enters into contracts that
may include agreements to indemnify another party under given
circumstances. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be, but have not
yet been, made against the fund. However, the fund expects the risk of
material loss to be remote.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with 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, includ ing mortgage backed
securities, are valued 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 re maining maturities of 60 days or less are valued
at amortized cost, which approximates fair value.
B) Joint trading account Pursuant to an exemptive order from the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances, including cash collateral received under security lending
arrangements, 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 issues 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 a reduction 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) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront or
periodic payment to a counter party, the protection seller, in exchange
for the right to receive a contingent payment. The maximum amount of the
payment may equal the notional amount, at par, of the underlying index
or security as a result of a related credit event. An upfront payment
received by the fund, as the protection seller, is recorded as a
liability on the fund's books. An upfront payment made by the fund, as
the protection buyer, is recorded as an asset on the fund's books.
Periodic payments received or paid by the fund are recorded as realized
gains or losses. The credit default 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 as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Risks of loss may exceed amounts
recognized on the statement of assets and liabilities. Credit default
contracts out standing at period end, if any, are listed after the
fund's portfolio.
H) 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.
I) 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.
J) Dollar rolls To enhance returns, the fund may enter into dollar rolls
(principally using TBAs) in which the fund sells securities for delivery
in the current month and simultaneously contracts to purchase similar
securities on a specified future date. During the period between the
sale and subsequent purchase, the fund will not be entitled to receive
income and principal payments on the securities sold. The fund will,
however, retain the difference between the initial sales price and the
forward price for the future purchase. The fund will also be able to
earn interest on the cash proceeds that are received from the initial
sale. The fund may be exposed to market or credit risk if the price of
the security changes unfavorably or the counterparty fails to perform
under the terms of the agreement.
K) 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.
The aggregate identified cost on a tax basis is $916,042,346, resulting
in gross unrealized appreciation and depreciation of $5,990,948 and
$4,748,381, respectively, or net unrealized appreciation of $1,242,567.
L) 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 prorata throughout the period on a daily
basis. Such distributions are recorded daily and paid monthly.
Distributions 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. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
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.
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 period ended
May 31, 2005, Putnam Management waived $45,405 of its management fee
from the fund.
For the period ended May 31, 2005, Putnam Management has assumed $5,922 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 six months ended May 31, 2005, the
fund paid PFTC $878,080 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 six months ended May 31, 2005
the fund's expenses were reduced by $63,075 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,127, 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.
George Putnam III also receives the foregoing fees for his services as
Trustee.
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 six months ended May 31, 2005 Putnam Retail Management, acting
as underwriter, received net commissions of $13,774 and $157 from the
sale of class A and class M shares, respectively, and received $122,086
and $1,130 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 six
months ended May 31, 2005, Putnam Retail Management, acting as
underwriter, received $3,359 and no monies on class A and class M
redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended May 31, 2005, cost of purchases and proceeds
from sales of investment securities other than U.S. government
securities and short-term investments aggregated $867,113,497 and
$769,776,260, respectively. Purchases and sales of U.S. government
securities aggregated $2,088,121 and $99,723,000, respectively.
Note 4
Capital shares
At May 31, 2005, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 2005
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 6,926,358 $35,444,042
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,083,397 5,554,213
- ----------------------------------------------------------------
8,009,755 40,998,255
Shares repurchased (11,450,482) (58,595,590)
- ----------------------------------------------------------------
Net decrease (3,440,727) $(17,597,335)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended May 31, 2005
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 1,728,059 $8,866,898
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 420,394 2,160,805
- ----------------------------------------------------------------
2,148,453 11,027,703
Shares repurchased (8,734,546) (44,808,100)
- ----------------------------------------------------------------
Net decrease (6,586,093) $(33,780,397)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended May 31, 2005
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 711,573 $3,640,706
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 38,453 197,271
- ----------------------------------------------------------------
750,026 3,837,977
Shares repurchased (995,716) (5,104,211)
- ----------------------------------------------------------------
Net decrease (245,690) $(1,266,234)
- ----------------------------------------------------------------
Year ended November 30, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 1,270,041 $2,860,401
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 63,269 227,790
- ----------------------------------------------------------------
1,333,310 3,088,191
Shares repurchased (3,581,250) (7,025,424)
- ----------------------------------------------------------------
Net decrease (2,247,940) $(3,937,233)
- ----------------------------------------------------------------
Six months ended May 31, 2005
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 95,737 $492,178
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 24,896 128,154
- ----------------------------------------------------------------
120,633 620,332
Shares repurchased (352,432) (1,812,599)
- ----------------------------------------------------------------
Net decrease (231,799) $(1,192,267)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended May 31, 2005
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 14,623 $74,958
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 272 1,292
- ----------------------------------------------------------------
14,895 76,250
Shares repurchased (7,734) (39,563)
- ----------------------------------------------------------------
Net increase 7,161 $36,687
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Six months ended May 31, 2005
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 986,893 $5,052,718
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 627,809 3,212,195
- ----------------------------------------------------------------
1,614,702 8,264,913
Shares repurchased (1,652,447) (8,448,484)
- ----------------------------------------------------------------
Net decrease (37,745) $(183,571)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Note 5
Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected 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.
Pursuant to these settlement agreements, Putnam Manage ment will pay a
total of $193.5 million in penalties and restitution, with $153.5
million being paid to shareholders and the funds. The restitution amount
will be allocated to shareholders pursuant to a plan developed by an
independent consultant, with payments to shareholders following approval
of the plan by the SEC and the Massachusetts Securities Division.
The Securities and Exchange Commission'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 will bear any costs incurred by
Putnam funds in connection with these lawsuits. 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.
Putnam Investments has recorded a charge of $30 million for the
estimated cost that it believes will be necessary to address issues
relating to the calculation of certain amounts paid by the Putnam mutual
funds in previous years. The previous payments were cost reimbursements
by the Putnam funds to Putnam for transfer agent services relating to
defined contribution operations. Putnam currently anticipates that any
payments made by Putnam related to this issue will be paid to the Putnam
funds. Review of this issue is ongoing.
Results of November 11, 2004 and January 10, 2005 shareholder meetings
(Unaudited)
A special meeting of shareholders of the fund was held on November 11,
2004. At that meeting consideration of certain proposals was adjourned
to a final meeting held on January 10, 2005.
November 11, 2004 meeting
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 74,772,852 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
January 10, 2005 meeting
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 defeated as follows:
Votes Votes
For Against Abstentions
- -----------------------------------------------------------------
40,553,501 3,980,683 46,062,053
* Mr. Jackson retired from the Board of Trustees on June 10, 2005.
+ Mr. Smith resigned from the Board of Trustees on January 14, 2005.
All tabulations are rounded to nearest whole number.
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 defeated as follows:
Votes Votes
For Against Abstentions
- -----------------------------------------------------------------
40,666,603 4,033,350 45,896,284
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 defeated as follows:
Votes Votes
For Against Abstentions
- -----------------------------------------------------------------
42,140,162 2,640,834 45,815,240
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
defeated as follows:
Votes Votes
For Against Abstentions
- -----------------------------------------------------------------
40,262,428 3,830,513 46,503,295
All tabulations are rounded to nearest whole number.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund before investing. For a prospectus
containing this and other information for any Putnam fund or product, call
your financial advisor at 1-800-225-1581 and ask for a prospectus. Please
read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital
Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth
and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*+
High Yield Trust*
Income Fund
Limited Duration Government
Income Fund++
Money Market Fund[SECTION MARK]
U.S. Government Income Trust
* A 1% redemption fee on total assets redeemed or exchanged between 6 and
90 days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
++ Formerly Putnam Intermediate U.S. Government Income Fund.
[SECTION MARK] An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the fund seeks to
preserve your investment at $1.00 per share, it is possible
to lose money by investing in the fund.
The Putnam family of funds
Tax-free Income Funds
AMT-Free Insured Municipal Fund**
Tax Exempt Income Fund
Tax Exempt Money Market Fund
Tax-Free High Yield Fund
State tax-free income funds:
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio, and Pennsylvania
Asset Allocation Portfolios
Putnam Asset Allocation Portfolios--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
Putnam RetirementReady[REGISTRATION MARK] Funds
Putnam RetirementReady Funds -- ten investment portfolios that offer
diversification among stocks, bonds, and money market instruments and adjust
to become more conservative over time based on a target date for withdrawing
assets.
The ten funds:
Putnam RetirementReady 2050 Fund
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund
** Formerly Putnam Tax-Free Insured Fund.
With the exception of money market funds, a 2% redemption fee may be
applied to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end performance at
www.putnaminvestments.com.
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
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
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
Daniel T. Gallagher
Senior Vice President, Staff
Counsel and Compliance Liaison
Beth S. Mazor
Vice President
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
Vice President, 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.
SA036-225874 7/05
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Limited Duration Government Income Fund
Supplement to Semiannual Report dated 5/31/05
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 semiannual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 5/31/05
NAV
6 months 1.37%
1 year 3.56
5 years 30.64
Annual average 5.49
10 years 72.99
Annual average 5.63
Life of fund (since class A inception, 2/16/93)
Annual average 5.27
Share value: NAV
11/30/04 $5.15
5/31/05 $5.12
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.057443 $0.043000 $0.100443
- ----------------------------------------------------------------------------
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.
Performance assumes reinvestment of distributions and does not account for
taxes. 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. 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. 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.
For a portion of the period, this fund limited expenses, without which
returns would have been lower.
A short-term trading fee of up to 2% may apply.
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 5/31/05
Class Y
Expenses paid per $1,000* $3.92
Ending value (after expenses) $1,013.70
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return
for the 6 months ended 5/31/05
Class Y
Expenses paid per $1,000* $3.93
Ending value (after expenses) $1,021.04
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio 0.78%
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:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
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, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report 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) Not applicable
(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
and 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: July 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and 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: July 28, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 28, 2005