Putnam Fixed Income Outlook Q1 2013

Putnam’s outlookArrows in the table indicate the change from the previous quarter.

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CURRENCY SNAPSHOT

Dollar vs. yen: DollarDollar vs. euro: NeutralDollar vs. pound: Dollar

Spread sectors continued to rally as investors focused more on opportunities rather than risksRisk assets in the first quarter continued their momentum from the final weeks of 2012, posting solid gains across a number of markets and asset classes. This is not to suggest it was an uneventful period: January began with a last-minute tax deal to raise federal rates on top earners and avoid the across-the-board hikes outlined in the fiscal cliff. In March, after political brinkmanship from both sides of the aisle failed to result in a deal, the automatic sequestration cuts began to take effect, representing a reduction in federal spending of $85 billion in 2013, or about 2.2%.

Political rhetoric aside, the general economic consensus is that the reduction in spending will have a mild negative impact on GDP; our own estimates call for a negative impact of somewhere between 0.50% and 0.75% in 2013. That said, our base-case fore-cast calls for continued GDP growth in 2013 and marginal improvement over last year’s 2.2% growth.

Outside the United States, Europe reclaimed headlines after Italy’s elections failed to produce a majority government and Cyprus’s banking system, teetering on the brink of collapse, agreed to a substantial restructuring and EU bailout. These events were generally understood to be negative developments on the world stage, but we believe the muted market reaction is telling.

Key takeaways•Spreadsectorscontinuedtorallyasinvestorsfocusedmoreonopportunitiesthanonrisks.

•TheFedmaintaineditsstance,butnewquestionsemergedabouthowmuchfurtherinfluencethecentralbankcanexert.

•Withtaxratesfixedforthenearterm,policymakersturnedtheirattentiontospendingcuts.

•Despitetightervaluationsincorporatecredit,weforeseecontinuedsoliddemandandfundamentals.

Fixed-Income OutlookApril 2013 » Putnam Perspectives

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APRIL 2013 | Fixed-Income Outlook

As recently as a year ago, such developments would have been much more likely to spark a widespread selloff, with a concurrent flight to U.S. Treasuries — a pattern that markets experienced often during the past few years. The fact that investors have remained more focused on longer-term opportunities rather than the short-term news cycle suggests to us that they are much more attuned to the potential opportunity costs of remaining on the sidelines.

To that end, we’ve seen significant outflows from cash investments in recent months as investors moved back into equities and continued to allocate to fixed-income spread sectors, many of which have been experiencing substantial inflows for some time. We believe this type of environment — one in which declining interest rates are not the primary driver of returns and the risk-on/risk-off trade does not overshadow fundamentals in the market — provides an abundance of opportunities for active managers. We believe our holistic, bottom-up approach to securities, sectors, rates, and currencies positions Putnam well for the market environment that we now see unfolding.

The Federal Reserve maintained its commitment to easy money given a weak labor market and benign inflation projectionsFollowing the March Federal Open Market Committee (FOMC) meeting, Chairman Ben Bernanke reaffirmed the central bank’s commitment to easy money. Late last year, the Fed launched the much-anticipated “QE3” and replaced the expiring “Operation Twist” in December with another round of targeted Treasury purchases. In all, the Fed is currently purchasing $85 billion a month in agency mortgage-backed securities and intermediate- and long-term Treasuries. Both sets of purchases are being made with newly created money, so investors have been more mindful in recent months of the potential for higher infla-tion, which has to date been relatively benign.

Figure 1: Risk assets continued rally to begin 2013

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10%1Q 134Q 12

Japan gov’t

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Tax-exempt

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debt

Source: Putnam research, as of 3/28/13. Past performance is not indicative of future results. See page 11 for index definitions.

Japanese debt and high yield led the market, while emerging-market and eurozone debt lagged.

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The Fed had also recently introduced specific bench-marks into its statements, indicating it would continue its current policies as long as unemployment remains above 6.5%, one- to two-year inflation projections remain no more than a half percentage point above the 2% longer-run goal, and longer-term inflation expectations continue to be “well anchored.” While the most recent unemploy-ment reading registered at 7.7% — the lowest level in the past four years — the Fed said it does not expect to reach its target rate until sometime in 2015.

Nonetheless, since July 2012, when yields on the benchmark 10-year Treasury fell to a low of 1.43%, rates have climbed steadily higher on the long end of the curve, hitting 2.07% for 10-year Treasuries in early March. In absolute terms, 60 basis points is a fairly small movement, but it is worth noting that it represents a jump of more than 40% from last year’s lows. To be sure, some of that movement is attributable to improving investor sentiment about the health of the economy, particularly in 2013. In addition, the Fed’s easing policies are by definition inflationary, although we believe the recent rate movements do not necessarily suggest a perception of higher levels of inflation over the near term, given the lack of concurrent movements in the Treasury inflation-protected securities (TIPS) market. Rather, we tend to believe that some of the interest-rate volatility of the past few months is more a product of investors’ concern that the Fed’s ability to influence long-term rates with purchase programs is beginning to wane. This worry has been a staple of every QE program that the Fed has unveiled, and while we do not share the concern that the Fed may be “out of ammunition,” we certainly do not believe that interest-rate risk is attractively priced.

To that end, we have sought to mitigate interest-rate volatility in our portfolios for several quarters. As long as the Fed continues injecting liquidity into the financial system through targeted bond purchases, we do not believe that interest rates will climb significantly higher than where they are today. We also believe a strategy that relies on rates declining further to drive performance is a recipe for trouble in this kind of a potentially range-bound and volatile interest-rate environment, and we continue to implement a relative underweight position in interest-rate risk across our portfolios.

Opportunities appear abundant in global bond markets, but require a bottom-up, security-level approachOur outlook for international bond markets on the whole remains largely unchanged from three months earlier. While there exist myriad opportunities for establishing positions on the direction or magnitude of interest-rate movements, on the shape and slope of the yield curve, or on currency exchange rates, we do not believe there are many opportunities that suggest large, top-down, passive allocations. This kind of market environment is one in which we believe Putnam’s skill set is particularly well suited.

To that end, we have been pursuing targeted opportu-nities in Europe, including in both peripheral countries like Italy, Spain, and Greece, and in the dominant economies of France and Germany. This is not to say that we believe Europe is poised for a sharp rebound. As the recent devel-opments in Cyprus have illustrated, Europe continues to muddle through its structural challenges. That said, investors’ fears over a possible collapse of the European Monetary Union or of a widespread contagion of the developed-market financial system have largely abated. This renewed — and, in our view, justified — outlook for slow and steady progress in Europe has helped Spanish sovereign debt post gains over the first quarter while yields in Italian debt were relatively stable. Putnam portfolios have been mostly tactical in their European allocations, but the common theme generally has been to seek to establish positions in those areas that we believe have been oversold or unrealistically priced after the market volatility of the past two years.

While the Fed’s easing policies are, by definition, inflationary, we believe the recent rate movements do not suggest a perception of higher near-term inflation.

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APRIL 2013 | Fixed-Income Outlook

Our outlook for emerging-market debt in 2013, mean-while, also is largely unchanged. The fundamentals in many emerging economies remain attractive, with solid housing markets and financial sectors, as well as low debt loads in many countries. However, as we have discussed before, we believe the global economic environment today is a less favorable one for developing markets to compete in for capital. Emerging-market sovereign debt is much more reliant on foreign capital and today, with heightened volatility and uncertainty in the developed markets, we believe investors should be wary of how stable those flows into emerging markets are likely to be. Spreads today — which reflect the yield advantage offered by the asset class — are tighter than their historical norm, although we are cautious about how much stock to

put in backward-looking comparisons when discussing emerging markets. Many emerging markets, while facing a challenging environment today, are clearly in much better financial condition than they were 10–15 years ago, and that fact alone may be enough to warrant tighter-than-normal spreads. Ultimately, we believe that today’s less attractive valuations and uncertain macro environment suggest that investing in emerging-market debt requires careful security-level analysis, and that a passive alloca-tion to the asset class remains a risky proposition.

Figure 2. Interest rates crept higher on the long end of the curve

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12/31/123/28/13

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Source: U.S. Department of the Treasury, as of 3/28/13.

Given current Fed policy, long-term interest rates could experience volatility over the foreseeable future.

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Figure 3. Current spreads relative to historical norms

n  Average excess yield over Treasuries (OAS, 1/1/98–12/31/07)

n  Current excess yield over Treasuries (OAS as of 3/28/13)

Housing market continued to make gains in Q1, signaling a possible increase in banks’ willingness to lendSingle-family home prices continued to trend higher, which has arguably been the most encouraging piece of macroeconomic data in recent months. Based on first-quarter results, the Case-Shiller Index is on track for gains in the low teens for 2013. And, of course, while we cannot guarantee performance, our own internal estimates call for national housing gains in the mid-single digits for 2013 and 2014. Under either scenario, the improvements are welcome news in an economy still struggling with persis-tent high unemployment and a less-than-stable outlook for consumer spending.

While it is difficult to put a precise figure to the activity, a good portion of these gains has stemmed from new investors entering the market, including a number of financial institutions and hedge funds, to turn former primary residences into rental properties. Rental yields in many markets are running at 10% or higher and, when coupled with the potential gains from the appreciation of the property, many investors have found the combination too attractive to pass up.

Sources: Barclays, Putnam, as of 3/28/13.

Data are provided for informational use only. Past performance is no guarantee of future results. All spreads are in basis points and measure option-adjusted yield spread relative to comparable maturity U.S. Treasuries with the exception of non-agency RMBS, which are loss-adjusted spreads to swaps calculated using Putnam’s projected assumptions on defaults and severities, and agency IO, which is calculated using assumptions derived from Putnam’s proprietary prepayment model. Agencies are represented by Barclays U.S. Agency Index. Agency MBS are represented by Barclays U.S. Mortgage Backed Securities Index. Investment-grade corporates are represented by Barclays U.S. Corporate Index. High yield is represented by Barclays U.S. Corporate High Yield Index. AAA CMBS are represented by the Aaa portion of Barclays Investment Grade CMBS Index. EMD is repre-sented by Barclays Global Emerging Markets Index. Non-agency is estimated using average market level of a sample of below-investment-grade securities backed by Alt-A collateral. Agency IO is estimated from a basket of Putnam-monitored interest-only securities. Option-adjusted spread (OAS) measures the yield spread over duration equivalent Treasuries for securities with different embedded options.

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Spreads across a number of sectors are today in line with their historical averages.

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APRIL 2013 | Fixed-Income Outlook

In our multi-sector portfolios, we have continued to implement our strategy of investing in both non-agency residential mortgage-backed securities (RMBS) and interest-only agency collateralized mortgage obligations (CMO IOs). As we have discussed before, non-agency RMBS tend to benefit from improving housing funda-mentals, which have been picking up throughout the past year, and have really begun to gather steam over the past six months. Agency CMO IOs, on the other hand, tend to benefit in an environment where refinancing is challenging for mortgage-holders, which has certainly been the case for at least the past two years.

With home prices improving across the country and bank lending standards beginning to loosen, however, we are taking a more neutral view on the agency CMO IO market. We continue to find it to be an attractive segment of the market, but believe it no longer warrants as substantial an allocation as it did a year ago. For that reason, we are taking more of a balanced approach.

The commercial mortgage market, lastly, continued to post gains, and our funds generally hold modest allo-cations to the sector. The retail space sector has posted solid gains in recent months, although we do harbor some concerns over the competitiveness of “brick and mortar” businesses in this economy. With consumer spending still under pressure and consumers particularly cost conscious, online retailers have been performing quite well. It remains to be seen whether and how this translates to the CMBS market. The office space segment, as we have discussed before, continues to show some signs of weakness, with many corporations maintaining leaner headcounts in the post-2008 environment, which translates into more muted demand. Overall, our outlook for CMBS calls for continued improvements along with the broader economy, and we believe a bottom-up, security-specific approach is more prudent than a blanket allocation to the asset class.

Figure 4. Spread sectors’ excess returns over Treasuries

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U.S. agencyMBSCorporatesCMBSABS

Source: Barclays, as of 3/28/13. Past performance is not indicative of future results.

Negative Treasury returns underscored the dangers of a long-duration strategy.

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Spreads continued to tighten in corporate debt, while fundamentals remain compellingCorporate debt continued to perform well in the first quarter with high-yield and floating-rate debt outpacing the investment-grade sector. As of the end of March, spreads in the high-yield market were slightly lower than their long-term average, finishing the quarter at 5.02%. While valuations aren’t as attractive as they were a year ago, we believe that there is still much that makes the asset class attractive, and that spreads could continue to tighten further. As a reminder, spreads measure the yield advantage corporate debt offers over similarly dated Treasuries, and tightening spreads is typically a good thing for existing bondholders. Prior to the 2008 credit crisis, spreads in the high-yield market had tightened to about 2.5% over Treasuries, so we believe there is ample precedent for spreads tighter than the current 502 basis points. Moreover, the high-yield companies in the market today are significantly stronger than those of the universe

of five or ten years ago specifically because the credit crisis forced so many of the weakest companies out of business. The default rate today — at around 1.24% — remains well below its long-term historical average, which is roughly 4.3%.

The other factor that we find compelling is the scarcity of yield in the fixed-income market. Investors who may not have been high-yield investors in previous years have been forced to reconsider the asset class with so few other income-producing options available. Case in point, throughout 2012, flows into the high-yield and floating-rate segments of the market were exceptionally strong, and while 2013 is unlikely to be another record-setting year, we don’t foresee a dramatic decline in demand.

Floating-rate debt, meanwhile, has benefited from many of the same trends we have seen at work in the high-yield space, but has the added benefit of helping to insulate investors from the adverse effects of rising

Figure 5. High-yield spreads and defaults generally move in tandem over credit cycles

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Current spread: 502 bps (as of 3/31/13)20-year median spread: 536 bpsAverage default rate: 4.3%

Today, the gap between spreads and defaults remains wide, signaling opportunity for investors

High-yield default rate

Spread to worst

Sources: JPMorgan, High Yield Market Monitor, 4/1/13. A basis point (bp) is one-hundredth of a percent. One hundred basis points equals one percent. Spread to worst measures the difference between the best- and worst-performing yields in two asset classes.

Below-average defaults and strong fundamentals suggest that spreads could potentially tighten further.

8

APRIL 2013 | Fixed-Income Outlook

Figure 6: Municipal bond credit spreads have narrowed, but still remain attractive

Municipal bond spreads by quality rating

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Sources: Putnam, as of 3/28/13. Credit ratings are as determined by Putnam.

The most attractive relative values appear to be in the BBB-rated segment of the muni market.

interest rates. By definition, the interest payments on floating-rate notes reset periodically as short-term interest rates change. While the outlook for the foresee-able future for short-term rates is fairly stable, the asset class also offers investors protection from volatility in longer-term rates beyond what the high-yield asset class offers. There is reason to believe that investors have taken note, and that this particular feature of the asset class has become more attractive over the past several months.

Finally, our outlook for investment-grade corporate debt is somewhat more cautious. To be sure, the financial health of corporations in the investment-grade space continues to be quite strong. However, in a slow-growth macroeconomic environment, we believe it will prove challenging for corporations to continue to improve their margins and increase their revenues. The risk, we feel, is not so much one of potentially deteriorating funda-mentals, but of investment-grade corporate debt having reached something of a plateau. For those reasons, we generally prefer the opportunities in high yield and floating rate in our multi-sector portfolios.

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9

Municipal bond investors gained clarity on tax rates, but a number of key policy issues remain unresolvedIt is no surprise that for many months now the focal point for many discussions about municipal bonds has been federal policy and the potential risks entailed. By way of background, on January 1, 2013, Congress enacted a last-minute tax deal to raise rates on top earners while preserving existing brackets for most other taxpayers. While the new higher rates for top earners has likely bolstered demand for municipal bonds by making their taxable equivalent yields that much more attractive, the correlation between tax rates and demand is never one to one. Taxes are one factor among many that inves-tors consider when weighing their options for their fixed-income portfolios and, to that end, the question of whether the income from municipal bonds will remain fully tax free is still unsettled.

One potential outcome in a “grand bargain” on tax reform would cap the level of municipal bond interest that can be claimed tax free, possibly at 28%. While we are skeptical of the prospects for any further significant tax reform under a divided Congress, and believe this particular outcome is unlikely, we do believe it remains a possibility. We believe it is highly likely, however, that changes to the tax treatment of municipal bonds will continue to be floated in any negotiations about tax reform, so some short-term headline risk does exist. We are monitoring the situation closely.

Beyond the issue of taxes, since January, much of the talk from the political class has revolved around seques-tration, the other half of the fiscal cliff that mandated 2% across-the-board spending cuts. While the political rhetoric associated with those cuts often has painted them as catastrophic, we believe the fallout for most states is likely to be fairly benign. The cuts certainly won’t be beneficial for states and local communities, but we believe the effects will not be extremely widespread and

the impact will be staggered over time. Sectors and locali-ties that benefit most from federal support and areas that are heavily reliant on military and defense spending are the most likely to be negatively affected, we believe. But at this point, it is difficult to quantify exactly how seques-tration will impact states’ finances. The ultimate impact will depend on how well these states have prepared and budgeted for the sequestration cuts.

In terms of positioning, we continue to favor essen-tial service revenue bonds over local general obligation bonds. The BBB-rated segment of the curve continues to offer attractive relative value opportunities, in our analysis, and in terms of maturities, we find 10 to 15 years to be the optimal part of the yield curve in today’s environment. For several months now, we have maintained a cash weighting in our portfolios that is slightly higher than normal, which has helped to offset some of the recent interest-rate vola-tility. We anticipate maintaining that stance through the spring, which tends to begin as a seasonally slower period for new issuance, and which will allow us a greater degree of flexibility as issuance picks back up in the summer months, as historically has been the case.

Overall, we maintain our constructive outlook for municipal bonds, though we believe that returns in 2013 will be less about price appreciation and more about coupon income in the tax-exempt market. While spreads are much narrower than they were at their peak, they remain attractive in certain credit-quality buckets, in our opinion. Although they were a little softer in March, technical factors in the market also have been decent — specifically, continued refunding activity and solid investor demand — and we believe that technicals should remain supportive in 2013. While investors now have more near-term certainty on tax rates for 2013, there is still much to be resolved, including federal budget sequestration, the debt ceiling, and the potential for broader tax reform during the year, all of which could affect the value of municipal bonds. As always, we are monitoring the situation closely and positioning the funds accordingly.

While we are skeptical of the prospects for any further significant tax reform under a divided Congress, a cap on municipal bonds’ tax-exempt income remains a possibility.

10

APRIL 2013 | Fixed-Income Outlook

U.S. dollar gained appeal as investors continued to move off the sidelines and into risk assetsOn the currency front, our multi-sector portfolios continue to hold a bias to the U.S. dollar, which generally has helped performance in recent months. For much of 2012, the U.S. dollar benefited from recurring flights to quality as investors rushed into Treasuries amid any signs of market turbulence. While the risk-on/risk-off mentality has been much less pervasive over the past several months, the U.S. dollar has continued to benefit as investors have regained their risk appetites. The United States was one of the first developed countries to attempt to clean up the damage in its banking sector in the wake of the financial crisis, while corporations aggressively cut costs and shored up balance sheets. As a result, the United States is in a position today to attract risk capital in a way that makes it much more compelling, in our opinion, than many of the other options available in the developed world.

One of the consequences of a strengthening U.S. dollar is often a weakening of currencies tied to commodity prices. For that reason, we have been more cautious in recent months on emerging-market currencies in general, and have focused more on those countries that are more resilient to a possible slowdown in capital flows, including Mexico, Chile, Thailand, and the Philippines.

Agency mortgage-backed securities are represented by the Barclays U.S. Mortgage Backed Securities Index, which covers agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).

Commercial mortgage-backed securities are represented by the Barclays U.S. CMBS Investment Grade Index, which measures the market of commercial mortgage-backed securities with a minimum deal size of $500 million. The two subcomponents of the U.S. CMBS Investment Grade Index are the U.S. aggregate-eligible securities and non-eligible securities. To be included in the U.S. Aggregate Index, the securities must meet the guidelines for ERISA eligibility.

Emerging-market debt is represented by the JPMorgan Emerging Markets Global Diversified Index, which is composed of U.S. dollar-denominated Brady bonds, eurobonds, traded loans, and local market debt instruments issued by sovereign and quasi-sovereign entities.

Eurozone government is represented by the Barclays Pan European Aggregate Bond Index, which tracks fixed-rate, investment-grade securities issued in the following European currencies: euro, British pound, Norwegian krone, Danish krone, Swedish krona, Czech koruna, Hungarian forint, Polish zloty, and Swiss franc.

Global high yield is represented by the JPMorgan Global High Yield Index, an unmanaged index of global high-yield fixed-income securities.

Japan government is represented by the Barclays Japanese Aggregate Bond Index, a broad-based investment-grade benchmark consisting of fixed-rate Japanese yen-denominated securities.

Tax-exempt high yield is represented by the Barclays Municipal Bond High Yield Index, which consists of below-investment-grade or unrated bonds with outstanding par values of at least $3 million and at least one year remaining until their maturity dates.

U.K. government is represented by the Barclays Sterling Aggregate Bond Index, which contains fixed-rate, investment-grade, sterling-denominated securities, including gilt and non-gilt bonds.

U.S. floating-rate bank loans are represented by the S&P/LSTA Leveraged Loan Index, an unmanaged index of U.S. leveraged loans.

U.S. government and agency debt is represented by the Barclays U.S. Aggregate Bond Index, an unmanaged index of U.S. investment-grade fixed-income securities.

U.S. investment-grade corporate debt is represented by the Barclays U.S. Corporate Index, a broad-based benchmark that measures the U.S. taxable investment-grade corporate bond market.

U.S. tax exempt is represented by the Barclays Municipal Bond Index, an unmanaged index of long-term fixed-rate investment-grade tax-exempt bonds.

You cannot invest directly in an index.

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11

Putnam’s veteran fixed-income team offers a depth and breadth of insightSuccessfulinvestingintoday’smarketsrequiresabroad-basedapproach,theflexibilitytoexploitarangeofsectorsandinvestmentopportunities,andakeenunderstandingofthecomplexglobalinterrelationshipsthatdrivethemarkets.ThatiswhyPutnamhasmorethan70fixed-incomeprofessionalsfocusingondeliveringcomprehensivecoverageofeveryaspectofthefixed-incomemarkets,basednotonlyonsector,butalsoonthebroadsourcesofrisk—andopportunities—mostlikelytodrivereturns.

D. William KohliCo-Head of Fixed IncomeGlobal StrategiesInvesting since 1987Joined Putnam in 1994

Michael V. SalmCo-Head of Fixed IncomeLiquid Markets and Securitized ProductsInvesting since 1989Joined Putnam in 1997

Paul D. Scanlon, CFACo-Head of Fixed IncomeGlobal CreditInvesting since 1986Joined Putnam in 1999

This material is provided for limited purposes. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Putnam product or strategy. References to specific securities, asset classes, and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice. The opinions expressed in this article represent the current, good-faith views of the author(s) at the time of publication. The views are provided for informational purposes only and are subject to change. This material does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. The views and strategies described herein may not be suitable for all investors. Investors should consult a financial advisor for advice suited to their individual financial needs. Putnam Investments cannot guarantee the accuracy or completeness of any statements or data contained in the article. Predictions, opinions, and other information contained in this article are subject to change. Any forward-looking statements speak only as of the date they are made, and Putnam assumes no duty to update them. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Actual results could differ materially from those anticipated. Past performance is not a guarantee of future results. As with any investment, there is a potential for profit as well as the possibility of loss.

The information provided relates to Putnam Investments and its affiliates, which include The Putnam Advisory Company, LLC and Putnam Investments Limited®.

Prepared for use in Canada by Putnam Investments Inc. [Investissements Putnam Inc.] (o/a Putnam Management in Manitoba). Where permitted, advisory services are provided in Canada by Putnam Investments Inc. [Investissements Putnam Inc.] (o/a Putnam Management in Manitoba) and its affiliate, The Putnam Advisory Company, LLC.

Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Derivatives also involve the risk, in the case of many over-the-counter instruments, of the potential inability to terminate or sell deriv-atives positions and the potential failure of the other party to the instrument to meet its obligations.

Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, funds that invest in bonds have ongoing fees and expenses.

If you are a U.S. retail investor, please request a prospectus, or a summary prospectus if available, from your financial representative or by calling Putnam at 1-800-225-1581. The prospectus includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.

In the United States, mutual funds are distributed by Putnam Retail Management.

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