Investor EducationWhere are rates headed next?Historically, when rates rise, they have tended to rise sharply0.001.002.003.004.005.006.007.008.00%20122011201020092008200720062005200420032002200120001999199819971996199519941993+1.75%in 12 months+4.25%in 25 months+3.00%in 13 monthsEﬀective federal funds rate 10-year Treasury yieldSource: United States Federal Reserve, as of 12/31/12.The federal funds rate is a short-term rate objective of the Federal Reserve Board. The actual federal funds rate is the interest rate at which depository institutions lendbalances at the Federal Reserve to other depository institutions overnight. The real rate changes daily, but is usually close to the target rate desired by the Federal Reserve.There have been three periodsof tightening monetary policy inthe past 20 years, during whichshort-term rates rose by anaverage of 3% — most recently,by more than 4%.
� Putnam Retail ManagementPutnam Investments | One Post Office Square | Boston, MA 02109 | putnam.com� II913 281224 4/13Bond prices and interest rates generally move in oppositedirections — when rates rise, the value of existing bondsdecline. The degree of a bond’s sensitivity to those interest-rate changes is measured by duration.For every 1% change in interest rates, a bond’s price isexpected to move approximately 1% in the opposite directionper year of duration. In other words, the higher a bond’sduration, the more sensitive it is to interest-rate movements.Consider these risks before investing: Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interestrates 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 isgenerally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, fundsthat invest in bonds have ongoing fees and expenses.Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus or a summary prospectuscontaining this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the prospectuscarefully before investing.For more information on how Putnam’s fixed-income funds can fit into a diversified portfolio,talk to your financial advisor or log on to putnam.com.Duration is one of four fixed-income risks we considerAt Putnam, we break down the risks of fixed-income investing into four major areas for analysis. Each Putnam income fund mixes these risks in different ways, togive investors a choice of funds to build a portfolio suited to their goals and risk profile.If rates rise 1% If rates rise 2%Duration(years) YieldExpectedprice changeExpectedprice change2-year Treasury 1.91 0.24% -1.91% -3.82%10-year Treasury 9.01 1.85% -9.01% -18.02%Barclays U.S. AggregateBond Index5.26 1.86% -5.26% -10.52%Why duration mattersRising rates can lead to negative total returnsDuration Credit Prepayment LiquidityThe sensitivity of a bond’s price tochanges in interest rates, which causesbonds to lose value when rates increase.The loss of principal or income whena borrower cannot make a paymentor fulfill other obligations.The early, unscheduled return of abond’s principal, which may impact theexpected yield or return of a bond.The lack of marketability of a security,which may cause an investor to concedea lower/higher price in order to sell/buya bond.Sources: Putnam Research, Barclays, as of 3/31/13.Barclays U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.You cannot invest directly in an index.For illustrative purposes only. Performance of Putnam funds will differ.