<DOCUMENT>
<TYPE>497
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<DESCRIPTION>PUTNAM LIMITED DURATION GOVERNMENT INCOME FUND
<TEXT>
Prospectus
March 30, 2004,
as revised November 30, 2004
Putnam Limited
Duration Government
Income Fund*
Class A, B, C, M and R shares
Investment Category: Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, LLC (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
You may qualify for sales charge discounts on class A or class M shares.
Please notify your financial advisor of other accounts that may help you
obtain a sales charge discount. See "How do I buy fund shares?" for
details.
* Prior to November 30, 2004, the fund was known as Putnam Intermediate
U.S. Government Income Fund.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
4 Fees and expenses
6 What are the fund's main investment strategies and related risks?
9 Who manages the fund?
12 How does the fund price its shares?
12 How do I buy fund shares?
18 How do I sell fund shares?
20 How do I exchange fund shares?
21 Fund distributions and taxes
22 Financial highlights
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks as high a level of current income as Putnam Management
believes is consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES -- U.S. GOVERNMENT BONDS
We invest in bonds that
* are obligations of the U.S. government, its agencies and
instrumentalities
* are backed by the full faith and credit of the United States, such as
U.S. Treasury bonds and Ginnie Mae mortgage-backed bonds, or by only the
credit of a federal agency or government sponsored entity, such as Fannie
Mae and Freddie Mac mortgage-backed bonds and
* have short to intermediate-term maturities (one to ten years). The fund
will normally have an average duration of one to three years. Currently the
fund is committed to maintaining a dollar weighted average maturity of
three to ten years. This commitment expires effective January 21, 2005.
We also invest in forward commitments and repurchase agreements relating to
those investments.
MAIN RISKS
The main risks that could adversely affect the value of the fund's shares
and the total return on your investment include:
* The risk that the issuers of the fund's investments will not make timely
payments of interest and principal. This credit risk is higher for debt
that is not backed by the full faith and credit of the U.S. government.
* The risk that movements in financial markets will adversely affect the
value of the fund's investments. This risk includes interest rate risk,
which means that the prices of the fund's investments are likely to fall if
interest rates rise.
* The risk that, compared to other debt, mortgage-backed investments may
increase in value less when interest rates decline, and decline in value
more when interest rates rise.
You can lose money by investing in the fund. The fund may not achieve its
goal, and is not intended as a complete investment program. An investment
in the fund is not a deposit in a bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE INFORMATION
The following information provides some indication of the fund's risks. The
chart shows year-to-year changes in the performance of one of the fund's
classes of shares, class A shares. The table following the chart compares
the fund's performance to that of a broad measure of market performance. Of
course, a fund's past performance is not an indication of future
performance.
[GRAPHIC OMITTED: vertical bar chart CALENDAR YEAR TOTAL RETURNS]
CALENDAR YEAR TOTAL RETURNS
1994 -1.46%
1995 15.04%
1996 3.74%
1997 7.49%
1998 7.55%
1999 0.20%
2000 9.22%
2001 7.29%
2002 7.78%
2003 1.35%
Performance figures in the bar chart do not reflect the impact of sales
charges. If they did, performance would be less than that shown. Year-to-date
performance through 9/30/04 was 1.76%. During the periods shown in the bar
chart, the highest return for a quarter was 5.06% (quarter ending 6/30/95)
and the lowest return for a quarter was -1.56% (quarter ending 3/31/94).
Average Annual Total Returns (for periods ending 12/31/03)
-------------------------------------------------------------------------------
Past Past Past
1 year 5 years 10 years
-------------------------------------------------------------------------------
Class A before taxes -2.03% 4.40% 5.36%
Class A after taxes on distributions -2.67% 2.70% 3.30%
Class A after taxes on distributions
and sale of fund shares -1.17% 2.69% 3.26%
Class B before taxes -2.03% 4.55% 5.14%
Class C before taxes -0.21% 4.28% 4.91%
Class M before taxes -0.89% 4.56% 5.37%
Class R before taxes 1.20% 4.85% 5.45%
Lehman Intermediate Government
Bond Index (no deduction for fees,
expenses or taxes) 2.29% 6.18% 6.32%
-------------------------------------------------------------------------------
Unlike the bar chart, this performance information reflects the impact of
sales charges. Class A and class M share performance reflects the current
maximum initial sales charges (which for class A shares reflects a
reduction that took effect after 12/31/03); class B and class C share
performance reflects the maximum applicable deferred sales charge if shares
had been redeemed on 12/31/03 and, for class B shares, does not assume
conversion to class A shares after eight years. For periods before the
inception of class C shares (7/26/99), class M shares (4/3/95) and class R
shares (12/1/03), performance shown for these classes in the table is based
on the performance of the fund's class A shares, adjusted to reflect the
appropriate sales charge and the higher 12b-1 fees paid by the class C,
class M and class R shares. The fund's performance through 11/30/94
benefited from Putnam Management's agreement to limit the fund's expenses.
The fund's performance is compared to the Lehman Intermediate Government
Bond Index, an unmanaged index of government bonds with maturities between
one and up to ten years. After-tax returns reflect the highest individual
federal income tax rates and do not reflect state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns are shown for class A shares only and will
vary for other classes. After-tax returns are not relevant to those
investing through 401(k) plans, IRAs or other tax-deferred arrangements.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
the fund. Expenses are based on the fund's fiscal year ended November 30,
2003.
Shareholder Fees (fees paid directly from your investment)*
-------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
-------------------------------------------------------------------------------
Maximum Sales
Charge (Load)
Imposed on
Purchases (as a
percentage of the
offering price) 3.25% NONE NONE 2.00% NONE
Maximum Deferred
Sales Charge
(Load) (as a
percentage of the
original purchase
price or redemption
proceeds, whichever
is lower) NONE** 3.00% 1.00% NONE** NONE
Maximum
Redemption Fee***
(as a percentage
of total redemption
proceeds) 2.00% 2.00% 2.00% 2.00% 2.00%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Annual Fund Operating Expenses+
(expenses that are deducted from fund assets)
-------------------------------------------------------------------------------
Total Annual
Management Distribution Other Fund Operating Peer Group
Fees (12b-1) Fees Expenses Expenses Expense Ratio++
-------------------------------------------------------------------------------
Class A 0.50% 0.25% 0.23% 0.98% 1.04%
Class B 0.50% 0.85% 0.23% 1.58% 1.64%
Class C 0.50% 1.00% 0.23% 1.73% 1.79%
Class M 0.50% 0.40% 0.23% 1.13% 1.19%
Class R 0.50% 0.50% 0.23%+++ 1.23% 1.29%
-------------------------------------------------------------------------------
* Certain investments in class A and class M shares may qualify for
discounts on applicable sales charges. See "How do I buy fund shares?" for
details.
** A deferred sales charge of up to 1.00% on class A shares and of 0.40% on
class M shares may be imposed on certain redemptions of shares bought
without an initial sales charge.
*** A 2.00% redemption fee (also referred to as a "short-term trading fee")
may apply to any shares that are redeemed (either by selling or exchanging
into another fund) within 5 days of purchase.
+ See the section "Who manages the fund?" for a discussion of regulatory
matters and litigation.
++ Average of the expenses of front-end load funds viewed by Lipper Inc. as
having the same investment classification or objective as the fund, as of
September 30, 2004, calculated in accordance with Lipper's standard
reporting methodology for comparing expenses within a given universe
(excluding 12b-1 fees and without giving effect to any expense offset and
brokerage service arrangements that may reduce fund expenses). To
facilitate comparison, Putnam has adjusted this average to reflect the
12b-1 fees carried by each class of shares. The peer group may include
funds that are significantly larger or smaller than the fund, which may
limit the comparability of the fund's expenses to the Lipper average.
+++ Other expenses shown for class R shares are based on the expenses of
class A shares for the fund's fiscal year ended November 30, 2003.
EXAMPLE
The example translates the expenses shown in the preceding table into
dollar amounts. By doing this, you can more easily compare the cost of
investing in the fund to the cost of investing in other mutual funds. The
example makes certain assumptions. It assumes that you invest $10,000 in
the fund for the time periods shown and then, except as shown for class B
shares and class C shares, redeem all your shares at the end of those
periods. It also assumes a 5% return on your investment each year and that
the fund's operating expenses remain the same. The example is hypothetical;
your actual costs and returns may be higher or lower.
-------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------
Class A $422 $627 $849 $1,487
Class B $461 $699 $860 $1,717*
Class B
(no redemption) $161 $499 $860 $1,717*
Class C $276 $545 $939 $2,041
Class C
(no redemption) $176 $545 $939 $2,041
Class M $372 $734 $1,120 $2,200
Class R $125 $390 $676 $1,489
-------------------------------------------------------------------------------
* Reflects conversion of class B shares to class A shares, which pay lower
12b-1 fees. Conversion occurs eight years after purchase.
What are the fund's main investment strategies and related risks?
Any investment carries with it some level of risk that generally reflects
its potential for reward. We pursue the fund's goal by investing in U.S.
government bonds. We will consider, among other things, credit, interest
rate and prepayment risks as well as general market conditions when
deciding whether to buy or sell investments. A description of the risks
associated with the fund's main investment strategies follows.
* Interest rate risk. The values of bonds and other debt instruments
usually rise and fall in response to changes in interest rates. Declining
interest rates generally increase the value of existing debt instruments,
and rising interest rates generally decrease the value of existing debt
instruments. Changes in a debt instrument's value usually will not affect
the amount of interest income paid to the fund, but will affect the value
of the fund's shares. Interest rate risk is generally greater for
investments with longer maturities.
Some investments give the issuer the option to call or redeem an investment
before its maturity date. If an issuer calls or redeems an investment
during a time of declining interest rates, we might have to reinvest the
proceeds in an investment offering a lower yield, and therefore might not
benefit from any increase in value as a result of declining interest rates.
"Premium" investments offer coupon rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time.
* Credit risk. U.S. government investments generally have the least credit
risk but are not completely free of credit risk. U.S. government securities
that are not backed by the full faith and credit of the United States, such
as federal agency bonds, are subject to higher credit risk. Other bonds in
which the fund may invest are subject to varying degrees of risk. These
risk factors may include the creditworthiness of the issuer and, in the
case of mortgage-backed securities, the ability of the underlying borrowers
to meet their obligations.
* Prepayment risk. Traditional debt investments typically pay a fixed rate
of interest until maturity, when the entire principal amount is due. By
contrast, payments on mortgage-backed investments typically include both
interest and partial payment of principal. Principal may also be prepaid
voluntarily, or as a result of refinancing or foreclosure. We may have to
invest the proceeds from prepaid investments in other investments with less
attractive terms and yields. Compared to debt that cannot be prepaid,
mortgage-backed investments are less likely to increase in value during
periods of declining interest rates and have a higher risk of decline in
value during periods of rising interest rates. They may increase the
volatility of the fund.
* Forward commitments and repurchase agreements. We may enter into
contracts with dealers for future delivery of U.S. government investments,
commonly known as forward commitments. A forward commitment involves a risk
of loss if the value of the investment declines before the delivery date.
We may also enter into repurchase agreements, under which we buy an
investment from a firm that has an obligation to buy the investment back at
a fixed price and time, typically within one week. Repurchase agreements
involve the risk that the other party will default on its obligations, in
which case we may find it difficult to recover the value of these
investments.
* Other investments. In addition to the main investment strategies
described above, we may make other types of investments, such as
investments in derivatives including futures, options, warrants and swap
contracts, and zero-coupon bonds, which may be subject to other risks, as
described in the fund's statement of additional information (SAI).
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, at
times we may judge that market conditions make pursuing the fund's usual
investment strategies inconsistent with the best interests of its
shareholders. We then may temporarily use alternative strategies that are
mainly designed to limit losses. However, we may choose not to use these
strategies for a variety of reasons, even in very volatile market
conditions. These strategies may cause the fund to miss out on investment
opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The Trustees may change the fund's goal, investment
strategies and other policies without shareholder approval, except as
otherwise indicated.
* Portfolio transactions and portfolio turnover rate. Transactions on stock
exchanges, commodities markets and futures markets involve the payment by
the fund of brokerage commissions. The fund paid $2,469 in brokerage
commissions during the 2003 fiscal year, representing less than 1% of the
fund's average net assets. No amounts were paid to brokers who also provide
research (including statistical and quotation) services. Additional
information regarding Putnam's brokerage selection procedures is included
in the SAI.
Although brokerage commissions and other portfolio transaction costs are
not reflected in the fund's Total Annual Fund Operating Expenses ratio (as
shown in the Annual Fund Operating Expenses table in the section "Fees and
expenses"), they are reflected in the fund's total return. Combining the
brokerage commissions paid by the fund during the fiscal year ended
November 30, 2003 (as a percentage of the fund's average net assets) with
the fund's Total Annual Fund Operating Expenses ratio for class A shares
results in a "combined cost ratio" of 0.98% of the fund's average net
assets for class A shares for the fiscal year ended November 30, 2003.
Investors should exercise caution in comparing brokerage commissions and
combined cost ratios for different types of funds. For example, while
brokerage commissions represent one component of the fund's transaction
costs, they do not reflect any undisclosed amount of profit or "mark-up"
included in the price paid by the fund for principal transactions
(transactions made directly with a dealer or other counterparty), including
most fixed income securities and certain derivatives. In addition, brokerage
commissions do not reflect other elements of transaction costs, including the
extent to which the fund's purchase and sale transactions may change the
market price for an investment (the "market impact").
Another factor in transaction costs is the fund's portfolio turnover rate,
which measures how frequently the fund buys and sells investments. During
the past five years, the fund's fiscal year portfolio turnover rate and the
average turnover rate for the fund's Lipper category were as follows.
-------------------------------------------------------------------------------
Turnover Comparison
-------------------------------------------------------------------------------
2004 2003 2002 2001 2000
-------------------------------------------------------------------------------
Putnam Limited Duration
Government Income Fund 509% 539% 224% 401% 319%
Lipper Short-Intermediate
U.S. Government Funds Average* 184% 167% 170% 133% 170%
-------------------------------------------------------------------------------
* Average portfolio turnover rate of funds viewed by Lipper Inc. as having
the same investment classification or objective as the fund. The Lipper
category average portfolio turnover rate is calculated using the portfolio
turnover rate for the fiscal year end of each fund in the Lipper category.
Fiscal years may vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average.
The fund may buy and sell investments relatively often. Both the fund's
portfolio turnover rate and the amount of brokerage commissions it pays
will vary over time based on market conditions. High turnover may lead to
increased costs and shareholder taxes and decreased performance.
As a matter of policy, Putnam Management is not permitted to consider sales
of shares of the fund (or of the other Putnam funds) as a factor in the
selection of broker-dealers to execute portfolio transactions for the fund.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment manager,
responsible for making investment decisions for the fund and managing the
fund's other affairs and business. The fund pays Putnam Management a
quarterly management fee for these services based on the fund's average net
assets. The fund paid Putnam Management a management fee of 0.50% of average
net assets for the fund's fiscal year ended November 30, 2003. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
* Investment management teams. Putnam Management's investment professionals
are organized into investment management teams, with a particular team
dedicated to a specific asset class. The members of the Core Fixed-Income
Team are responsible for the day-to-day management of the fund. The names
of all team members can be found at www.putnaminvestments.com.
The following team members coordinate the team's management of the fund's
portfolio. Their experience as investment professionals over the last five
years is shown.
---------------------------------------------------------------------------
Positions Over
Portfolio leader Since Employer Past Five Years
---------------------------------------------------------------------------
Kevin M. Cronin 1998 Putnam Chief Investment
Management Officer, Core Fixed
1997 - Present Income, Fixed Income
Money Market and Tax
Exempt Fixed Income
---------------------------------------------------------------------------
Positions Over
Portfolio member Since Employer Past Five Years
---------------------------------------------------------------------------
Rob A. Bloemker 2002 Putnam Mortgage Specialist,
Management Core Fixed Income
1999 - Present
---------------------------------------------------------------------------
* Investment in the fund by Putnam employees and the Trustees. As of
September 30, 2004, all of the 11 Trustees then on the Board of Trustees of
the Putnam funds owned fund shares. The table shows the approximate value
of investments in the fund and all Putnam funds as of that date by Putnam
employees and the fund's Trustees, including in each case investments by
their immediate family members and amounts invested through retirement and
deferred compensation plans.
-------------------------------------------------------------------------------
Fund All Putnam funds
-------------------------------------------------------------------------------
Putnam employees $656,319 $449,133,000
-------------------------------------------------------------------------------
Trustees $284,618 $40,000,000
-------------------------------------------------------------------------------
* Compensation of investment professionals. Putnam Management believes that
its investment management teams should be compensated primarily based on
their success in helping investors achieve their goals. The portion of
Putnam Investments' total incentive compensation pool that is available to
Putnam Management's Investment Division is based primarily on its delivery,
across all of the portfolios it manages, of consistent, dependable and
superior performance over time. The peer group for the fund,
Short-Intermediate U.S. Government Funds, is its broad investment category
as determined by Lipper Inc. The portion of the incentive compensation pool
available to your investment management team is also based primarily on its
delivery, across all of the portfolios it manages, of consistent,
dependable and superior performance over time.
* Consistent performance means being above median over one year.
* Dependable performance means not being in the 4th quartile of the peer
group over one, three or five years.
* Superior performance (which is the largest component of Putnam
Management's incentive compensation program) means being in the top third
of the peer group over three and five years.
In determining an investment management team's portion of the incentive
compensation pool and allocating that portion to individual team members,
Putnam Management retains discretion to reward or penalize teams or
individuals as it deems appropriate, based on other factors. The size of
the overall incentive compensation pool each year is determined by Putnam
Management's parent company, Marsh & McLennan Companies, Inc., and depends
in large part on Putnam's profitability for the year. Incentive
compensation generally represents at least 70% of the total compensation
paid to investment team members.
* Regulatory matters and litigation. On April 8, 2004, Putnam Management
entered into agreements with the Securities and Exchange Commission (SEC)
and the Massachusetts Securities Division representing a final settlement
of all charges brought against Putnam Management by those agencies on
October 28, 2003 in connection with excessive short-term trading by Putnam
employees and, in the case of the charges brought by the Massachusetts
Securities Division, by participants in some Putnam-administered 401(k)
plans. The settlement with the SEC requires Putnam Management to pay $5
million in disgorgement plus a civil monetary penalty of $50 million, and
the settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine of
$50 million. The settlements also leave intact the process established
under an earlier partial settlement with the SEC under which Putnam
Management agreed to pay the amount of restitution determined by an
independent consultant, which may exceed the disgorgement and restitution
amounts specified above, pursuant to a plan to be developed by the
independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees
stemming from both of these proceedings. The SEC's and Massachusetts
Securities Division's allegations and related matters also serve as the
general basis for numerous lawsuits, including purported class action
lawsuits filed against Putnam Management and certain related parties,
including certain Putnam funds. Putnam Management has agreed to bear any
costs incurred by Putnam funds in connection with these lawsuits. Based on
currently available information, Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients, including
the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees is
continuing. The fund may experience increased redemptions as a result of
these matters, which could result in increased transaction costs and
operating expenses.
How does the fund price its shares?
The price of the fund's shares is based on its net asset value (NAV). The
NAV per share of each class equals the total value of its assets, less its
liabilities, divided by the number of its outstanding shares. Shares are
only valued as of the close of regular trading on the New York Stock
Exchange each day the exchange is open.
The fund values its investments for which market quotations are readily
available at market value. It values short-term investments that will
mature within 60 days at amortized cost, which approximates market value.
It values all other investments and assets at their fair value.
How do I buy fund shares?
You can open a fund account with as little as $500 and make additional
investments at any time with as little as $50 ($25 through systematic
investing). The fund sells its shares at the offering price, which is the
NAV plus any applicable sales charge. Your financial advisor or Putnam
Investor Services generally must receive your completed buy order before
the close of regular trading on the New York Stock Exchange for your shares
to be bought at that day's offering price.
You can buy shares:
* Through a financial advisor. Your advisor will be responsible for
furnishing all necessary documents to Putnam Investor Services, and may
charge you for his or her services.
* Through systematic investing. You can make regular investments of $25 or
more weekly, semi-monthly or monthly through automatic deductions from your
bank checking or savings account. Application forms are available through
your advisor or Putnam Investor Services at 1-800-225-1581.
* Subsequent investments via the Internet. If you have an existing Putnam
fund account and you have completed and returned an Electronic Investment
Authorization Form, you can buy additional shares online at
www.putnaminvestments.com. For more information, contact your advisor or
Putnam Investor Services at 1-800-225-1581.
You may also complete an order form and write a check for the amount you
wish to invest, payable to the fund. Return the check and completed form to
Putnam Investor Services.
Mutual funds must obtain and verify information that identifies investors
opening new accounts. If the fund is unable to collect the required
information, Putnam Investor Services may not be able to open your fund
account. Investors must provide their full name, residential or business
address, Social Security or tax identification number, and date of birth.
Entities, such as trusts, estates, corporations and partnerships, must also
provide other identifying information. Putnam Investor Services may share
identifying information with third parties for the purpose of verification.
If Putnam Investor Services cannot verify identifying information after
opening your account, the fund reserves the right to close your account.
The fund may periodically close to new purchases of shares or refuse any
order to buy shares if the fund determines that doing so would be in the
best interests of the fund and its shareholders.
WHICH CLASS OF SHARES IS BEST FOR ME?
This prospectus offers you a choice of four classes of fund shares: A, B, C
and M. Qualified employee-benefit plans may also choose class R shares.
This allows you to choose among different types of sales charges and
different levels of ongoing operating expenses, as illustrated in the "Fees
and expenses" section. The class of shares that is best for you depends on
a number of factors, including the amount you plan to invest and how long
you plan to hold the shares. Please consult your financial advisor as to
which share class is most appropriate for you. Here is a summary of the
differences among the classes of shares:
Class A shares
* Initial sales charge of up to 3.25%
* Lower sales charges available for investments of $100,000 or more
* No deferred sales charge (except on certain redemptions of shares bought
without an initial sales charge)
* Lower annual expenses, and higher dividends, than class B, C or M shares
because of lower 12b-1 fees
Class B shares
* No initial sales charge; your entire investment goes to work immediately
* Deferred sales charge of up to 3.00% if you sell shares within four years
of purchase
* Higher annual expenses, and lower dividends, than class A or M shares
because of higher 12b-1 fees
* Convert automatically to class A shares after eight years, thereby
reducing the future 12b-1 fees
* Orders for class B shares of one or more Putnam funds will be refused
when the total value of the purchase, plus existing account balances that
are eligible to be linked under a right of accumulation for purchases of
class A shares (as described below), is $100,000 or more. Investors
considering cumulative purchases of $100,000 or more should consider
whether class A shares would be more advantageous and consult their
financial advisor.
Class C shares
* No initial sales charge; your entire investment goes to work immediately
* Deferred sales charge of 1.00% if shares are sold within one year of
purchase
* Higher annual expenses, and lower dividends, than class A or M shares
because of higher 12b-1 fees
* No conversion to class A shares, so future 12b-1 fees do not decline over
time
* Orders for class C shares of one or more Putnam funds will be refused
when the total value of the purchase, plus existing account balances that
are eligible to be linked under a right of accumulation for purchases of
class A shares (as described below), is $1,000,000 or more. Investors
considering cumulative purchases of $1,000,000 or more should consider
whether class A shares would be more advantageous and consult their
financial advisor.
Class M shares
* Initial sales charge of up to 2.00%
* Lower sales charges available for investments of $100,000 or more
* No deferred sales charge (except on certain redemptions of shares bought
without an initial sales charge)
* Lower annual expenses, and higher dividends, than class B or C shares
because of lower 12b-1 fees
* Higher annual expenses, and lower dividends, than class A shares because
of higher 12b-1 fees
* No conversion to class A shares, so future 12b-1 fees do not decline over
time
-------------------------------------------------------------------------------
Initial sales charges for class A and M shares
-------------------------------------------------------------------------------
Class A sales charge Class M sales charge
as a percentage of: as a percentage of:
-------------------------------------------------------------------------------
Amount of purchase Net amount Offering Net amount Offering
at offering price ($) invested price* invested price*
-------------------------------------------------------------------------------
Under 100,000 3.36% 3.25% 2.04% 2.00%
100,000 but under
250,000 2.56 2.50 1.52 1.50
250,000 but under
500,000 2.04 2.00 1.01 1.00
500,000 but under
1,000,000 1.52 1.50 NONE NONE
1,000,000 and above NONE NONE NONE NONE
-------------------------------------------------------------------------------
* Offering price includes sales charge.
The fund offers two principal ways for you to qualify for discounts on
initial sales charges on class A and class M shares, often referred to as
"breakpoint discounts:"
* Right of accumulation. You can add the amount of your current purchases
of class A or class M shares of the fund and other Putnam funds to the
value of your existing accounts in the fund and other Putnam funds.
Individuals can also include purchases by, and accounts owned by, their
spouse and minor children, including accounts established through different
financial advisors. For your current purchases, you will pay the initial
sales charge applicable to the total value of the linked accounts and
purchases, which may be lower than the sales charge otherwise applicable to
each of your current purchases. Shares of Putnam money market funds, other
than money market fund shares acquired by exchange from other Putnam funds,
are not included for purposes of the right of accumulation.
To calculate the total value of your existing accounts and any linked
accounts, the fund will use the current maximum public offering price of
those shares.
* Statement of intention. A statement of intention is a document in which
you agree to make purchases of class A or class M shares in a specified
amount within a period of 13 months. For each purchase you make under the
statement of intention you will pay the initial sales charge applicable to
the total amount you have agreed to purchase. While a statement of
intention is not a binding obligation on you, if you do not purchase the
full amount of shares within 13 months, the fund will redeem shares from
your account in an amount equal to the higher initial sales charge you
would have paid in the absence of the statement of intention.
Account types that may be linked with each other to obtain breakpoint
discounts using the methods described above include:
* Individual accounts
* Joint accounts
* Accounts established as part of a retirement plan and IRA accounts (some
restrictions may apply)
* Shares of Putnam funds owned through accounts in the name of your dealer
or other financial intermediary (with documentation identifying beneficial
ownership of shares)
* Accounts held as part of a Section 529 college savings plan managed by
Putnam Management (some restrictions may apply)
In order to obtain a breakpoint discount, you should inform your financial
advisor at the time you purchase shares of the existence of other accounts
or purchases that are eligible to be linked for the purpose of calculating
the initial sales charge. The fund or your financial advisor may ask you
for records or other information about other shares held in your accounts
and linked accounts, including accounts opened with a different financial
advisor. Restrictions may apply to certain accounts and transactions.
Further details about breakpoint discounts can be found on Putnam
Management's website at www.putnaminvestments.com/individual by selecting
"Mutual Funds," and in the SAI.
Deferred sales charges for class B, class C and certain class A and class M
shares
If you sell (redeem) class B shares within four years of purchase, you will
generally pay a deferred sales charge according to the following schedule.
Year after purchase 1 2 3 4 5+
-------------------------------------------------------------------------------
Charge 3% 3% 2% 1% 0%
A deferred sales charge of 1.00% will apply to class C shares if redeemed
within one year of purchase. Unless otherwise agreed with Putnam Retail
Management, class A shares that are part of a purchase of $1 million or
more (other than by a qualified retirement plan) will be subject to a 1.00%
deferred sales charge if redeemed within one year of purchase and a 0.50%
deferred sales charge if redeemed in the second year after purchase. A
deferred sales charge of 0.40% may apply to class M shares purchased
without a sales charge for certain rollover IRA accounts if redeemed within
one year of purchase.
Deferred sales charges will be based on the lower of the shares' cost and
current NAV. Shares not subject to any charge will be redeemed first,
followed by shares held longest. You may sell shares acquired by
reinvestment of distributions without a charge at any time.
* You may be eligible for reductions and waivers of sales charges. In
addition to the breakpoint discount methods described above, sales charges
may be reduced or waived under certain circumstances and for certain
groups. Information about reductions and waivers of sales charges,
including deferred sales charges, is included in the SAI. You may consult
your financial advisor or Putnam Retail Management for assistance.
* Distribution (12b-1) plans. The fund has adopted distribution plans to
pay for the marketing of fund shares and for services provided to
shareholders. The plans provide for payments at annual rates (based on
average net assets) of up to 0.35% on class A shares and 1.00% on class B,
class C, class M and class R shares. The Trustees currently limit payments
on class A, class B, class M and class R shares to 0.25%, 0.85%, 0.40% and
0.50% of average net assets, respectively. Because these fees are paid out
of the fund's assets on an ongoing basis, they will increase the cost of
your investment. The higher fees for class B, class C, class M and class R
shares may cost you more than paying the initial sales charge for class A
shares. Because class C and class M shares, unlike class B shares, do not
convert to class A shares, class C and class M shares may cost you more
over time than class B shares. Class R shares will generally be less
expensive than class B shares for shareholders who are eligible to purchase
either class.
* Payments to dealers. As disclosed in the SAI, Putnam Retail Management
pays commissions, sales charge reallowances, and ongoing payments to
dealers who sell certain classes of fund shares. In addition, Putnam Retail
Management may, at its expense, pay concessions to dealers that satisfy
certain criteria established from time to time by Putnam Retail Management
relating to increasing net sales of shares of the Putnam funds over prior
periods and certain other factors.
How do I sell fund shares?
You can sell your shares back to the fund any day the New York Stock
Exchange is open, either through your financial advisor or directly to the
fund. Payment for redemption may be delayed until the fund collects the
purchase price of shares, which may be up to 10 calendar days after the
purchase date.
The fund will impose a short-term trading fee of 2.00% of the total
redemption amount (calculated at market value) if you sell or exchange your
shares after holding them for 5 days or less. The short-term trading fee is
paid directly to the fund and is designed to offset brokerage commissions,
market impact and other costs associated with short-term trading. The
short-term trading fee will not apply in certain circumstances, such as
redemptions to pay distributions or loans from defined contribution plans
administered by Putnam, redemptions of shares purchased directly with
contributions by a plan participant or sponsor, redemptions for loan
repayment, redemptions from certain omnibus accounts, redemptions in the
event of shareholder death or post-purchase disability and redemptions made
as part of a systematic withdrawal plan. For purposes of determining
whether the short-term trading fee applies, the shares that were held the
longest will be redeemed first. Administrators, trustees or sponsors of
retirement plans may also impose short-term trading fees. Please see the
SAI for details.
* Selling shares through your financial advisor. Your advisor must receive
your request in proper form before the close of regular trading on the New
York Stock Exchange for you to receive that day's NAV, less any applicable
deferred sales charge and short-term trading fee. Your advisor will be
responsible for furnishing all necessary documents to Putnam Investor
Services on a timely basis and may charge you for his or her services.
* Selling shares directly to the fund. Putnam Investor Services must
receive your request in proper form before the close of regular trading on
the New York Stock Exchange in order to receive that day's NAV, less any
applicable sales charge and short-term trading fee.
By mail. Send a letter of instruction signed by all registered owners or
their legal representatives to Putnam Investor Services. If you have
certificates for the shares you want to sell, you must include them along
with completed stock power forms.
By telephone. You may use Putnam's telephone redemption privilege to redeem
shares valued at less than $100,000 unless you have notified Putnam
Investor Services of an address change within the preceding 15 days, in
which case other requirements may apply. Unless you indicate otherwise on
the account application, Putnam Investor Services will be authorized to
accept redemption instructions received by telephone.
The telephone redemption privilege is not available if there are
certificates for your shares. The telephone redemption privilege may be
modified or terminated without notice.
* Selling shares by check. If you would like to use the check-writing
service, mark the proper box on the application or authorization form and
complete the signature card (and, if applicable, the resolution). The fund
will send you checks when it receives these properly completed documents.
You can then make the checks for $250 or more payable to the order of
anyone. The fund will redeem a sufficient number of full and fractional
shares in your account at the next NAV that is calculated after the check
is accepted to cover the amount of the check and any applicable deferred
sales charge and short-term trading fee.
The use of checks is subject to the rules of your fund's designated bank
for its checking accounts. If you do not have a sufficient number of shares
in your account to cover the amount of the check and any applicable
deferred sales charge and short-term trading fee, the check will be
returned and no shares will be redeemed. Because it is not possible to
determine your account's value in advance, you should not write a check for
the entire value of your account or try to close your account by writing a
check. The fund may change or end check-writing privileges at any time
without notice. The check-writing service is not available for
tax-qualified retirement plans, or if there are certificates for your
shares.
* Additional requirements. In certain situations, for example, if you sell
shares with a value of $100,000 or more, the signatures of all registered
owners or their legal representatives must be guaranteed by a bank,
broker-dealer or certain other financial institutions. In addition, Putnam
Investor Services usually requires additional documents for the sale of
shares by a corporation, partnership, agent or fiduciary, or a surviving
joint owner. For more information concerning Putnam's signature guarantee
and documentation requirements, contact Putnam Investor Services.
* When will the fund pay me? The fund generally sends you payment for your
shares the business day after your request is received. Under unusual
circumstances, the fund may suspend redemptions, or postpone payment for
more than seven days, as permitted by federal securities law.
* Redemption by the fund. If you own fewer shares than the minimum set by
the Trustees (presently 20 shares), the fund may redeem your shares without
your permission and send you the proceeds. To the extent permitted by
applicable law, the fund may also redeem shares if you own more than a
maximum amount set by the Trustees. There is presently no maximum, but the
Trustees could set a maximum that would apply to both present and future
shareholders.
How do I exchange fund shares?
If you want to switch your investment from one Putnam fund to another, you
can exchange your fund shares for shares of the same class of another
Putnam fund at NAV. Not all Putnam funds offer all classes of shares or are
open to new investors. If you exchange shares subject to a deferred sales
charge, the transaction will not be subject to the deferred sales charge.
When you redeem the shares acquired through the exchange, the redemption
may be subject to the deferred sales charge, depending upon when you
originally purchased the shares. The deferred sales charge will be computed
using the schedule of any fund into or from which you have exchanged your
shares that would result in your paying the highest deferred sales charge
applicable to your class of shares. Class B shares of most other Putnam
funds have a higher deferred sales charge than the fund. For purposes of
computing the deferred sales charge, the length of time you have owned your
shares will be measured from the date of original purchase and will not be
affected by any subsequent exchanges among funds.
To exchange your shares, complete and return an Exchange Authorization Form,
which is available from Putnam Investor Services. A telephone exchange
privilege is currently available for amounts up to $500,000. The telephone
exchange privilege is not available if the fund issued certificates for your
shares. You may also exchange shares via the Internet at
www.putnaminvestments.com. Ask your financial advisor or Putnam Investor
Services for prospectuses of other Putnam funds. Some Putnam funds are not
available in all states.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive
exchange activity and otherwise to promote the best interests of the fund,
the fund will impose a short-term trading fee of 2.00% of the total
exchange amount (calculated at market value) on exchanges of shares held
for 5 days or less. In the case of defined contribution plans administered
by Putnam, the 2.00% short-term trading fee will apply to exchanges of
shares purchased by exchange that are held in a plan participant's account
for 5 days or less. Administrators, trustees or sponsors of retirement
plans may also impose short-term trading fees.
The fund also reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any exchange.
The fund into which you would like to exchange may also reject your
exchange. These actions may apply to all shareholders or only to those
shareholders whose exchanges Putnam Management determines are likely to
have a negative effect on the fund or other Putnam funds. Consult Putnam
Investor Services before requesting an exchange.
Fund distributions and taxes
The fund declares a distribution daily based on our projections of its
estimated net income. The fund normally distributes any net investment
income monthly and any net realized capital gains annually. You may choose
to:
* reinvest all distributions in additional shares;
* receive any distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares; or
* receive all distributions in cash.
If you do not select an option when you open your account, all
distributions will be reinvested. If you do not cash a distribution check
within a specified period or notify Putnam Investor Services to issue a new
check, the distribution will be reinvested in the fund. You will not
receive any interest on uncashed distribution or redemption checks.
Similarly, if any correspondence sent by the fund or Putnam Investor
Services is returned as "undeliverable," fund distributions will
automatically be reinvested in the fund or in another Putnam fund.
For federal income tax purposes, distributions of investment income are
taxable as ordinary income. Taxes on distributions of capital gains are
determined by how long the fund owned the investments that generated them,
rather than how long you have owned your shares. Distributions are taxable
to you even if they are paid from income or gains earned by the fund before
your investment (and thus were included in the price you paid).
Distributions of gains from investments that the fund owned for more than
one year are taxable as capital gains. Distributions of gains from
investments that the fund owned for one year or less and gains on the sale
of bonds characterized as market discount are taxable as ordinary income.
Distributions are taxable whether you receive them in cash or reinvest them
in additional shares.
Any gain resulting from the sale or exchange of your shares will generally
also be subject to tax. You should consult your tax advisor for more
information on your own tax situation, including possible foreign, state
and local taxes.
Financial highlights
The financial highlights tables are intended to help you understand the
fund's recent financial performance. Certain information reflects financial
results for a single fund share. The total returns represent the rate that
an investor would have earned or lost on an investment in the fund,
assuming reinvestment of all dividends and distributions. No class R shares
were outstanding during these periods. This information has been derived
from the fund's financial statements, which have been audited by KPMG LLP.
Its report and the fund's financial statements are included in the fund's
annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
-------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
-------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.17 $5.10 $4.90 $4.81 $5.01
-------------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------------
Net investment income .06 .17 .26 (d) .28 .25
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .12 .19 .06 (.20)
-------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 .29 .45 .34 .05
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.20) (.25) (.25) (.25)
-------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
-------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.22) (.25) (.25) (.25)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.18 $5.17 $5.10 $4.90 $4.81
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.00 5.85 9.29 7.23 1.09
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $439,463 $588,232 $327,332 $217,197 $243,927
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .98 .97 .96 1.00 .99
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.26 3.18 5.15 5.84 5.20
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
-------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements.
(c) Portfolio turnover excludes certain treasury note transactions executed in connection with
a short-term trading strategy.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the periods.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
-------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
-------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.18 $5.11 $4.91 $4.81 $5.01
-------------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------------
Net investment income .03 .14 .23 (d) .25 .22
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .12 .19 .07 (.20)
-------------------------------------------------------------------------------------------------------------
Total from
investment operations .07 .26 .42 .32 .02
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.03) (.17) (.22) (.22) (.22)
-------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
-------------------------------------------------------------------------------------------------------------
Total distributions (.06) (.19) (.22) (.22) (.22)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.19 $5.18 $5.11 $4.91 $4.81
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.38 5.21 8.61 6.79 .48
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $290,981 $410,169 $194,202 $103,543 $137,130
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.58 1.57 1.56 1.60 1.59
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .65 2.47 4.49 5.24 4.60
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
-------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements.
(c) Portfolio turnover excludes certain treasury note transactions executed in connection with a
short-term trading strategy.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the periods.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
-------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance Year ended November 30 to Nov. 30
-------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.17 $5.10 $4.90 $4.81 $4.81
-------------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------------
Net investment income .02 .13 .21 (d) .24 .07
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .04 .12 .20 .06 -- (e)
-------------------------------------------------------------------------------------------------------------
Total from
investment operations .06 .25 .41 .30 .07
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.02) (.16) (.21) (.21) (.07)
-------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
-------------------------------------------------------------------------------------------------------------
Total distributions (.05) (.18) (.21) (.21) (.07)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.18 $5.17 $5.10 $4.90 $4.81
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.23 5.06 8.46 6.38 1.53 *
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $28,346 $38,613 $18,335 $5,221 $2,746
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.73 1.72 1.71 1.75 .61 *
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .49 2.38 4.23 5.12 1.58 *
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
-------------------------------------------------------------------------------------------------------------
+ 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.
(c) Portfolio turnover excludes certain treasury note transactions executed in connection with a
short-term trading strategy.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the periods.
(e) Amount represents less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
-------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
-------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.18 $5.11 $4.92 $4.82 $5.02
-------------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------------
Net investment income .05 .16 .25 (d) .26 .24
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .06 .12 .18 .08 (.20)
-------------------------------------------------------------------------------------------------------------
Total from
investment operations .11 .28 .43 .34 .04
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.19) (.24) (.24) (.24)
-------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
-------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.21) (.24) (.24) (.24)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.20 $5.18 $5.11 $4.92 $4.82
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.04 5.68 8.88 7.26 .93
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $12,376 $21,874 $15,244 $9,121 $10,918
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.13 1.12 1.11 1.15 1.14
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.12 3.07 4.95 5.69 5.09
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
-------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements.
(c) Portfolio turnover excludes certain treasury note transactions executed in connection with
a short-term trading strategy.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the periods.
</TABLE>
Glossary of terms
-------------------------------------------------------------------------------
Bond An IOU issued by a government or corporation that usually
pays interest.
-------------------------------------------------------------------------------
Capital A profit or loss on the sale of securities (generally
gain/loss stocks or bonds).
-------------------------------------------------------------------------------
Class A, B, C, Types of shares, each class offering investors a different
M, R, T shares way to pay sales charges and distribution fees. A fund's
prospectus explains the availability and attributes of
each type.
-------------------------------------------------------------------------------
Common A unit of ownership of a corporation.
stock
-------------------------------------------------------------------------------
Distribution A payment from a mutual fund to shareholders. It may include
interest from bonds and dividends from stocks (dividend
distributions). It may also include profits from the sale of
securities from the fund's portfolio (capital
gains distributions).
-------------------------------------------------------------------------------
Net asset The value of one share of a mutual fund without regard to
value (NAV) sales charges. Some bond funds aim for a steady NAV,
representing stability; most stock funds aim to raise NAV,
representing growth in the value of an investment.
-------------------------------------------------------------------------------
Public offering The purchase price of one class A or class M share of a
price (POP) mutual fund, including the applicable "front-end" sales
charge.
-------------------------------------------------------------------------------
Short-term Fee charged to shareholders of certain funds who redeem fund
trading fee shares that they have held for less than a stated minimum
amount of time. Short-term trading fees are withheld from
the proceeds of the shareholder's redemption and are payable
to the fund.
-------------------------------------------------------------------------------
Total return A measure of performance showing the change in the value of an
investment over a given period, assuming all earnings are
reinvested.
-------------------------------------------------------------------------------
Yield The percentage rate at which a fund has earned income from
its investments over the indicated period.
-------------------------------------------------------------------------------
Make the most of your Putnam privileges
As a Putnam mutual fund shareholder, you have access to a number of
services that can help you build a more effective and flexible financial
program. Here are some of the ways you can use these privileges to make the
most of your Putnam mutual fund investment.
* SYSTEMATIC INVESTMENT PLAN
Invest as much as you wish ($25 or more). The amount you choose will be
automatically transferred weekly, semi-monthly or monthly from your
checking or savings account.
* SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly, semiannually,
or annually from your Putnam mutual fund account valued at $5,000 or more.
* SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another on a
regular, prearranged basis.
* EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares. The
exchange privilege allows you to adjust your investments as your objectives
change. A signature guarantee is required for exchanges of more than
$500,000 and shares of all Putnam funds may not be available to all
investors.
A 2.00% short-term trading fee will apply to exchanges of shares from
Putnam funds (other than money market funds) held for 5 days or less. A
separate 1.00% short-term trading fee may apply to exchanges of shares of
certain Putnam funds that occur within 6 to 90 days of purchase. Please
read the prospectus of the applicable fund for more details.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange (into the fund) and system atic
withdrawal or exchange (out of the fund). These privileges are subject to
change or termination.
* DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other distributions
from one Putnam fund automatically into another at net asset value.
* STATEMENT OF INTENTION
To reduce a front-end sales charge, you may agree to invest a minimum
dollar amount over 13 months. Depending on your fund, the minimum is
$25,000, $50,000, or $100,000. Whenever you make an investment under this
arrangement, you or your financial advisor should notify Putnam Investor
Services that a Statement of Intention is in effect.
Many of these services can be accessed online at www.putnaminvestments.com.
For more information about any of these services and privileges, call your
financial advisor or a Putnam customer service representative toll free at
1-800-225-1581.
Putnam Family of Funds a
The following is a complete list of Putnam's open-end mutual funds offered
to the public. Please call your financial advisor or Putnam at
1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Please read it
carefully before you invest or send money.
PUTNAM GROWTH FUNDS
Putnam Discovery Growth Fund
Putnam Growth Opportunities Fund
Putnam Health Sciences Trust
Putnam International New Opportunities Fund
Putnam New Opportunities Fund
Putnam OTC & Emerging Growth Fund
Putnam Small Cap Growth Fund
Putnam Vista Fund
Putnam Voyager Fund
PUTNAM BLEND FUNDS
Putnam Capital Appreciation Fund
Putnam Capital Opportunities Fund
Putnam Europe Equity Fund
Putnam Global Equity Fund
Putnam Global Natural Resources Fund
Putnam International Capital Opportunities Fund
Putnam International Equity Fund
Putnam Investors Fund
Putnam Research Fund
Putnam Tax Smart Equity Fund
Putnam Utilities Growth and Income Fund
PUTNAM VALUE FUNDS
Putnam Classic Equity Fund
Putnam Convertible Income-Growth Trust
Putnam Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Putnam International Growth and Income Fund
Putnam Mid Cap Value Fund
Putnam New Value Fund
Putnam Small Cap Value Fund b
PUTNAM INCOME FUNDS
Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Floating Rate Income Fund
Putnam Global Income Trust
Putnam High Yield Advantage Fund b
Putnam High Yield Trust
Putnam Income Fund
Putnam Limited Duration Government Income Fund c
Putnam Money Market Fundd
Putnam Prime Money Market Fund d
Putnam U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Putnam AMT-Free Insured Municipal Fund e
Putnam Municipal Income Fund b
Putnam Tax Exempt Income Fund
Putnam Tax Exempt Money Market Fund d
Putnam Tax-Free High Yield Fund
Putnam State Tax-Free Income Funds f
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio and Pennsylvania
PUTNAM ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread
your money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
PUTNAM RETIREMENTREADY[REGISTRATION MARK] FUNDS
Putnam RetirementReady Funds -- nine 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.
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
a As of 11/30/04.
b Closed to new investors.
c Prior to 11/30/04, Putnam Intermediate U.S. Government Income Fund.
d An investment in a money market fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although these funds seek to preserve your investment at $1.00 per share,
it is possible to lose money by investing in such funds.
e Prior to 11/30/04, Putnam Tax-Free Insured Fund.
f Not available in all states.
For more information about
Putnam Limited Duration Government Income Fund
The fund's statement of additional information (SAI) and annual and
semi-annual reports to shareholders include additional information about
the fund. The SAI and the independent registered public accounting firm's
report and the financial statements included in the fund's most recent
annual reports to its shareholders are incorporated by reference into this
prospectus, which means they are part of this prospectus for legal
purposes. The fund's annual report discusses the market conditions and
investment strategies that significantly affected the fund's performance
during its fiscal year ended November 30, 2003. You may get free copies of
these materials, request other information about any Putnam fund, or make
shareholder inquiries, by contacting your financial advisor, by visiting
Putnam's Internet site, or by calling Putnam toll-free at 1-800-225-1581.
You may review and copy information about a fund, including its SAI, at
the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the Public Reference Room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: publicinfo@sec.gov, or
by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
1-800-225-1581
Address correspondence to
Putnam Investor Services
P.O. Box 41203
Providence, Rhode Island 02940-1203
www.putnaminvestments.com
File No. 811-06257 NP036 219893 11/04
Prospectus
March 30, 2004,
as revised November 30, 2004
Putnam Limited
Duration Government
Income Fund*
Class A shares -- for eligible retirement plans
Investment Category: Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully. This prospectus only offers
class A shares of the fund without a sales charge to eligible retirement
plans.
Putnam Investment Management, LLC (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
* Prior to November 30, 2004, the fund was known as Putnam Intermediate
U.S. Government Income Fund.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
3 Fees and expenses
4 What are the fund's main investment strategies and related risks?
7 Who manages the fund?
10 How does the fund price its shares?
10 How do I buy fund shares?
11 How do I sell fund shares?
12 How do I exchange fund shares?
13 Fund distributions and taxes
13 Financial highlights
Putnam Defined Contribution Plans
[SCALE LOGO OMITTED]
Fund summary
Goal
The fund seeks as high a level of current income as Putnam Management
believes is consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES -- U.S. GOVERNMENT BONDS
We invest in bonds that
* are obligations of the U.S. government, its agencies and
instrumentalities
* are backed by the full faith and credit of the United States, such as
U.S. Treasury bonds and Ginnie Mae mortgage-backed bonds, or by only the
credit of a federal agency or government sponsored entity, such as Fannie
Mae and Freddie Mac mortgage-backed bonds and
* have short to intermediate-term maturities (one to ten years). The fund
will normally have an average duration of one to three years. Currently the
fund is committed to maintaining a dollar weighted average maturity of
three to ten years. This commitment expires effective January 21, 2005.
We also invest in forward commitments and repurchase agreements relating to
those investments.
MAIN RISKS
The main risks that could adversely affect the value of the fund's shares
and the total return on your investment include:
* The risk that the issuers of the fund's investments will not make timely
payments of interest and principal. This credit risk is higher for debt
that is not backed by the full faith and credit of the U.S. government.
* The risk that movements in financial markets will adversely affect the
value of the fund's investments. This risk includes interest rate risk,
which means that the prices of the fund's investments are likely to fall
if interest rates rise.
* The risk that, compared to other debt, mortgage-backed investments may
increase in value less when interest rates decline, and decline in value
more when interest rates rise.
You can lose money by investing in the fund. The fund may not achieve its
goal, and is not intended as a complete investment program. An investment
in the fund is not a deposit in a bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE INFORMATION
The following information provides some indication of the fund's risks. The
chart shows year-to-year changes in the performance of the fund's class A
shares. The table following the chart compares the fund's performance to
that of a broad measure of market performance. Of course, a fund's past
performance is not an indication of future performance.
[GRAPHIC OMITTED: vertical bar chart CALENDAR YEAR TOTAL RETURNS]
CALENDAR YEAR TOTAL RETURNS
1994 -1.46%
1995 15.04%
1996 3.74%
1997 7.49%
1998 7.55%
1999 0.20%
2000 9.22%
2001 7.29%
2002 7.78%
2003 1.35%
Year-to-date performance through 9/30/04 was 1.76%. During the periods
shown in the bar chart, the highest return for a quarter was 5.06% (quarter
ending 6/30/95) and the lowest return for a quarter was -1.56% (quarter
ending 3/31/94).
Average Annual Total Returns (for periods ending 12/31/03)
------------------------------------------------------------------------------
Past Past Past
1 year 5 years 10 years
------------------------------------------------------------------------------
Class A 1.35% 5.11% 5.72%
Lehman Intermediate
Government Bond Index 2.29% 6.18% 6.32%
------------------------------------------------------------------------------
Class A share performance reflects the waiver of sales charges for
purchases through eligible retirement plans. The fund's performance through
11/30/94 benefited from Putnam Management's agreement to limit the fund's
expenses.
The fund's performance is compared to the Lehman Intermediate Government
Bond Index, an unmanaged index of government bonds with maturities between
one and up to ten years.
Fees and expenses
This table summarizes the fees and expenses you may pay if you invest in
class A shares of the fund. Expenses are based on the fund's fiscal year
ended November 30, 2003.
Shareholder Fees (fees paid directly from your investment)
------------------------------------------------------------------------------
Maximum Sales Charge (Load) NONE
Maximum Deferred Sales Charge (Load) NONE
Maximum Redemption Fee*
(as a percentage of total redemption proceeds) 2.00%
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Annual Fund Operating Expenses+
(expenses that are deducted from fund assets)
------------------------------------------------------------------------------
Total
Distri- Annual Peer
bution Fund Group
Management (12b-1) Other Operating Expense
Fees Fees Expenses Expenses Ratio++
------------------------------------------------------------------------------
Class A 0.50% 0.25% 0.23% 0.98% 1.04%
------------------------------------------------------------------------------
* A 2.00% redemption fee (also referred to as a "short-term trading fee")
may apply to any shares that are redeemed (either by selling or exchanging
into another fund) within 5 days of purchase.
+ See the section "Who manages the fund?" for a discussion of regulatory
matters and litigation.
++ Average of the expenses of front-end load funds viewed by Lipper Inc. as
having the same investment classification or objective as the fund, as of
September 30, 2004, calculated in accordance with Lipper's standard
reporting methodology for comparing expenses within a given universe
(excluding 12b-1 fees and without giving effect to any expense offset and
brokerage service arrangements that may reduce fund expenses). To
facilitate comparison, Putnam has adjusted this average to reflect the
12b-1 fees carried by each class of shares. The peer group may include
funds that are significantly larger or smaller than the fund, which may
limit the comparability of the fund's expenses to the Lipper average.
EXAMPLE
The example translates the expenses shown in the preceding table into
dollar amounts. By doing this, you can more easily compare the cost of
investing in the fund to the cost of investing in other mutual funds. The
example makes certain assumptions. It assumes that you invest $10,000 in
the fund for the time periods shown and then redeem all your shares at the
end of those periods. It also assumes a 5% return on your investment each
year and that the fund's operating expenses remain the same. The example is
hypothetical; your actual costs and returns may be higher or lower.
------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
------------------------------------------------------------------------------
Class A $100 $312 $542 $1,201
------------------------------------------------------------------------------
What are the fund's main investment strategies and related risks?
Any investment carries with it some level of risk that generally reflects
its potential for reward. We pursue the fund's goal by investing in U.S.
government bonds. We will consider, among other things, credit, interest
rate and prepayment risks as well as general market conditions when
deciding whether to buy or sell investments. A description of the risks
associated with the fund's main investment strategies follows.
* Interest rate risk. The values of bonds and other debt instruments
usually rise and fall in response to changes in interest rates. Declining
interest rates generally increase the value of existing debt instruments,
and rising interest rates generally decrease the value of existing debt
instruments. Changes in a debt instrument's value usually will not affect
the amount of interest income paid to the fund, but will affect the value
of the fund's shares. Interest rate risk is generally greater for
investments with longer maturities.
Some investments give the issuer the option to call or redeem an investment
before its maturity date. If an issuer calls or redeems an investment
during a time of declining interest rates, we might have to reinvest the
proceeds in an investment offering a lower yield, and therefore might not
benefit from any increase in value as a result of declining interest rates.
"Premium" investments offer coupon rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time.
* Credit risk. U.S. government investments generally have the least credit
risk but are not completely free of credit risk. U.S. government securities
that are not backed by the full faith and credit of the United States, such
as federal agency bonds, are subject to higher credit risk. Other bonds in
which the fund may invest are subject to varying degrees of risk. These
risk factors may include the creditworthiness of the issuer and, in the
case of mortgage-backed securities, the ability of the underlying borrowers
to meet their obligations.
* Prepayment risk. Traditional debt investments typically pay a fixed rate
of interest until maturity, when the entire principal amount is due. By
contrast, payments on mortgage-backed investments typically include both
interest and partial payment of principal. Principal may also be prepaid
voluntarily, or as a result of refinancing or foreclosure. We may have to
invest the proceeds from prepaid investments in other investments with less
attractive terms and yields. Compared to debt that cannot be prepaid,
mortgage-backed investments are less likely to increase in value during
periods of declining interest rates and have a higher risk of decline in
value during periods of rising interest rates. They may increase the
volatility of the fund.
* Forward commitments and repurchase agreements. We may enter into
contracts with dealers for future delivery of U.S. government investments,
commonly known as forward commitments. A forward commitment involves a risk
of loss if the value of the investment declines before the delivery date.
We may also enter into repurchase agreements, under which we buy an
investment from a firm that has an obligation to buy the investment back at
a fixed price and time, typically within one week. Repurchase agreements
involve the risk that the other party will default on its obligations, in
which case we may find it difficult to recover the value of these
investments.
* Other investments. In addition to the main investment strategies
described above, we may make other types of investments, such as
investments in derivatives including futures, options, warrants and swap
contracts, and zero-coupon bonds, which may be subject to other risks, as
described in the fund's statement of additional information (SAI).
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, at
times we may judge that market conditions make pursuing the fund's usual
investment strategies inconsistent with the best interests of its
shareholders. We then may temporarily use alternative strategies that are
mainly designed to limit losses. However, we may choose not to use these
strategies for a variety of reasons, even in very volatile market
conditions. These strategies may cause the fund to miss out on investment
opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The Trustees may change the fund's goal, investment
strategies and other policies without shareholder approval, except as
otherwise indicated.
* Portfolio transactions and portfolio turnover rate. Transactions on stock
exchanges, commodities markets and futures markets involve the payment by
the fund of brokerage commissions. The fund paid $2,469 in brokerage
commissions during the 2003 fiscal year, representing less than 1% of the
fund's average net assets. No amounts were paid to brokers who also provide
research (including statistical and quotation) services. Additional
information regarding Putnam's brokerage selection procedures is included
in the SAI.
Although brokerage commissions and other portfolio transaction costs are
not reflected in the fund's Total Annual Fund Operating Expenses ratio (as
shown in the Annual Fund Operating Expenses table in the section "Fees and
expenses"), they are reflected in the fund's total return. Combining the
brokerage commissions paid by the fund during the fiscal year ended
November 30, 2003 (as a percentage of the fund's average net assets) with
the fund's Total Annual Fund Operating Expenses ratio for class A shares
results in a "combined cost ratio" of 0.98% of the fund's average net
assets for class A shares for the fiscal year ended November 30, 2003.
Investors should exercise caution in comparing brokerage commissions and
combined cost ratios for different types of funds. For example, while
brokerage commissions represent one component of the fund's transaction
costs, they do not reflect any undisclosed amount of profit or "mark-up"
included in the price paid by the fund for principal transactions
(transactions made directly with a dealer or other counterparty),
including most fixed income securities and certain derivatives. In
addition, brokerage commissions do not reflect other elements of
transaction costs, including the extent to which the fund's purchase and
sale transactions may change the market price for an investment (the
"market impact").
Another factor in transaction costs is the fund's portfolio turnover rate,
which measures how frequently the fund buys and sells investments. During
the past five years, the fund's fiscal year portfolio turnover rate and the
average turnover rate for the fund's Lipper category were as follows.
Turnover Comparison
------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------------------------------
Putnam Limited
Duration Government
Income Fund 509% 539% 224% 401% 319%
Lipper Short-Intermediate
U.S. Government
Funds Average* 184% 167% 170% 133% 170%
------------------------------------------------------------------------------
* Average portfolio turnover rate of funds viewed by Lipper Inc. as having
the same investment classification or objective as the fund. The Lipper
category average portfolio turnover rate is calculated using the portfolio
turnover rate for the fiscal year end of each fund in the Lipper category.
Fiscal years may vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average.
The fund may buy and sell investments relatively often. Both the fund's
portfolio turnover rate and the amount of brokerage commissions it pays
will vary over time based on market conditions. High turnover may lead to
increased costs and decreased performance.
As a matter of policy, Putnam Management is not permitted to
consider sales of shares of the fund (or of the other Putnam funds) as a
factor in the selection of broker-dealers to execute portfolio transactions
for the fund.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's
business. The Trustees have retained Putnam Management to be the fund's
investment manager, responsible for making investment decisions for the
fund and managing the fund's other affairs and business. The fund pays
Putnam Management a quarterly management fee for these services based on
the fund's average net assets. The fund paid Putnam Management a management
fee of 0.50% of average net assets for the fund's fiscal year ended
November 30, 2003. Putnam Management's address is One Post Office Square,
Boston, MA 02109.
* Investment management teams. Putnam Management's investment professionals
are organized into investment management teams, with a particular team
dedicated to a specific asset class. The members of the Core Fixed-Income
Team are responsible for the day-to-day management of the fund. The names
of all team members can be found at www.putnaminvestments.com.
The following team members coordinate the team's management of the fund's
portfolio. Their experience as investment professionals over the last five
years is shown.
------------------------------------------------------------------------------
Positions Over
Portfolio leader Since Employer Past Five Years
------------------------------------------------------------------------------
Kevin M. Cronin 1998 Putnam Chief Investment
Management Officer, Core Fixed
1997 - Present Income, Fixed Income
Money Market and Tax
Exempt Fixed Income
------------------------------------------------------------------------------
Positions Over
Portfolio member Since Employer Past Five Years
------------------------------------------------------------------------------
Rob A. Bloemker 2002 Putnam Mortgage Specialist,
Management Core Fixed Income
1999 - Present
------------------------------------------------------------------------------
* Investment in the fund by Putnam employees and the Trustees. As of
September 30, 2004, all of the 11 Trustees then on the Board of Trustees of
the Putnam funds owned fund shares. The table shows the approximate value
of investments in the fund and all Putnam funds as of that date by Putnam
employees and the fund's Trustees, including in each case investments by
their immediate family members and amounts invested through retirement and
deferred compensation plans.
------------------------------------------------------------------------------
Fund All Putnam funds
------------------------------------------------------------------------------
Putnam employees $284,618 $449,133,000
------------------------------------------------------------------------------
Trustees $656,319 $40,000,000
------------------------------------------------------------------------------
* Compensation of investment professionals. Putnam Management believes that
its investment management teams should be compensated primarily based on
their success in helping investors achieve their goals. The portion of
Putnam Investments' total incentive compensation pool that is available to
Putnam Management's Investment Division is based primarily on its delivery,
across all of the portfolios it manages, of consistent, dependable and
superior performance over time. The peer group for the fund,
Short-Intermediate U.S. Government Funds, is its broad investment category
as determined by Lipper Inc. The portion of the incentive compensation pool
available to your investment management team is also based primarily on its
delivery, across all of the portfolios it manages, of consistent,
dependable and superior performance over time.
* Consistent performance means being above median over one year.
* Dependable performance means not being in the 4th quartile of the peer
group over one, three or five years.
* Superior performance (which is the largest component of Putnam
Management's incentive compensation program) means being in the top third
of the peer group over three and five years.
In determining an investment management team's portion of the incentive
compensation pool and allocating that portion to individual team members,
Putnam Management retains discretion to reward or penalize teams or
individuals as it deems appropriate, based on other factors. The size of
the overall incentive compensation pool each year is determined by Putnam
Management's parent company, Marsh & McLennan Companies, Inc., and depends
in large part on Putnam's profitability for the year. Incentive
compensation generally represents at least 70% of the total compensation
paid to investment team members.
* Regulatory matters and litigation. On April 8, 2004, Putnam Management
entered into agreements with the Securities and Exchange Commission (SEC)
and the Massachusetts Securities Division representing a final settlement
of all charges brought against Putnam Management by those agencies on
October 28, 2003 in connection with excessive short-term trading by Putnam
employees and, in the case of the charges brought by the Massachusetts
Securities Division, by participants in some Putnam-administered 401(k)
plans. The settlement with the SEC requires Putnam Management to pay $5
million in disgorgement plus a civil monetary penalty of $50 million, and
the settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine of
$50 million. The settlements also leave intact the process established
under an earlier partial settlement with the SEC under which Putnam
Management agreed to pay the amount of restitution determined by an
independent consultant, which may exceed the disgorgement and restitution
amounts specified above, pursuant to a plan to be developed by the
independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associ ated legal fees
stemming from both of these proceedings. The SEC's and Massachusetts
Securities Division's allegations and related matters also serve as the
general basis for numerous lawsuits, including purported class action
lawsuits filed against Putnam Management and certain related parties,
including certain Putnam funds. Putnam Management has agreed to bear any
costs incurred by Putnam funds in connection with these lawsuits. Based on
currently available information, Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients, including
the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees is
continuing. The fund may experience increased redemptions as a result of
these matters, which could result in increased transaction costs and
operating expenses.
How does the fund price its shares?
The price of the fund's shares is based on its net asset value (NAV). The
NAV per share of each class equals the total value of its assets, less its
liabilities, divided by the number of its outstanding shares. Shares are
only valued as of the close of regular trading on the New York Stock
Exchange each day the exchange is open.
The fund values its investments for which market quotations are readily
available at market value. It values short-term investments that will
mature within 60 days at amortized cost, which approximates market value.
It values all other investments and assets at their fair value.
How do I buy fund shares?
All orders to purchase shares must be made through your employer's
retirement plan. For more information about how to purchase
shares of the fund through your employer's plan or limitations on
the amount that may be purchased, please consult your employer.
Putnam Retail Management generally must receive your plan's completed buy
order before the close of regular trading on the
New York Stock Exchange for shares to be bought at that day's offering
price.
To eliminate the need for safekeeping, the fund will not issue certificates
for shares.
Mutual funds must obtain and verify information that identifies investors
opening new accounts. If the fund is unable to collect the required
information, Putnam Investor Services may not be able to open your fund
account. Investors must provide their full name, residential or business
address, Social Security or tax identification number, and date of birth.
Entities, such as trusts, estates, corporations and partnerships, must
also provide other identifying information. Putnam Investor Services may
share identifying information with third parties for the purpose of
verification. If Putnam Investor Services cannot verify identifying
information after opening your account, the fund reserves the right to
close your account.
The fund may periodically close to new purchases of shares or refuse any
order to buy shares if the fund determines that doing so would be in the
best interests of the fund and its shareholders.
* Distribution (12b-1) plan. The fund has adopted a distribution plan to
pay for the marketing of class A shares and for services provided to
shareholders. The plan provides for payments at an annual rate (based on
average net assets) of up to 0.35%. The Trustees currently limit payments
on class A shares to 0.25% of average net assets. Because the fees are paid
out of the fund's assets on an ongoing basis, they will increase the cost
of your investment.
* Payments to dealers. As disclosed in the SAI, Putnam Retail Management
pays commissions, sales charge reallowances, and ongoing payments to
dealers who sell certain classes of fund shares. In addition, Putnam Retail
Management may, at its expense, pay concessions to dealers that satisfy
certain criteria established from time to time by Putnam Retail Management
relating to increasing net sales of shares of the Putnam funds over prior
periods and certain other factors.
* Eligible retirement plans. An employer-sponsored retirement plan is
eligible to purchase class A shares without an initial sales charge through
this prospectus if it invests at least $1 million in class A shares.
How do I sell fund shares?
Subject to any restrictions imposed by your employer's plan, you can sell
your shares through the plan back to the fund any day the New York Stock
Exchange is open. For more information about how to sell shares of the fund
through your employer's plan, including any charges that the plan may
impose, please consult your employer.
The fund will impose a short-term trading fee of 2.00% of the total
redemption amount (calculated at market value) if you sell or exchange
your shares after holding them for 5 days or less. The short-term trading
fee is paid directly to the fund and is designed to offset brokerage
commissions, market impact, and other costs associated with short-term
trading. The short-term trading fee will not apply in certain
circumstances, such as redemptions to pay distributions or loans from
defined contribution plans administered by Putnam, redemptions of shares
purchased directly with contributions by a plan participant or sponsor,
redemptions for loan repayment, redemptions from certain omnibus accounts,
redemptions in the event of shareholder death or post-purchase disability
and redemptions made as part of a systematic withdrawal plan. For purposes
of determining whether the short-term trading fee applies, the shares that
were held the longest will be redeemed first. Administrators, trustees or
sponsors of retirement plans may also impose short-term trading fees.
Please see the SAI for details.
Your plan administrator must send a signed letter of instruction to Putnam
Investor Services. The price you will receive is the next NAV per share
calculated after the fund receives the instruction in proper form. In order
to receive that day's NAV, Putnam Investor Services must receive the
instruction before the close of regular trading on the New York Stock
Exchange.
The fund generally sends payment for your shares the business day after
your request is received. Under unusual circumstances, the fund may suspend
redemptions, or postpone payment for more than seven days, as permitted by
federal securities law.
How do I exchange fund shares?
Subject to any restrictions your plan imposes, you can exchange your fund
shares for shares of other Putnam funds offered through your employer's
plan without a sales charge. Contact your plan administrator or Putnam
Investor Services for more information.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive
exchange activity and otherwise to promote the best interests of the fund,
the fund will impose a short-term trading fee of 2.00% of the total
exchange amount (calculated at market value) on exchanges of shares held
for 5 days or less. In the case of defined contribution plans administered
by Putnam, the 2.00% short-term trading fee will apply to exchanges of
shares purchased by exchange that are held in a plan participant's account
for 5 days or less. Administrators, trustees or sponsors of retirement
plans may also impose short-term trading fees.
The fund also reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any exchange.
The fund into which you would like to exchange may also reject your
exchange. These actions may apply to all shareholders or only to those
shareholders whose exchanges Putnam Management determines are likely to
have a negative effect on the fund or other Putnam funds.
Fund distributions and taxes
The fund declares a distribution daily based on our projections
of its estimated net income. The fund normally distributes any
net investment income monthly and any net realized capital
gains annually.
The terms of your employer's plan will govern how your employer's plan may
receive distributions from the fund. Generally, periodic distributions
from the fund to your employer's plan are reinvested in additional fund
shares, although your employer's plan may permit you to receive fund
distributions from net investment income in cash while reinvesting capital
gains distributions in additional shares or to receive all fund
distributions in cash. If you do not select another option, all
distributions will be reinvested in additional fund shares.
Generally, for federal income tax purposes, fund distributions are taxable
as ordinary income, except that any distributions of long-term capital
gains will be taxed as such regardless of how long you have held your
shares. However, distributions by the fund to retirement plans that qualify
for tax-exempt treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You should
consult your tax advisor to determine the suitability of the fund as an
investment through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment in the
fund) from such a plan.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
Financial highlights
The financial highlights table is intended to help you understand the
fund's recent financial performance. Certain information reflects financial
results for a single fund share. The total returns represent the rate that
an investor would have earned or lost on an investment in the fund,
assuming reinvestment of all dividends and distributions. This information
has been derived from the fund's financial statements, which have been
audited by KPMG LLP. Its report and the fund's financial statements are
included in the fund's annual report to shareholders, which is available
upon request.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.17 $5.10 $4.90 $4.81 $5.01
------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------
Net investment income .06 .17 .26 (d) .28 .25
------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .12 .19 .06 (.20)
------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 .29 .45 .34 .05
------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.20) (.25) (.25) (.25)
------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.22) (.25) (.25) (.25)
------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.18 $5.17 $5.10 $4.90 $4.81
------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.00 5.85 9.29 7.23 1.09
------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $439,463 $588,232 $327,332 $217,197 $243,927
------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .98 .97 .96 1.00 .99
------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.26 3.18 5.15 5.84 5.20
------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements.
(c) Portfolio turnover excludes certain treasury note transactions executed in connection with a
short-term trading strategy.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the periods.
</TABLE>
[This page left intentionally blank]
For more information about
Putnam Limited Duration
Government Income Fund
The fund's statement of additional information (SAI) and annual and
semi-annual reports to shareholders include additional information about
the fund. The SAI and the independent registered public accounting firm's
report and the financial statements included in the fund's most recent
annual reports to its shareholders are incorporated by reference into this
prospectus, which means they are part of this prospectus for legal
purposes. The fund's annual report discusses the market conditions and
investment strategies that significantly affected the fund's performance
during its fiscal year ended November 30, 2003. You may get free copies of
these materials, request other information about any Putnam fund, or make
shareholder inquiries, by calling Putnam toll-free at 1-800-752-9894.
You may review and copy information about a fund, including its SAI, at
the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the Public Reference Room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: publicinfo@sec.gov, or
by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
PUTNAM INVESTMENTS
Putnam Defined Contribution Plans
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 9740
Providence, Rhode Island 02940-9740
www.putnaminvestments.com
DA036 220417 11/04 File No. 811-06257
Prospectus
March 30, 2004,
as revised November 30, 2004
Putnam Limited
Duration Government
Income Fund*
Class Y shares
Investment Category: Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, LLC (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
* Prior to November 30, 2004, the fund was known as Putnam Intermediate
U.S. Government Income Fund.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
3 Fees and expenses
4 What are the fund's main investment strategies and related risks?
7 Who manages the fund?
10 How does the fund price its shares?
10 How do I buy fund shares?
11 How do I sell fund shares?
12 How do I exchange fund shares?
13 Fund distributions and taxes
14 Financial highlights
Putnam Defined Contribution Plans
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks as high a level of current income as Putnam Management
believes is consistent with preservation of capital.
MAIN INVESTMENT STRATEGIES -- U.S. GOVERNMENT BONDS
We invest in bonds that
* are obligations of the U.S. government, its agencies and
instrumentalities
* are backed by the full faith and credit of the United States, such as
U.S. Treasury bonds and Ginnie Mae mortgage-backed bonds, or by only the
credit of a federal agency or government sponsored entity, such as Fannie
Mae and Freddie Mac mortgage-backed bonds and
* have short to intermediate-term maturities (one to ten years). The fund
will normally have an average duration of one to three years. Currently the
fund is committed to maintaining a dollar weighted average maturity of
three to ten years. This commitment expires effective January 21, 2005.
We also invest in forward commitments and repurchase agreements relating to
those investments.
MAIN RISKS
The main risks that could adversely affect the value of the fund's shares
and the total return on your investment include:
* The risk that the issuers of the fund's investments will not make timely
payments of interest and principal. This credit risk is higher for debt
that is not backed by the full faith and credit of the U.S. government.
* The risk that movements in financial markets will adversely affect the
value of the fund's investments. This risk includes interest rate risk,
which means that the prices of the fund's investments are likely to fall if
interest rates rise.
* The risk that, compared to other debt, mortgage-backed investments may
increase in value less when interest rates decline, and decline in value
more when interest rates rise.
You can lose money by investing in the fund. The fund may not achieve its
goal, and is not intended as a complete investment program. An investment
in the fund is not a deposit in a bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE INFORMATION
The following information provides some indication of the fund's risks. The
chart shows year-to-year changes in the performance of the fund's class Y
shares. The table following the chart compares the fund's performance to
that of a broad measure of market performance. Of course, a fund's past
performance is not an indication of future performance.
[GRAPHIC OMITTED: vertical bar chart CALENDAR YEAR TOTAL RETURNS]
CALENDAR YEAR TOTAL RETURNS
1994 -1.46%
1995 15.04%
1996 3.74%
1997 7.56%
1998 7.82%
1999 0.25%
2000 9.73%
2001 7.35%
2002 8.06%
2003 1.81%
Year-to-date performance through 9/30/04 was 1.96%. During the periods
shown in the bar chart, the highest return for a quarter was 5.06%
(quarter ending 6/30/95) and the lowest return for a quarter was -1.56%
(quarter ending 3/31/94).
Average Annual Total Returns (for periods ending 12/31/03)
------------------------------------------------------------------------------
Past Past Past
1 year 5 years 10 years
------------------------------------------------------------------------------
Class Y 1.81% 5.37% 5.89%
Lehman Intermediate
Government Bond Index 2.29% 6.18% 6.32%
------------------------------------------------------------------------------
Performance information shown in the bar chart and table above, for periods
prior to the inception of class Y shares on 10/1/97, is derived from the
historical performance of the fund's class A shares (not offered by this
prospectus). Performance of class Y shares does not reflect the initial
sales charge currently applicable to class A shares or differences in
operating expenses which, for class Y shares, are lower than the operating
expenses applicable to class A shares.
The fund's performance through 11/30/94 benefited from Putnam Management's
agreement to limit the fund's expenses.
The fund's performance is compared to the Lehman Intermediate Government
Bond Index, an unmanaged index of government bonds with maturities between
one and up to ten years.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
class Y shares of the fund. Expenses are based on the fund's fiscal year
ended November 30, 2003.
------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment)
------------------------------------------------------------------------------
Maximum Sales Charge (Load) NONE
Maximum Deferred Sales Charge (Load) NONE
Maximum Redemption Fee*
(as a percentage of total redemption proceeds) 2.00%
------------------------------------------------------------------------------
Annual Fund Operating Expenses+
(expenses that are deducted from fund assets)
------------------------------------------------------------------------------
Total Annual Peer Group
Management Other Fund Operating Expense
Fees Expenses Expenses Ratio++
------------------------------------------------------------------------------
Class Y 0.50% 0.23% 0.73% 0.79%
------------------------------------------------------------------------------
* A 2.00% redemption fee (also referred to as a "short-term trading fee")
may apply to any shares that are redeemed (either by selling or exchanging
into another fund) within 5 days of purchase.
+ See the section "Who manages the fund?" for a discussion of regulatory
matters and litigation.
++ Average of the expenses of front-end load funds viewed by Lipper Inc. as
having the same investment classification or objective as the fund, as of
September 30, 2004, calculated in accordance with Lipper's standard
reporting methodology for comparing expenses within a given universe
(excluding 12b-1 fees and without giving effect to any expense offset and
brokerage service arrangements that may reduce fund expenses). The peer
group may include funds that are significantly larger or smaller than the
fund, which may limit the comparability of the fund's expenses to the
Lipper average.
EXAMPLE
The example translates the expenses shown in the preceding table into
dollar amounts. By doing this, you can more easily compare the cost of
investing in the fund to the cost of investing in other mutual funds. The
example makes certain assumptions. It assumes that you invest $10,000 in
the fund for the time periods shown and then redeem all your shares at the
end of those periods. It also assumes a 5% return on your investment each
year and that the fund's operating expenses remain the same. The example is
hypothetical; your actual costs and returns may be higher or lower.
------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
------------------------------------------------------------------------------
Class Y $75 $233 $406 $906
------------------------------------------------------------------------------
What are the fund's main investment strategies and related risks?
Any investment carries with it some level of risk that generally reflects
its potential for reward. We pursue the fund's goal by investing in U.S.
government bonds. We will consider, among other things, credit, interest
rate and prepayment risks as well as general market conditions when
deciding whether to buy or sell investments. A description of the risks
associated with the fund's main investment strategies follows.
* Interest rate risk. The values of bonds and other debt instruments
usually rise and fall in response to changes in interest rates. Declining
interest rates generally increase the value of existing debt instruments,
and rising interest rates generally decrease the value of existing debt
instruments. Changes in a debt instrument's value usually will not affect
the amount of interest income paid to the fund, but will affect the value
of the fund's shares. Interest rate risk is generally greater for
investments with longer maturities.
Some investments give the issuer the option to call or redeem an investment
before its maturity date. If an issuer calls or redeems an investment
during a time of declining interest rates, we might have to reinvest the
proceeds in an investment offering a lower yield, and therefore might not
benefit from any increase in value as a result of declining interest rates.
"Premium" investments offer coupon rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time.
* Credit risk. U.S. government investments generally have the least credit
risk but are not completely free of credit risk. U.S. government securities
that are not backed by the full faith and credit of the United States, such
as federal agency bonds, are subject to higher credit risk. Other bonds in
which the fund may invest are subject to varying degrees of risk. These
risk factors may include the creditworthiness of the issuer and, in the
case of mortgage-backed securities, the ability of the underlying borrowers
to meet their obligations.
* Prepayment risk. Traditional debt investments typically pay a fixed rate
of interest until maturity, when the entire principal amount is due. By
contrast, payments on mortgage-backed investments typically include both
interest and partial payment of principal. Principal may also be prepaid
voluntarily, or as a result of refinancing or foreclosure. We may have to
invest the proceeds from prepaid investments in other investments with less
attractive terms and yields. Compared to debt that cannot be prepaid,
mortgage-backed investments are less likely to increase in value during
periods of declining interest rates and have a higher risk of decline in
value during periods of rising interest rates. They may increase the
volatility of the fund.
* Forward commitments and repurchase agreements. We may enter into
contracts with dealers for future delivery of U.S. government investments,
commonly known as forward commitments. A forward commitment involves a risk
of loss if the value of the investment declines before the delivery date.
We may also enter into repurchase agreements, under which we buy an
investment from a firm that has an obligation to buy the investment back at
a fixed price and time, typically within one week. Repurchase agreements
involve the risk that the other party will default on its obligations, in
which case we may find it difficult to recover the value of these
investments.
* Frequent trading. We may buy and sell investments relatively often, which
involves higher brokerage commissions and other expenses.
* Other investments. In addition to the main investment strategies
described above, we may make other types of investments, such as
investments in derivatives including futures, options, warrants and swap
contracts, and zero-coupon bonds, which may be subject to other risks, as
described in the fund's statement of additional information (SAI).
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, at
times we may judge that market conditions make pursuing the fund's usual
investment strategies inconsistent with the best interests of its
shareholders. We then may temporarily use alternative strategies that are
mainly designed to limit losses. However, we may choose not to use these
strategies for a variety of reasons, even in very volatile market
conditions. These strategies may cause the fund to miss out on investment
opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The Trustees may change the fund's goal, investment
strategies and other policies without shareholder approval, except as
otherwise indicated.
* Portfolio transactions and portfolio turnover rate. Transactions on stock
exchanges, commodities markets and futures markets involve the payment by
the fund of brokerage commissions. The fund paid $2,469 in brokerage
commissions during the 2004 fiscal year, representing less than 1% of the
fund's average net assets. No amounts were paid to brokers who also provide
research (including statistical and quotation) services. Additional
information regarding Putnam's brokerage selection procedures is included
in the SAI.
Although brokerage commissions and other portfolio transaction costs are
not reflected in the fund's Total Annual Fund Operating Expenses ratio (as
shown in the Annual Fund Operating Expenses table in the section "Fees and
expenses"), they are reflected in the fund's total return. Combining the
brokerage commissions paid by the fund during the fiscal year ended
November 30, 2003 (as a percentage of the fund's average net assets) with
the fund's Total Annual Fund Operating Expenses ratio for class Y shares
results in a "combined cost ratio" of 0.73% of the fund's average net
assets for class Y shares for the fiscal year ended November 30, 2003 year.
Investors should exercise caution in comparing brokerage commissions and
combined cost ratios for different types of funds. For example, while
brokerage commissions represent one component of the fund's transaction
costs, they do not reflect any undisclosed amount of profit or "mark-up"
included in the price paid by the fund for principal transactions
(transactions made directly with a dealer or other counterparty), including
most fixed income securities and certain derivatives. In addition,
brokerage commissions do not reflect other elements of transaction costs,
including the extent to which the fund's purchase and sale transactions may
change the market price for an investment (the "market impact").
Another factor in transaction costs is the fund's portfolio turnover rate,
which measures how frequently the fund buys and sells investments. During
the past five years, the fund's fiscal year portfolio turnover rate and the
average turnover rate for the fund's Lipper
category were as follows.
Turnover Comparison
------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------------------------------
Putnam Limited Duration
Government Income Fund 509% 539% 224% 401% 319%
Lipper Short-Intermediate
U.S. Government
Funds Average* 184% 167% 170% 133% 170%
------------------------------------------------------------------------------
The fund may buy and sell investments relatively often. Both the fund's
portfolio turnover rate and the amount of brokerage commissions it pays
will vary over time based on market conditions. High turnover may lead to
increased costs and decreased performance.
As a matter of policy, Putnam Management is not permitted to consider sales
of shares of the fund (or of the other Putnam funds) as a factor in the
selection of broker-dealers to execute portfolio transactions for the fund.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment
manager, responsible for making investment decisions for the fund and
managing the fund's other affairs and business. The fund pays Putnam
Management a quarterly management fee for these services based on the
fund's average net assets. The fund paid Putnam Management a management fee
of 0.50% of average net assets for the fund's fiscal year ended November
30, 2003. Putnam Management's address is One Post Office Square, Boston, MA
02109.
* Investment management teams. Putnam Management's investment professionals
are organized into investment management teams, with a particular team
dedicated to a specific asset class. The members of the Core Fixed-Income
Team are responsible for the day-to-day management of the fund. The names
of all team members can be found at www.putnaminvestments.com.
The following team members coordinate the team's management of the fund's
portfolio. Their experience as investment professionals over the last five
years is shown.
------------------------------------------------------------------------------
Positions Over
Portfolio leader Since Employer Past Five Years
------------------------------------------------------------------------------
Kevin M. Cronin 1998 Putnam Chief Investment
Management Officer, Core Fixed
1997 - Present Income, Fixed Income
Money Market and
Tax Exempt Fixed Income
------------------------------------------------------------------------------
Positions Over
Portfolio member Since Employer Past Five Years
------------------------------------------------------------------------------
Rob A. Bloemker 2002 Putnam Mortgage Specialist,
Management Core Fixed Income
1999 - Present
------------------------------------------------------------------------------
* Investment in the fund by Putnam employees and the Trustees. As of
September 30, 2004, all of the 11 Trustees then on the Board of Trustees of
the Putnam funds owned fund shares. The table shows the approximate value
of investments in the fund and all Putnam funds as of that date by Putnam
employees and the fund's Trustees, including in each case investments by
their immediate family members and amounts invested through retirement and
deferred compensation plans.
------------------------------------------------------------------------------
Fund All Putnam funds
------------------------------------------------------------------------------
Putnam employees $284,618 $449,133,000
------------------------------------------------------------------------------
Trustees $656,319 $40,000,000
------------------------------------------------------------------------------
* Compensation of investment professionals. Putnam Management believes
that its investment management teams should be compensated primarily based
on their success in helping investors achieve their goals. The portion of
Putnam Investments' total incentive compensation pool that is available to
Putnam Management's Investment Division is based primarily on its
delivery, across all of the portfolios it manages, of consistent,
dependable and superior performance over time. The peer group for the
fund, Short-Intermediate U.S. Government Funds, is its broad investment
category as determined by Lipper Inc. The portion of the incentive
compensation pool available to your investment management team is also
based primarily on its delivery, across all of the portfolios it manages,
of consistent, dependable and superior performance over time.
* Consistent performance means being above median over one year.
* Dependable performance means not being in the 4th quartile of the peer
group over one, three or five years.
* Superior performance (which is the largest component of Putnam
Management's incentive compensation program) means being in the top third
of the peer group over three and five years.
In determining an investment management team's portion of the incentive
compensation pool and allocating that portion to individual team members,
Putnam Management retains discretion to reward or penalize teams or
individuals as it deems appropriate, based on other factors. The size of
the overall incentive compensation pool each year is determined by Putnam
Management's parent company, Marsh & McLennan Companies, Inc., and depends
in large part on Putnam's profitability for the year. Incentive
compensation generally represents at least 70% of the total compensation
paid to investment team members.
* Regulatory matters and litigation. On April 8, 2004, Putnam Management
entered into agreements with the Securities and Exchange Commission (SEC)
and the Massachusetts Securities Division representing a final settlement
of all charges brought against Putnam Management by those agencies on
October 28, 2003 in connection with excessive short-term trading by Putnam
employees and, in the case of the charges brought by the Massachusetts
Securities Division, by participants in some Putnam-administered 401(k)
plans. The settlement with the SEC requires Putnam Management to pay $5
million in disgorgement plus a civil monetary penalty of $50 million, and
the settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine of
$50 million. The settlements also leave intact the process established
under an earlier partial settlement with the SEC under which Putnam
Management agreed to pay the amount of restitution determined by an
independent consultant, which may exceed the disgorgement and restitution
amounts specified above, pursuant to a plan to be developed by the
independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees
stemming from both of these proceedings. The SEC's and Massachusetts
Securities Division's allegations and related matters also serve as the
general basis for numerous lawsuits, including purported class action
lawsuits filed against Putnam Management and certain related parties,
including certain Putnam funds. Putnam Management has agreed to bear any
costs incurred by Putnam funds in connection with these lawsuits. Based on
currently available information, Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients,
including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees is
continuing. The fund may experience increased redemptions as a result of
these matters, which could result in increased transaction costs and
operating expenses.
How does the fund price its shares?
The price of the fund's shares is based on its net asset value (NAV). The
NAV per share of each class equals the total value of its assets, less its
liabilities, divided by the number of its outstanding shares. Shares are
only valued as of the close of regular trading on the New York Stock
Exchange each day the exchange is open.
The fund values its investments for which market quotations are readily
available at market value. It values short-term investments that will
mature within 60 days at amortized cost, which approximates market value.
It values all other investments and assets at their fair value.
How do I buy fund shares?
All orders to purchase shares must be made through your employer's
retirement plan. For more information about how to purchase shares of the
fund through your employer's plan or limitations on the amount that may be
purchased, please consult your employer.
Putnam Retail Management generally must receive your plan's completed buy
order before the close of regular trading on the New York Stock Exchange
for shares to be bought at that day's offering price.
To eliminate the need for safekeeping, the fund will not issue
certificates for shares.
Mutual funds must obtain and verify information that identifies investors
opening new accounts. If the fund is unable to collect the required
information, Putnam Investor Services may not be able to open your fund
account. Investors must provide their full name, residential or business
address, Social Security or tax identification number, and date of birth.
Entities, such as trusts, estates, corporations and partnerships, must also
provide other identifying information. Putnam Investor Services may share
identifying information with third parties for the purpose of verification.
If Putnam Investor Services cannot verify identifying information after
opening your account, the fund reserves the right to close
your account.
The fund may periodically close to new purchases of shares or refuse any
order to buy shares if the fund determines that doing so would be in the
best interests of the fund and its shareholders.
* Eligible purchasers. A defined contribution plan (including a corporate
IRA) is eligible to purchase class Y shares if approved by Putnam and if
* the plan, its sponsor and other employee benefit plans of the sponsor
invest at least $150 million in Putnam funds and other investments managed
by Putnam Management or its affiliates, or the average investment in
Putnam-managed assets of accounts in the plan is at least $30,000; or
* the plan's sponsor confirms a good faith expectation that, within such
period after initial purchase as is agreed by the sponsor and Putnam,
investments in Putnam-managed assets will attain the level or average
account size specified above, using the higher of purchase price or current
market value, and agrees that class Y shares may be redeemed and class A
shares purchased if that level is not attained.
College savings plans that qualify for tax-exempt treatment under Section
529 of the Internal Revenue Code, bank trust departments and trust
companies, other defined contribution plans, and other Putnam funds and
Putnam investment products, if approved by Putnam, are also eligible to
purchase class Y shares.
* Payments to dealers. As disclosed in the SAI, Putnam Retail Management
pays commissions, sales charge reallowances, and ongoing payments to
dealers who sell certain classes of fund shares. In addition, Putnam Retail
Management may, at its expense, pay concessions to dealers that satisfy
certain criteria established from time to time by Putnam Retail Management
relating to increasing net sales of shares of the Putnam funds over prior
periods and certain other factors.
How do I sell fund shares?
Subject to any restrictions imposed by your employer's plan, you can sell
your shares through the plan back to the fund any day the New York Stock
Exchange is open. For more information about how to sell shares of the fund
through your employer's plan, including any charges that the plan may
impose, please consult your employer.
The fund will impose a short-term trading fee of 2.00% of the total
redemption amount (calculated at market value) if you sell or exchange your
shares after holding them for 5 days or less. The short-term trading fee is
paid directly to the fund and is designed to offset brokerage commissions,
market impact, and other costs associated with short-term trading. The
short-term trading fee will not apply in certain circumstances, such as
redemptions to pay distributions or loans from defined contribution plans
administered by Putnam, redemptions of shares purchased directly with
contributions by a plan participant or sponsor, redemptions for loan
repayment, redemptions from certain omnibus accounts, redemptions in the
event of shareholder death or post-purchase disability and redemptions made
as part of a systematic withdrawal plan. For purposes of determining
whether the short-term trading fee applies, the shares that were held the
longest will be redeemed first. Administrators, trustees or sponsors of
retirement plans may also impose short-term trading fees. Please see the
SAI for details.
Your plan administrator must send a signed letter of instruction to Putnam
Investor Services. The price you will receive is the next NAV per share
calculated after the fund receives the instruction in proper form. In order
to receive that day's NAV, Putnam Investor Services must receive the
instruction before the close of regular trading on the New York Stock
Exchange.
The fund generally sends payment for your shares the business day after
your request is received. Under unusual circumstances, the fund may suspend
redemptions, or postpone payment for more than seven days, as permitted by
federal securities law.
How do I exchange fund shares?
Subject to any restrictions your plan imposes, you can exchange your fund
shares for shares of other Putnam funds offered through your employer's
plan without a sales charge. Contact your plan administrator or Putnam
Investor Services for more information.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive
exchange activity and otherwise to promote the best interests of the fund,
the fund will impose a short-term trading fee of 2.00% of the total
exchange amount (calculated at market value) on exchanges of shares held
for 5 days or less. In the case of defined contribution plans administered
by Putnam, the 2.00% short-term trading fee will apply to exchanges of
shares purchased by exchange that are held in a plan participant's account
for 5 days or less. Administrators, trustees or sponsors of retirement
plans may also impose short-term trading fees.
The fund also reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any exchange.
The fund into which you would like to exchange may also reject your
exchange. These actions may apply to all shareholders or only to those
shareholders whose exchanges Putnam Management determines are likely to
have a negative effect on the fund or other Putnam funds.
Fund distributions and taxes
The fund declares a distribution daily based on our projections
of its estimated net income. The fund normally distributes any
net investment income monthly and any net realized capital
gains annually.
The terms of your employer's plan will govern how your employer's plan may
receive distributions from the fund. Generally, periodic distributions from
the fund to your employer's plan are reinvested in additional fund shares,
although your employer's plan may permit you to receive fund distributions
from net investment income in cash while reinvesting capital gains
distributions in additional shares or to receive all fund distributions in
cash. If you do not select another option, all distributions will be
reinvested in additional fund shares.
Generally, for federal income tax purposes, fund distributions are taxable
as ordinary income, except that any distributions of long-term capital
gains will be taxed as such regardless of how long you have held your
shares. However, distributions by the fund to retirement plans that qualify
for tax-exempt treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You should
consult your tax advisor to determine the suitability of the fund as an
investment through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment in the
fund) from such a plan.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
Financial highlights
The financial highlights table is intended to help you understand the
fund's recent financial performance. Certain information reflects financial
results for a single fund share. The total returns represent the rate that
an investor would have earned or lost on an investment in the fund,
assuming reinvestment of all dividends and distributions. This information
has been derived from the fund's financial statements, which have been
audited by KPMG LLP. Its report and the fund's financial statements are
included in the fund's annual report to shareholders, which is available
upon request.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS Y
------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.16 $5.09 $4.90 $4.80 $5.01
------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------
Net investment income .07 .18 .27 (d) .29 .26
------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 .12 .18 .07 (.21)
------------------------------------------------------------------------------------------------------------
Total from
investment operations .12 .30 .45 .36 .05
------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.21) (.26) (.26) (.26)
------------------------------------------------------------------------------------------------------------
From net realized
gain on investment (.03) (.02) -- -- --
------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.23) (.26) (.26) (.26)
------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.17 $5.16 $5.09 $4.90 $4.80
------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.27 6.13 9.35 7.73 1.14
------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $172,240 $185,303 $171,498 $132,245 $114,881
------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .73 .72 .71 .75 .74
------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.51 3.55 5.41 6.11 5.45
------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 509.05 (c) 538.64 (c) 224.31 (c) 401.30 318.67
------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements.
(c) Portfolio turnover excludes certain treasury note transactions executed in connection with a
short-term trading strategy.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the periods.
</TABLE>
For more information about
Putnam Limited Duration
Government Income Fund
The fund's statement of additional information (SAI) and annual and
semi-annual reports to shareholders include additional information about
the fund. The SAI and the independent registered public accounting firm's
report and the financial statements included in the fund's most recent
annual reports to its shareholders are incorporated by reference into this
prospectus, which means they are part of this prospectus for legal
purposes. The fund's annual report discusses the market conditions and
investment strategies that significantly affected the fund's performance
during its fiscal year ended November 30, 2003. You may get free copies of
these materials, request other information about any Putnam fund, or make
shareholder inquiries, by calling Putnam toll-free at 1-800-752-9894.
You may review and copy information about a fund, including its SAI, at
the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the Public Reference Room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: publicinfo@sec.gov, or
by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
PUTNAM INVESTMENTS
Putnam Defined Contribution Plans
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 9740
Providence, Rhode Island 02940-9740
www.putnaminvestments.com
DY036 220418 11/04 File No. 811-06257
</TEXT>
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