FUND SYMBOLS CLASS A CLASS B CLASS C CLASS R6 CLASS Y
Putnam Massachusetts Tax Exempt Income Fund PXMAX PMABX PMMCX PMATX PMAYX
Putnam Minnesota Tax Exempt Income Fund PXMNX PMTBX PMOCX PMVTX PMNYX
Putnam New Jersey Tax Exempt Income Fund PTNJX PNJBX PNJCX PNJRX PNJYX
Putnam Ohio Tax Exempt Income Fund PXOHX POXBX POOCX POHRX POTYX
Putnam Pennsylvania Tax Exempt Income Fund PTEPX PPNBX PPNCX PPTRX PPTYX

 

Putnam Massachusetts Tax Exempt Income Fund (Massachusetts Fund)

Putnam Minnesota Tax Exempt Income Fund (Minnesota Fund)

Putnam New Jersey Tax Exempt Income Fund (New Jersey Fund)

Putnam Ohio Tax Exempt Income Fund (Ohio Fund)

Putnam Pennsylvania Tax Exempt Income Fund (Pennsylvania Fund)

FORM N-1A

PART B

STATEMENT OF ADDITIONAL INFORMATION (SAI)

 

September 30, 2023

This SAI is not a prospectus. If a fund has more than one form of current prospectus, each reference to the prospectus in this SAI includes all of the fund's prospectuses, unless otherwise noted. The SAI should be read together with the applicable prospectus. For a free copy of the funds' annual reports or a prospectus dated 9/30/23, as revised from time to time, call Putnam Investor Services at 1-800-225-1581, visit Putnam's website at putnam.com or write Putnam Investments, P.O. Box 219697, Kansas City, MO 64121-9697.

Part I of this SAI contains specific information about the funds. Part II includes information about these funds and other Putnam mutual funds, closed-end funds, and exchange-traded funds (collectively, the "Putnam funds").

 

I-1 
 

 

SAI57 - 2023/09

 

SAI61 - 2023/09

 

SAI66 - 2023/09

 

SAI75 - 2023/09

 

SAI78 - 2023/09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I-2 
 

 

 

Table of Contents

PART I

   
FUND ORGANIZATION AND CLASSIFICATION I-4
INVESTMENT RESTRICTIONS I-5
CHARGES AND EXPENSES I-8
   
PORTFOLIO MANAGERS I-34
   
STATE SPECIFIC INFORMATION I-38
SECURITIES LENDING ACTIVITIES I-38
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS I-52

 

 

 

PART II

   
HOW TO BUY SHARES II-1
DISTRIBUTION PLANS II-13
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-20
   
TAXES II-79
MANAGEMENT II-94
DETERMINATION OF NET ASSET VALUE II-115
INVESTOR SERVICES II-117
SIGNATURE GUARANTEES II-122
REDEMPTIONS II-122
POLICY ON EXCESSIVE SHORT-TERM TRADING II-123
SHAREHOLDER LIABILITY II-123
DERIVATIVE ACTIONS II-123
DISCLOSURE OF PORTFOLIO INFORMATION II-123
INFORMATION SECURITY RISKS II-127
PROXY VOTING GUIDELINES AND PROCEDURES II-127
SECURITIES RATINGS II-128
APPENDIX A - PROXY VOTING GUIDELINES OF THE PUTNAM FUNDS II-124
APPENDIX B - FINANCIAL STATEMENTS II-182

 

I-3 
 

 

SAI

PART I

FUND ORGANIZATION AND CLASSIFICATION

Each fund is a separate Massachusetts business trust. Each of Putnam Massachusetts Tax Exempt Income Fund, Putnam Minnesota Tax Exempt Income Fund and Putnam Ohio Tax Exempt Income Fund was organized on July 14, 1989. Putnam New Jersey Tax Exempt Income Fund was organized on November 17, 1989. Putnam Pennsylvania Tax Exempt Income Fund was organized on April 20, 1989. A copy of each fund's Amended and Restated Agreement and Declaration of Trust (the "Agreement and Declaration of Trust"), which is governed by Massachusetts law, is on file with the Secretary of The Commonwealth of Massachusetts.

Each fund is an open-end management investment company with an unlimited number of authorized shares of beneficial interest. The Trustees may, without shareholder approval, create two or more series of shares representing separate investment portfolios. Any series of shares may be divided without shareholder approval into two or more classes of shares having such preferences and special or relative rights and privileges as the Trustees determine. Each fund offers classes of shares with different sales charges and expenses.

Each share has one vote, with fractional shares voting proportionally. Shares of all classes vote together as a single class except when otherwise required by law or as determined by the Trustees. The Trustees may take many actions affecting a fund without shareholder approval, including under certain circumstances merging your fund into another Putnam fund. Shares are freely transferable, are entitled to dividends as declared by the Trustees, and, if a fund were liquidated, would receive the net assets of the fund.

Each fund may suspend the sale of shares at any time and may refuse any order to purchase shares. Although each fund is not required to hold annual meetings of its shareholders, shareholders holding at least 10% of the outstanding shares entitled to vote have the right to call a meeting to elect or remove Trustees, or to take other actions as provided in the Agreement and Declaration of Trust.

Information about the Summary Prospectus, Prospectus, and SAI

Each fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the funds. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the funds.

I-4 
 

 

Under each fund's Agreement and Declaration of Trust, any claims asserted by a shareholder against or on behalf of each fund, including claims against Trustees and Officers, must be brought in courts of The Commonwealth of Massachusetts.

 

The Massachusetts, Minnesota, Ohio and Pennsylvania Funds are "diversified" investment companies under the Investment Company Act of 1940, as amended, and the New Jersey Fund is a "non-diversified" investment company under the Investment Company Act of 1940, as amended (although, as indicated below, the New Jersey Fund has adopted non-fundamental investment restrictions requiring the fund to be managed as a "diversified" investment company). This means that with respect to 75% of the total assets of the Massachusetts, Minnesota, Ohio and Pennsylvania Funds and with respect to 50% of the total assets of the New Jersey Fund, each fund may not invest more than 5% of its total assets in the securities of any one issuer (except U.S. government securities and securities issued by other investment companies). The remaining 25% of the Massachusetts, Minnesota, Ohio and Pennsylvania Funds' total assets and the remaining 50% of the New Jersey Fund’s total assets are not subject to this restriction. However, for the New Jersey Fund, to comply with provisions of the Internal Revenue Code providing favorable tax treatment, the fund will not, at the end of each quarter of the fund's taxable year, invest more than 25% of the value of the fund's total assets (x) in the securities (other than those of the U.S. Government or other regulated investment companies) of any one issuer or of two or more issuers which the fund controls and which are engaged in the same, similar, or related trades or businesses, or (y) in the securities of one or more qualified publicly traded partnerships. (See "Taxes" in Part II of this SAI for more information). To the extent a fund invests a significant portion of its assets in the securities of a particular issuer, it will be subject to an increased risk of loss if the market value of such issuer's securities declines.

 

 

INVESTMENT RESTRICTIONS

As fundamental investment restrictions, which may not be changed without a vote of a majority of the outstanding voting securities, each fund may not and will not:

(1) Borrow money in excess of 33 1/3% of the value of its total assets (not including the amount borrowed) at the time the borrowing is made.

(2) Underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter under certain federal securities laws.

(3) Purchase or sell real estate, although it may purchase securities of issuers which deal in real estate, securities which are secured by interests in real estate, and securities which represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein.

I-5 
 

(4) Purchase or sell commodities or commodity contracts, except that the fund may purchase and sell financial futures contracts and options and may enter into foreign exchange contracts and other financial transactions not involving physical commodities.

(5) Make loans, except by purchase of debt obligations in which the fund may invest consistent with its investment policies (including without limitation debt obligations issued by other Putnam funds), by entering into repurchase agreements, or by lending its portfolio securities.

(6)(a) (New Jersey Fund only). With respect to 50% of its total assets, invest in securities of any issuer if, immediately after such investment, more than 5% of the total assets of the fund (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to obligations issued or guaranteed as to interest or principal by the U.S. government or its agencies or instrumentalities or to securities issued by other investment companies.

(6)(b) (Massachusetts, Minnesota, Ohio and Pennsylvania Funds only). With respect to 75% of its total assets, invest in the securities of any issuer if, immediately after such investment, more than 5% of the total assets of the fund (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to obligations issued or guaranteed as to interest or principal by the U.S. government or its agencies or instrumentalities or to securities issued by other investment companies.

(7)(a) (New Jersey Fund only). With respect to 50% of its total assets, acquire more than 10% of the outstanding voting securities of any issuer.

(7)(b) (Massachusetts, Minnesota, Ohio and Pennsylvania Funds only). With respect to 75% of its total assets, acquire more than 10% of the outstanding voting securities of any issuer.

(8) Purchase securities (other than securities of the U.S. government, its agencies or instrumentalities or tax-exempt securities, except tax-exempt securities backed only by the assets and revenues of non-governmental issuers) if, as a result of such purchase, more than 25% of the fund's total assets would be invested in any one industry.

(9) Issue any class of securities which is senior to the fund's shares of beneficial interest, except for permitted borrowings.

 

The Investment Company Act of 1940, as amended, provides that a "vote of a majority of the outstanding voting securities" of a fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding fund shares, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding fund shares are represented at the meeting in person or by proxy.

 

 

I-6 
 

For purposes of the fund’s fundamental policy on commodities and commodities contracts (#4 above), at the time of the establishment of the policy, swap contracts on financial instruments or rates were not within the understanding of the terms “commodities” or “commodity contracts,” and notwithstanding any federal legislation or regulatory action by the Commodity Futures Trading Commission (“CFTC”) that subject such swaps to regulation by the CFTC, the fund will not consider such instruments to be commodities or commodity contracts for purposes of this policy.

For purposes of each fund’s fundamental policy on industry concentration (#8 above), Putnam Investment Management, LLC ("Putnam Management"), the funds' investment manager, determines the appropriate industry categories and assigns issuers to them, informed by a variety of considerations, including relevant third party categorization systems. Industry categories and issuer assignments may change over time as industry sectors and issuers evolve. Portfolio allocations shown in shareholder reports and other communications may use broader investment sectors or narrower sub-industry categories.

The following non-fundamental investment policies may be changed by the Trustees without shareholder approval.

(1) (New Jersey Fund only). With respect to 75% of its total assets, each fund may not and will not invest in securities of any issuer if, immediately after such investment, more than 5% of the total assets of the fund (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to obligations issued or guaranteed as to interest or principal by the U.S. government or its agencies or instrumentalities or to securities issued by other investment companies.

(2) (New Jersey Fund only). With respect to 75% of its total assets, each fund may not and will not acquire more than 10% of the outstanding voting securities of any issuer.

All percentage limitations on investments will apply at the time of the making of an investment and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment.

The New Jersey Fund is currently operating as a diversified fund consistent with non-fundamental restrictions (1) and (2) above. The fund had previously operated as a non-diversified fund and may operate as a non-diversified fund in the future to the extent permitted by applicable law. Under current law, shareholder approval would be required for the fund to resume operating as non-diversified.

 

Each fund has filed an election under Rule 18f-1 under the Investment Company Act of 1940, as amended, committing each fund to pay all redemptions of fund shares by a single shareholder during any 90-day period in cash, up to the lesser of (i) $250,000 or (ii) 1% of such fund's net assets measured as of the beginning of such 90-day period.

 

 

I-7 
 

CHARGES AND EXPENSES

Management fees

 

Under a Management Contract (the “Management Contract”), each fund pays a monthly fee to Putnam Management. The fee is calculated by applying a rate to the fund’s average net assets for the month. The rate is based on the monthly average of the aggregate net assets of other open-end funds sponsored by Putnam Management (excluding net assets of such funds that are invested in, or that are invested in by, other such funds to the extent necessary to avoid "double counting" of those assets) (“Total Open-End Mutual Fund Average Net Assets”), as determined at the close of each business day during the month, as set forth below:

 

 

0.590 % of the first $5 billion of Total Open-End Mutual Fund Average Net Assets;

0.540 % of the next $5 billion of Total Open-End Mutual Fund Average Net Assets;

0.490 % of the next $10 billion of Total Open-End Mutual Fund Average Net Assets;

0.440 % of the next $10 billion of Total Open-End Mutual Fund Average Net Assets;

0.390 % of the next $50 billion of Total Open-End Mutual Fund Average Net Assets;

0.370 % of the next $50 billion of Total Open-End Mutual Fund Average Net Assets;

0.360 % of the next $100 billion of Total Open-End Mutual Fund Average Net Assets;

0.355% of any excess thereafter.

 

For the past three fiscal years, pursuant to its Management Contract, each fund incurred the following fees:

I-8 
 

 

 

Fund name Fiscal year Management fee paid  
       
Massachusetts Fund 2023 $1,063,088  
       
  2022 $1,287,401  
  2021 $1,276,167  
       
Minnesota Fun 2023 $677,076  
       
  2022 $671,430  
  2021 $614,106  
       
New Jersey Fun 2023 $551,851  
       
  2022 $670,758  
       
  2021 $700,955  
Ohio Fund 2023 $368,621  
       
  2022 $418,940  
  2021 $463,258  
       
Pennsylvania Fund 2023 $518,631  
       
  2022 $628,754  
  2021 $652,651  

 

 

 

 

Brokerage commissions

The following table shows brokerage commissions paid during the fiscal years indicated:

I-9 
 

 

Fund name Fiscal year Brokerage commissions  
       
Massachusetts Fund 2023 $47  
       
  2022 $1,847  
  2021 $1,040  
       
Minnesota Fund 2023 $0  
       
  2022 $887  
  2021 $509  
       
New Jersey Fund 2023 $0  
       
  2022 $963  
  2021 $558  
       
Ohio Fund 2023 $0  
       
  2022 $619  
  2021 $358  
       
Pennsylvania Fund 2023 $0  
       
  2022 $898  
  2021 $524  

 

 

 

I-10 
 

 

Administrative expense reimbursement

 

The funds reimbursed Putnam Management for administrative services during fiscal 2023, including compensation of certain fund officers and contributions to the Putnam Retirement Plan for their benefit, as follows:

 

Fund name Total reimbursement Portion of total reimbursement for compensation and contributions  
       
Massachusetts Fund $8,261 $6,148  
Minnesota Fund $5,418 $4,032  
New Jersey Fund $4,323 $3,217  
Ohio Fund $2,928 $2,179  
Pennsylvania Fund $4,086 $3,041  

 

 

 

Trustee responsibilities and fees

The Trustees are responsible for generally overseeing the conduct of fund business. Subject to such policies as the Trustees may determine, Putnam Management furnishes a continuing investment program for each fund and makes investment decisions on its behalf. Subject to the control of the Trustees, Putnam Management also manages each fund's other affairs and business.

 

The table below shows the value of each Trustee's holdings in each fund and in all of the funds in the "Putnam funds complex" as of December 31, 2022. The Putnam funds complex is composed of the Putnam mutual funds, closed-end funds, and exchange-traded funds.

 

Name of Trustee Dollar range of Massachusetts Fund shares owned Dollar range of Minnesota Fund shares owned Dollar range of New Jersey Fund shares owned Dollar range of Ohio Fund shares owned
Independent Trustees        
Liaquat Ahamed $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000
Barbara M. Baumann $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000
Katinka Domotorffy $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000
Catharine Bond Hill $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000
Kenneth R. Leibler $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000
         
I-11 
 

 

* Jennifer Williams Murphy None None None None
* Marie Pillai None None None None
George Putnam III $50,001-$100,000 $10,001-$50,000 $10,001-$50,000 $10,001-$50,000
         
Manoj P. Singh $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000
Mona K. Sutphen $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000
Interested Trustee        
** Robert L. Reynolds $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000

 

 

 

 

Name of Trustee Dollar range of Pennsylvania Fund shares owned Aggregate dollar range of shares held in all funds in the Putnam funds complex overseen by Trustee
     
Independent Trustees    
Liaquat Ahamed $1-$10,000 over $100,000
Barbara M. Baumann $1-$10,000 over $100,000
Katinka Domotorffy $1-$10,000 over $100,000
Catharine Bond Hill $1-$10,000 over $100,000
Kenneth R. Leibler $1-$10,000 over $100,000
     
* Jennifer Williams Murphy None $10,001-$50,000
* Marie Pillai None $1-$10,000
George Putnam III $10,001-$50,000 over $100,000
     
Manoj P. Singh $1-$10,000 over $100,000
Mona K. Sutphen $1-$10,000 $50,001-$100,000
Interested Trustee    
** Robert L. Reynolds $1-$10,000 over $100,000

 

 

* First elected to the Board of Trustees of the Putnam funds effective as of July 1, 2022 (or for a limited number of Putnam funds, as of a later date).

** Trustee who is an "interested person" (as defined in the Investment Company Act of 1940, as amended) of the funds and Putnam Management. Mr. Reynolds is deemed an "interested person" by virtue of his positions as an officer of the funds and Putnam Management. Mr. Reynolds is the President and Chief Executive Officer of Putnam Investments, LLC and President of your fund and each of the other Putnam funds. None of the other Trustees is an "interested person".

 

 

I-12 
 

Each Independent Trustee of the funds receives an annual retainer fee and an additional fee for each Trustee meeting attended. Independent Trustees also are reimbursed for expenses they incur relating to their services as Trustees. All of the current Independent Trustees of the funds are Trustees of all the Putnam funds and receive fees for their services.

The Trustees periodically review their fees to ensure that such fees continue to be appropriate in light of their responsibilities as well as in relation to fees paid to trustees of other mutual fund complexes. The Board Policy and Nominating Committee, which consists solely of Independent Trustees of the funds, estimates that committee and Trustee meeting time, together with the appropriate preparation, requires the equivalent of at least four business days per regular Trustee meeting. The standing committees of the Board of Trustees, and the number of times each committee met during your fund’s most recently completed fiscal year, are shown in the table below:

     
Audit, Compliance and Risk Committee 12  
Board Policy and Nominating Committee 6  
Brokerage Committee 3  
Contract Committee 8  
     
Executive Committee 1  
Investment Oversight Committees    
Investment Oversight Committee A 5  
Investment Oversight Committee B 5  
     
Pricing Committee 8  
Exchange-Traded Fund Committee* 3  

 

 

* For the period 1/1/23-5/31/23

The following tables show the year each Trustee was first elected or appointed as a Trustee of the Putnam funds, the fees paid to each Trustee by each fund for fiscal 2023, and the fees paid to each Trustee by all of the Putnam funds for services rendered during calendar year 2022:

 

 

I-13 
 

 

COMPENSATION TABLES

 

Massachusetts Fund

 

 

Trustee/Year Elected or Appointed as a Trustee

Aggregate compensation from the fund Pension or retirement benefits accrued as part of fund expenses Estimated annual benefits from Putnam funds complex upon retirement (1) Total compensation from Putnam funds complex (2)
Independent Trustees        
Liaquat Ahamed/2012(3) $1,091 N/A N/A $430,750
Ravi Akhoury/2009(4) $95 N/A N/A $209,750
Barbara M. Baumann/2010(3)(5) $1,182 N/A N/A $373,833
Katinka Domotorffy/2012(3) $1,091 N/A N/A $410,750
Catharine Bond Hill/2017(3) $948 N/A N/A $410,750
Paul L. Joskow/1997(3) (4) $95 $0 $113,417 $209,750
Kenneth R. Leibler/2006(6) $1,477 N/A N/A $470,750
Jennifer Williams Murphy/2022(7) $996 N/A N/A $141,000
Marie Pillai/2022(3)(7) $504 N/A N/A $141,000
George Putnam III/1984(8) $1,167 $0 $130,333 $375,750
Manoj P. Singh/2017(9) $1,148 N/A N/A $369,500
Mona K. Sutphen/2020 $1,051 N/A N/A $392,000
Interested Trustee        
Robert L. Reynolds/2008(10) N/A N/A N/A N/A



I-14 
 

 

Minnesota Fund

 

Trustee/Year Elected or Appointed as a Trustee Aggregate compensation from the fund Pension or retirement benefits accrued as part of fund expenses Estimated annual benefits from Putnam funds complex upon retirement (1) Total compensation from Putnam funds complex (2)
Independent Trustees        
         
Liaquat Ahamed/2012(3) $701 N/A N/A $430,750
Ravi Akhoury/2009(4) $57 N/A N/A $209,750
Barbara M. Baumann/2010(3)(5) $760 N/A N/A $373,833
Katinka Domotorffy/2012(3) $701 N/A N/A $410,750
Catharine Bond Hill/2017(3) $606 N/A N/A $410,750
Paul L. Joskow/1997(3) (4) $57 $0 $113,417 $209,750
Kenneth R. Leibler/2006(6) $951 N/A N/A $470,750
Jennifer Williams Murphy/2022(7) $645 N/A N/A $141,000
Marie Pillai/2022(3)(7) $315 N/A N/A $141,000
George Putnam III/1984(8) $750 $0 $130,333 $375,750
Manoj P. Singh/2017(9) $739 N/A N/A $369,500
Mona K. Sutphen/2020 $675 N/A N/A $392,000
Interested Trustee        
Robert L. Reynolds/2008(10) N/A N/A N/A N/A

 

 

New Jersey Fund


Trustee/Year Elected or Appointed as a Trustee Aggregate compensation from the fund Pension or retirement benefits accrued as part of fund expenses Estimated annual benefits from Putnam funds complex upon retirement (1) Total compensation from Putnam funds complex (2)
Independent Trustees        
         
Liaquat Ahamed/2012(3) $566 N/A N/A $430,750
Ravi Akhoury/2009(4) $49 N/A N/A $209,750
Barbara M. Baumann/2010(3)(5) $613 N/A N/A $373,833
Katinka Domotorffy/2012(3) $566 N/A N/A $410,750
Catharine Bond Hill/2017(3) $492 N/A N/A $410,750
Paul L. Joskow/1997(3) (4) $49 $0 $113,417 $209,750
Kenneth R. Leibler/2006(6) $766 N/A N/A $470,750
Jennifer Williams Murphy/2022(7) $517 N/A N/A $141,000
Marie Pillai/2022(3)(7) $263 N/A N/A $141,000
George Putnam III/1984(8) $605 $0 $130,333 $375,750
Manoj P. Singh/2017(9) $595 N/A N/A $369,500
Mona K. Sutphen/2020 $545 N/A N/A $392,000
Interested Trustee        
Robert L. Reynolds/2008(10) N/A N/A N/A N/A

 

I-15 
 



Ohio Fund


Trustee/Year Elected or Appointed as a Trustee Aggregate compensation from the fund Pension or retirement benefits accrued as part of fund expenses Estimated annual benefits from Putnam funds complex upon retirement (1) Total compensation from Putnam funds complex (2)
Independent Trustees        
         
Liaquat Ahamed/2012(3) $378 N/A N/A $430,750
Ravi Akhoury/2009(4) $33 N/A N/A $209,750
Barbara M. Baumann/2010(3)(5) $410 N/A N/A $373,833
Katinka Domotorffy/2012(3) $378 N/A N/A $410,750
Catharine Bond Hill/2017(3) $329 N/A N/A $410,750
Paul L. Joskow/1997(3) (4) $33 $0 $113,417 $209,750
Kenneth R. Leibler/2006(6) $512 N/A N/A $470,750
Jennifer Williams Murphy/2022(7) $345 N/A N/A $141,000
Marie Pillai/2022(3)(7) $177 N/A N/A $141,000
George Putnam III/1984(8) $405 $0 $130,333 $375,750
Manoj P. Singh/2017(9) $398 N/A N/A $369,500
Mona K. Sutphen/2020 $364 N/A N/A $392,000
Interested Trustee        
Robert L. Reynolds/2008(10) N/A N/A N/A N/A

 

 

Pennsylvania Fund


Trustee/Year Elected or Appointed as a Trustee Aggregate compensation from the fund Pension or retirement benefits accrued as part of fund expenses Estimated annual benefits from Putnam funds complex upon retirement (1) Total compensation from Putnam funds complex (2)
Independent Trustees        
         
I-16 
 

 

Liaquat Ahamed/2012(3) $534 N/A N/A $430,750
Ravi Akhoury/2009(4) $48 N/A N/A $209,750
Barbara M. Baumann/2010(3)(5) $578 N/A N/A $373,833
Katinka Domotorffy/2012(3) $534 N/A N/A $410,750
Catharine Bond Hill/2017(3) $466 N/A N/A $410,750
Paul L. Joskow/1997(3) (4) $48 $0 $113,417 $209,750
Kenneth R. Leibler/2006(6) $723 N/A N/A $470,750
Jennifer Williams Murphy/2022(7) $486 N/A N/A $141,000
Marie Pillai/2022(3)(7) $253 N/A N/A $141,000
George Putnam III/1984(8) $571 $0 $130,333 $375,750
Manoj P. Singh/2017(9) $561 N/A N/A $369,500
Mona K. Sutphen/2020 $514 N/A N/A $392,000
Interested Trustee        
Robert L. Reynolds/2008(10) N/A N/A N/A N/A

 

 

 

(1) Estimated benefits for each Trustee are based on Trustee fee rates for calendar years 2003, 2004 and 2005.

 

(2) As of December 31, 2022, there were 92 mutual funds, 4 closed-end funds, and 7 exchange-traded funds in the Putnam funds complex. Messrs. Leibler, Putnam, Singh and Reynolds and Mses. Baumann, Murphy and Pillai were first elected to the Board of Trustees of the exchange-traded funds effective as of January 11, 2023 and, therefore, did not receive any compensation in respect of those funds during the period shown in the table above.

(3) Certain Trustees are also owed compensation deferred pursuant to a Trustee Compensation Deferral Plan. As of May 31, 2023, the total amounts of deferred compensation payable by each fund, including income earned on such amounts, to these Trustees were:

  Mr. Ahamed Ms. Baumann Ms. Domotorffy Dr. Hill Dr. Joskow Ms. Pillai
Massachusetts Fund $3,081 $2,773 $3,081 $1,872 $11,173 $527
Minnesota Fund $1,793 $1,614 $1,793 $1,089 $6,503 $307
New Jersey Fund $2,452 $2,206 $2,452 $1,489 $8,891 $419
Ohio Fund $2,003 $1,803 $2,003 $1,217 $7,265 $343
Pennsylvania Fund $2,349 $2,114 $2,349 $1,427 $8,519 $402

 

 

 

(4) Messrs. Akhoury and Joskow retired from the Board of Trustees effective June 30, 2022.

I-17 
 

 

(5) Includes additional compensation to Ms. Baumann for service as Vice Chair of the Board of Trustees.

(6) Includes additional compensation to Mr. Leibler for service as Chair of the Board of Trustees.

(7) Mses. Murphy and Pillai were first elected to the Board of Trustees effective as of July 1, 2022 (or, for a limited number of Putnam funds, as of a later date).

(8) Includes additional compensation to Mr. Putnam for service as Chair of the Contract Committee.

(9) Includes additional compensation to Mr. Singh for service as Chair of the Audit, Compliance and Risk Committee.

(10) Mr. Reynolds is an "interested person" of the funds and Putnam Management.

 

Under a retirement plan for Trustees of Putnam funds (the "Plan"), each Trustee who retires with at least five years of service as a Trustee of the funds is entitled to receive an annual retirement benefit equal to one-half of the average annual attendance and retainer fees paid to such Trustee for calendar years 2003, 2004 and 2005. This retirement benefit is payable during a Trustee's lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. A death benefit, also available under the Plan, ensures that the Trustee and his or her beneficiaries will receive benefit payments for the lesser of an aggregate period of (i) ten years, or (ii) such Trustee's total years of service.

 

 

The Plan Administrator (currently the Board Policy and Nominating Committee) may terminate or amend the Plan at any time, but no termination or amendment will result in a reduction in the amount of benefits (i) currently being paid to a Trustee at the time of such termination or amendment, or (ii) to which a current Trustee would have been entitled had he or she retired immediately prior to such termination or amendment. The Trustees have terminated the Plan with respect to any Trustee first elected to the Board after 2003.

For additional information concerning the Trustees, see "Management" in Part II of this SAI.

 

Share ownership

 

I-18 
 

At August 31, 2023, the officers and Trustees of the funds as a group owned less than 1% of the outstanding shares of each class of each fund, and, except as noted below, no person owned of record or to the knowledge of the funds beneficially 5% or more of any class of shares of a fund.

 

 

I-19 
 

 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

       
MASSACHUSETTS FUND A

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

12.97%
  A

MLPF&S for the Sole Benefit of

its Customers

4800 Deer Lake Dr. E Fl 3

Jacksonville, FL 32246-6484

9.51%
  A

Morgan Stanley Smith Barney

Harborside Financial Center

Plaza 2, 3rd Floor

Jersey City, NJ 07311

9.18%
  B

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

52.91%
  B

RBC Capital Markets, LLC

Mutual Fund Omnibus Processing

Attn: Mutual Fund Ops Manager

510 Marquette Ave S

Minneapolis, MN 55402-1110

44.11%
  C

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

32.59%
  C

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

16.31%
  C

Charles Schwab & Co. Inc

Clearing Account for the Exclusive Benefit of Their Customers

101 Montgomery St.

San Francisco, CA 94104-4151

10.20%
  C

MLPF&S for the Sole Benefit of

its Customers

4800 Deer Lake Dr. E Fl 3

Jacksonville, FL 32246-6484

9.68%
I-20 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  C

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

9.05%
  C

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

7.82%
  C

Morgan Stanley Smith Barney

Harborside Financial Center

Plaza 2, 3rd Floor

Jersey City, NJ 07311

7.13%
  R6

Edward D Jones & Co

For the Benefit of Customers

12555 Manchester Rd.

Saint Louis, MO 63131-3729

100.00%
  Y

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

28.14%
  Y

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

23.34%
  Y

Morgan Stanley Smith Barney

Harborside Financial Center

Plaza 2, 3rd Floor

Jersey City, NJ 07311

12.86%
  Y

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

8.66%
I-21 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  Y

MLPF&S for the Sole Benefit of

its Customers

4800 Deer Lake Dr. E Fl 3

Jacksonville, FL 32246-6484

7.94%
MINNESOTA FUND A

Edward D Jones & Co

For the Benefit of Customers

12555 Manchester Rd.

Saint Louis, MO 63131-3729

15.93%
  A

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

13.11%
  A

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

 

9.68%
  A

Charles Schwab & Co. Inc

Clearing Account for the Exclusive Benefit of Their Customers

101 Montgomery St.

San Francisco, CA 94104-4151

9.05%
  A

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

5.61%
  A

Wells Fargo Clearing Services,, LLC

Special Custody Acct for the

Exclusive Benefit of Customer

2801 Market St.

Saint Louis, MO 63103-2523

5.06%
  B

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

59.93%
 

B

 

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

32.16%
I-22 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  B

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

5.36%
  C

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

13.65%
  C

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

12.74%
  C

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

12.67%
  C

Wells Fargo Clearing Services,, LLC

Special Custody Acct for the

Exclusive Benefit of Customer

2801 Market St.

Saint Louis, MO 63103-2523

10.25%
  C

Raymond James

Omnibus For Mutual FundsHouse Acct Firm 92500015

Attn: Courtney Waller

880 Carillon Pkwy

St Petersburg, FL 33716-1100

8.69%
  C

Edward D Jones & Co

For the Benefit of Customers

12555 Manchester Rd.

Saint Louis, MO 63131-3729

7.73%
  R6

Edward D Jones & Co

For the Benefit of Customers

12555 Manchester Rd.

Saint Louis, MO 63131-3729

97.48%
  Y

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

33.96%
I-23 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  Y

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

24.67%
  Y

UBS Wealth Management USA

0O0 11011 6100

Omni Account M/F

Attn: Department Manager

1000 Harbor Blvd.

Weehawken, NJ 07086-6761

12.03%
  Y

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

10.68%
  Y

TD Ameritrade Inc

Fbo Our Customers

PO Box 2226

Omaha NE 68103-2226

9.95%
NEW JERSEY FUND A

Wells Fargo Clearing Services,, LLC

Special Custody Acct for the

Exclusive Benefit of Customer

2801 Market St.

Saint Louis, MO 63103-2523

12.23%
  A

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

12.07%
  A

J.P. Morgan Securities LLC,

For The Exclusive Benefit Of

Customers

4 Chase Metrotech Center 3rd Fl Mutual Fund Dept.

Brooklyn, NY 11245-0003

10.16%
  A

MLPF&S for the Sole Benefit of

its Customers

4800 Deer Lake Dr. E Fl 3

Jacksonville, FL 32246-6484

10.02%
I-24 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  A

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

5.22%
  B

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

68.81%
  B

Charles Schwab & Co. Inc

Clearing Account for the Exclusive Benefit of Their Customers

101 Montgomery St.

San Francisco, CA 94104-4151

13.92%
  B

Carol A Hay

Tod Multiple Beneficiaries

Subject To Sta Tod Rules

2109 Johnson Dr.

Rockaway, NJ 07866-5843

8.24%
  C

J.P. Morgan Securities LLC,

For The Exclusive Benefit Of

Customers

4 Chase Metrotech Center 3rd Fl Mutual Fund Dept.

Brooklyn, NY 11245-0003

48.08%
  C

Wells Fargo Clearing Services, LLC

Special Custody Acct for the

Exclusive Benefit of Customer

2801 Market St.

Saint Louis, MO 63103-2523

12.03%
  C

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

7.42%
  C

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

5.81%
  C

Morgan Stanley Smith Barney

Harborside Financial Center

Plaza 2, 3rd Floor

Jersey City, NJ 07311

5.02%
I-25 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  R6

Edward D Jones & Co

For the Benefit of Customers

12555 Manchester Rd.

Saint Louis, MO 63131-3729

89.24%
  R6

J.P. Morgan Securities LLC,

For The Exclusive Benefit Of

Customers

4 Chase Metrotech Center 3rd Fl Mutual Fund Dept.

Brooklyn, NY 11245-0003

9.31%
  Y

MLPF&S for the Sole Benefit of

its Customers

Attn: Fund Administration

4800 Deer Lake Dr. E Fl 3

Jacksonville, FL 32246-6484

43.77%
  Y

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

10.55%
  Y

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

9.97%
  Y

 

Wells Fargo Clearing Services, LLC

Special Custody Acct for the

Exclusive Benefit of Customer

 

 

2801 Market St.

Saint Louis, MO 63103-2523

9.01%
  Y

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

5.66%
  Y

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

5.32%
I-26 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

OHIO FUND A

Edward D Jones & Co

For the Benefit of Customers

12555 Manchester Rd.

Saint Louis, MO 63131-3729

14.42%
  A

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

7.37%
  A

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

6.93%
  A

Raymond James

Omnibus For Mutual FundsHouse Acct Firm 92500015

Attn: Courtney Waller

880 Carillon Pkwy

St Petersburg, FL 33716-1100

6.29%
  A

MLPF&S for the Sole Benefit of

its Customers

Attn: Fund Administration

4800 Deer Lake Dr. E Fl 3

Jacksonville, FL 32246-6484

5.51%
  A

Morgan Stanley Smith Barney

Harborside Financial Center

Plaza 2, 3rd Floor

Jersey City, NJ 07311

5.18%
  B

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

54.45%
  B

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

18.63%
  C

Charles Schwab & Co. Inc

Clearing Account for the Exclusive Benefit of Their Customers

101 Montgomery St.

San Francisco, CA 94104-4151

15.93%
I-27 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  C

Raymond James

Omnibus For Mutual FundsHouse Acct Firm 92500015

Attn: Courtney Waller

880 Carillon Pkwy

St Petersburg, FL 33716-1100

14.77%
  C

UBS Wealth Management USA

0O0 11011 6100

Omni Account M/F

Attn: Department Manager

1000 Harbor Blvd.

Weehawken, NJ 07086-6761

12.34%
  C

James E Turner

Tod James E Turner Revocable Trust

U/A Dtd 02/27/1998 Subject To Sta Tod Rules

6401 Couples Ln.

Lima, OH 45801-8600

11.82%
  C

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

9.81%
  C

Wells Fargo Clearing Services, LLC

Special Custody Acct for the

Exclusive Benefit of Customer

2801 Market St.

Saint Louis, MO 63103-2523

6.42%
  C

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

5.39%
  R6

Edward D Jones & Co

For the Benefit of Customers

12555 Manchester Rd.

Saint Louis, MO 63131-3729

100.00%
  Y

Raymond James

Omnibus For Mutual Funds House Acct Firm 92500015

Attn: Courtney Waller

880 Carillon Pkwy

St Petersburg, FL 33716-1100

49.13%
I-28 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  Y

UBS Wealth Management USA

0O0 11011 6100

Omni Account M/F

Attn: Department Manager

1000 Harbor Blvd.

Weehawken, NJ 07086-6761

8.79%
  Y

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

7.23%
  Y

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

6.76%
  Y

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

6.74%
  Y

MLPF&S for the Sole Benefit of

its Customers

Attn: Fund Administration

4800 Deer Lake Dr. E Fl 3

Jacksonville, FL 32246-6484

6.29%
  Y

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept. 4th Fl

Jersey City, NJ 07310-2010

5.98%
PENNSYLVANIA FUND A

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

18.49%
  A

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

11.54%
I-29 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  A

Wells Fargo Clearing Services,, LLC

Special Custody Acct for the

Exclusive Benefit of Customer

2801 Market St.

Saint Louis, MO 63103-2523

7.31%
  A

Charles Schwab & Co. Inc

Clearing Account for the Exclusive Benefit of Their Customers

101 Montgomery St.

San Francisco, CA 94104-4151

5.64%
  A

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

5.04%
  B

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

50.11%
  B

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

22.22%
  B

Hilda O Nitchman

608 Locust St.

Hanover, PA 17331-2715

9.27%
 

B

 

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

8.51%
  B

Michael Best

2 Bolton Cir.

Newtown, PA 18940-1866

6.74%
  C

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

27.73%
I-30 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  C

Wells Fargo Clearing Services,, LLC

Special Custody Acct for the

Exclusive Benefit of Customer

2801 Market St.

Saint Louis, MO 63103-2523

17.03%
  C

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

10.19%
  R6

Edward D Jones & Co

For the Benefit of Customers

12555 Manchester Rd.

Saint Louis, MO 63131-3729

97.12%
  Y

LPL Financial

Omnibus Customer Account

Attn: Lindsay O’Toole

9785 Towne Centre Dr.

San Diego, CA 92121-1968

27.88%
  Y

Morgan Stanley Smith Barney

Harborside Financial Center

Plaza 2, 3rd Floor

Jersey City, NJ 07311

12.45%
  Y

Pershing LLC

1 Pershing Plaza

Jersey City, NJ 07399-0001

8.99%
  Y

National Financial Services, LLC

for the Exclusive Benefit of

Our Customers

499 Washington Blvd.

Attn: Mutual Funds Dept 4th Fl

Jersey City, NJ 07310-2010

8.65%
  Y

American Enterprise Investment Svc

Fbo # 41999970

707 2nd Ave S.

Minneapolis, MN 55402-2405

8.16%
I-31 
 

 

Fund name Class

Shareholder name

and address

Percentage

owned (%)

  Y

Charles Schwab & Co. Inc

Clearing Account for the Exclusive Benefit of Their Customers

101 Montgomery St.

San Francisco, CA 94104-4151

6.86%
  Y

MLPF&S for the Sole Benefit of

its Customers

Attn: Fund Administration

4800 Deer Lake Dr. E Fl 3

Jacksonville, FL 32246-6484

5.50%

 

 

Distribution fees

 

During fiscal 2023, the funds paid the following 12b-1 fees to Putnam Retail Management:

 

 

  Class A Class B Class C  
         
Massachusetts Fund $361,789 $1,909 $51,415  
Minnesota Fund $144,174 $800 $41,117  
New Jersey Fund $243,244 $1,129 $63,880  
Ohio Fund $162,909 $1,272 $19,571  
Pennsylvania Fund $250,164 $1,280 $58,673  

 

 

 

Class A sales charges and contingent deferred sales charges

Putnam Retail Management received sales charges with respect to class A shares in the following amounts during the periods indicated:

I-32 
 

 

Fund name Fiscal year Total front-end sales charges Sales charges retained by Putnam Retail Management after dealer concessions Contingent deferred sales charges
         
Massachusetts Fund 2023 $22,914 $5,195 $0
  2022 $38,624 $7,929 $0
         
  2021 $86,021 $13,728 $87
         
Minnesota Fund 2023 $17,831 $2,807 $0
  2022 $23,771 $3,884 $0
         
  2021 $31,618 $5,037 $0
         
New Jersey Fund 2023 $32,832 $4,489 $0
  2022 $23,719 $2,750 $1,594
         
  2021 $36,280 $5,743 $0
         
Ohio Fund 2023 $13,147 $2,224 $64
  2022 $36,483 $6,486 $0
         
  2021 $32,798 $5,704 $0
         
Pennsylvania Fund 2023 $13,947 $452 $0
  2022 $65,434 $11,112 $0
         
  2021 $68,823 $11,025 $0

 

 

 

I-33 
 

 

 

Class B contingent deferred sales charges

Putnam Retail Management received contingent deferred sales charges upon redemptions of class B shares in the following amounts during the periods indicated:

Fund name Fiscal year Contingent deferred sales charges
     
Massachusetts Fund 2023 $0
     
  2022 $516
  2021 $0
     
Minnesota Fund 2023 $0
     
  2022 $0
  2021 $138
     
New Jersey Fund 2023 $0
     
  2022 $0
  2021 $0
     
Ohio Fund 2023 $2
     
  2022 $0
  2021 $0
     
Pennsylvania Fund 2023 $0
     
  2022 $36
  2021 $0

 

 

 

 

I-34 
 

 

Class C contingent deferred sales charges

Putnam Retail Management received contingent deferred sales charges upon redemptions of class C shares in the following amounts during the periods indicated:

Fund name Fiscal year Contingent deferred sales charges
     
Massachusetts Fund 2023 $0
     
  2022 $0
  2021 $0
     
Minnesota Fund 2023 $0
     
  2022 $9
  2021 $989
     
New Jersey Fund 2023 $32
     
  2022 $8
  2021 $0
     
Ohio Fund 2023 $24
     
  2022 $28
  2021 $24
     
Pennsylvania Fund 2023 $10
     
  2022 $35
  2021 $21

 

 

 

I-35 
 

 

Investor servicing fees

 

During the 2023 fiscal year, each fund incurred the following fees for investor servicing provided by Putnam Investor Services, Inc.:

 

Massachusetts Fund $162,496

 

Minnesota Fund $151,037

 

New Jersey Fund $85,591

 

Ohio Fund $70,437

 

Pennsylvania Fund $90,022

 

 

PORTFOLIO MANAGERS

Other accounts managed

The following tables show the number and approximate assets of other investment accounts (or portions of investment accounts) that each fund's portfolio managers managed as of the funds' most recent fiscal year-end. The other accounts may include accounts for which the individuals were not designated as a portfolio manager. Unless noted, none of the other accounts pays a fee based on the account's performance.

Massachusetts Fund

 

 

 

 

 

 

Portfolio

managers

 

 

 

 

Other SEC-registered open-end and closed-end funds

 

 

 

 

Other accounts that pool assets from more than one client

Other accounts (including separate accounts, managed account programs and single-sponsor defined contribution plan offerings)
  Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

             
Paul Drury 13 $5,266,800,000 0 $0 0 $0
Garrett Hamilton 13 $5,266,800,000 0 $0 1 $400,000

 

 

I-36 
 

 

Minnesota Fund

 

 

 

 

 

 

Portfolio

managers

 

 

 

 

Other SEC-registered open-end and closed-end funds

 

 

 

Other accounts that pool assets from more than one client

Other accounts (including separate accounts, managed account programs and single-sponsor defined contribution plan offerings)
  Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

             
Paul Drury 13 $5,350,300,000 0 $0 0 $0
Garrett Hamilton 13 $5,350,300,000 0 $0 1 $400,000

 

 

 

New Jersey Fund

 

 

 

 

 

 

Portfolio

managers

 

 

 

 

Other SEC-registered open-end and closed-end funds

 

 

 

Other accounts that pool assets from more than one client

Other accounts (including separate accounts, managed account programs and single-sponsor defined contribution plan offerings)
  Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

             
Paul Drury 13 $5,390,200,000 0 $0 0 $0
Garrett Hamilton 13 $5,390,200,000 0 $0 1 $400,000

 

 

 

I-37 
 

Ohio Fund

 

 

 

 

 

 

Portfolio

managers

 

 

 

 

Other SEC-registered open-end and closed-end funds

 

 

 

 

Other accounts that pool assets from more than one client

Other accounts (including separate accounts, managed account programs and single-sponsor defined contribution plan offerings)
  Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

             
Paul Drury 13 $5,436,600,000 0 $0 0 $0
Garrett Hamilton 13 $5,436,600,000 0 $0 1 $400,000
             

 

 

 

Pennsylvania Fund

 

 

 

 

 

 

Portfolio

managers

 

 

 

 

Other SEC-registered open-end and closed-end funds

 

 

 

Other accounts that pool assets from more than one client

Other accounts (including separate accounts, managed account programs and single-sponsor defined contribution plan offerings)
  Number of accounts

 

 

Assets

Number of accounts

 

 

Assets

Number

of accounts

 

 

Assets

             
Paul Drury 13 $5,405,000,000 0 $0 0 $0
Garrett Hamilton 13 $5,405,000,000 0 $0 1 $400,000
             

 

 

See “Management—Portfolio Transactions—Potential conflicts of interest in managing multiple accounts” in Part II of this SAI for information on how Putnam Management addresses potential conflicts of interest resulting from an individual’s management of more than one account.

 

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Compensation of portfolio managers

Portfolio managers are evaluated and compensated across the group of specified products they manage, in part, based on their performance relative to peers or performance ahead of the applicable benchmark, depending on the product, based on a blend of 3-year and 5-year performance or, if shorter, over the life of a fund. In addition, evaluations take into account individual contributions and a subjective component.

 

Each portfolio manager is assigned an industry-competitive incentive compensation target (which for each fund takes into account the level of the fund’s net assets) consistent with this goal and evaluation framework. Actual incentive compensation may be higher or lower than the target, based on group, individual, group, and subjective performance, and may also reflect the performance of Putnam as a firm.

Incentive compensation includes a cash bonus and may also include grants of deferred cash, stock or deferred cash. In addition to incentive compensation, portfolio managers receive fixed annual salaries typically based on level of responsibility and experience.

 

 

For each fund, Putnam evaluates performance based on the fund’s peer ranking in the fund’s Lipper category. This peer ranking is based on pre-tax performance.

Ownership of securities

The dollar range of shares of each fund owned by each portfolio manager at the end of the fund’s last fiscal year, including investments by immediate family members and amounts invested through retirement and deferred compensation plans, was as follows:

Fund Portfolio managers Dollar range of shares owned
Massachusetts Fund Paul Drury $100,001-$500,000
  Garrett Hamilton $0
Minnesota Fund Paul Drury $0
  Garrett Hamilton $0
New Jersey Fund Paul Drury $0
  Garrett Hamilton $0
Ohio Fund Paul Drury $0
  Garrett Hamilton $0
Pennsylvania Fund Paul Drury $0
  Garrett Hamilton $0

 

 

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SECURITIES LENDING ACTIVITIES

The funds did not participate in any securities lending activities during the most recent fiscal year.

STATE SPECIFIC INFORMATION

Focus of investments

This section provides additional information as to certain state specific considerations, relevant to the funds because each fund invests mostly in tax-exempt investments of a single state. This focus of investments makes each fund more vulnerable to the relevant state’s economy and factors affecting tax-exempt issuers in that state than would be a more geographically diversified fund.

State taxes

The prospectus describes generally the tax treatment of distributions by the funds. This section of the SAI and the section entitled "Taxes" in Part II of this SAI include additional information concerning certain state and federal tax consequences of an investment in a fund.

This additional information is based on state laws, judicial decisions and other administrative materials interpreting state law, all of which are subject to changes that may or may not be retroactive. Prospective investors should be aware that an investment in a state tax-exempt fund may not be suitable for persons who do not otherwise receive income subject to income taxes of such state. You should consult your tax advisor to see how investing in a Fund will affect your own tax situation.

From time-to-time legislation may be introduced or litigation may arise that would change the tax treatment of exempt-interest dividends. Such litigation or legislation may have the effect of raising the state or other taxes payable by shareholders on such dividends. Shareholders, including in particular shareholders of states not specifically discussed hereunder, should consult their tax advisers for the current law on exempt-interest dividends.

Massachusetts

General information. The Massachusetts Fund invests in tax-exempt securities, which are issued by or for the Commonwealth of Massachusetts (the “Commonwealth”) or its municipalities, as well as general and special revenue obligations issued by the Commonwealth. The performance of the Massachusetts Fund is therefore heavily dependent on the financial situation of the Commonwealth. The following discussion was drawn from publicly available information and may be subject to change at any time.

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The Commonwealth has a population of approximately 7.0 million people, a highly educated workforce, and a diversified economy among several industrial and non-industrial sectors. The key industries in the Commonwealth include financial services, real estate, professional and business services, manufacturing, educational services, health care, and social services. The unemployment rate in the Commonwealth remained below the national average from June 2007 through February 2020. However, due largely to decreased business activity and closures as a result of the COVID-19 pandemic, the Commonwealth’s unemployment rate dramatically increased in 2020 from a low of 2.8% in March 2020 to a peak of 17.8% in June 2020. The unemployment rate in the Commonwealth decreased since to 3.5% in 2022, and, as of June 2023, the unemployment rate in the Commonwealth recovered to 2.6%, compared to the national average of 3.6%. Future employment growth could, however, be affected by additional cuts in federal spending on health care services, pandemics and epidemics, another economic downturn or other conditions, including increases in inflation and interest rates. In addition, according to the U.S. Department of Commerce, Bureau of Economic Analysis, in 2022 the Commonwealth had a per capita income of $84,945, the second highest among the 50 states. Over the past several years, real and nominal income levels in the Commonwealth have consistently been above the national averages.

Budgetary information. The Commonwealth’s budget seeks to achieve statutory balance. In January of 2023, Governor Healy filed her budget recommendations for fiscal year 2024. The Governor’s fiscal year 2024 budget recommendations provide for a total of $55.7 billion in state spending, a 4.4% increase from projected fiscal year 2023 spending.

The Commonwealth’s tax revenues increased in each of fiscal years 2020, 2021 and 2022. Tax revenues for fiscal year 2020 were $29.63 billion and resulted in a surplus of $336 million. Tax revenues for fiscal year 2021 were $34.16 billion and resulted in a surplus of $7.80 billion. Tax revenues for fiscal year 2022 were $41.15 billion and resulted in a surplus of $6.10 billion. In fiscal year 2022, on a statutory basis, approximately 54.9% of the Commonwealth’s budgeted operating revenues and other financing sources were derived from state taxes. In addition, in fiscal year 2022, the federal government provided approximately 22.4% of such revenues, with the remaining 22.7% provided from departmental revenues and transfers from non-budgeted funds. Tax revenue forecasts for fiscal year 2024 are $41.41 billion, an increase of 11.4% over tax revenue forecasts for fiscal year 2023 of $36.92 billion.

The Commonwealth has a statutory limit on direct debt. The statutory direct debt limit for fiscal year 2022 was $27.80 billion. As of January 31, 2023, the Commonwealth had approximately $25.2 billion in general obligation bonds outstanding, of which $24.2 billion, or approximately 96.2%, was fixed rate debt and $967.3 million, or 3.8%, was variable rate debt. General obligation bonds are supported by the full faith and credit of the Commonwealth.

COVID-19. In response to the outbreak of COVID-19 and the declaration by the World Health Organization on March 11, 2020 of a COVID-19 pandemic, then-Governor Baker

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declared a state of emergency in the Commonwealth in March 2020. Over the ensuing months, Governor Baker’s administration undertook a myriad of mitigation measures to curtail the adverse effects of COVID-19 on the Commonwealth, including issuing emergency orders that closed certain education programs and non-essential businesses, social distancing mandates, travel advisories, eviction moratoriums, and certain tax relief measures, all of which resulted in widespread economic disruption throughout the Commonwealth. The Commonwealth began a phased reopening of the economy in May 2020, and in December 2020, the Commonwealth began phased vaccination efforts across Massachusetts.

 

 

As public health measures continued to trend in a positive direction, and the Commonwealth experienced significant declines in average daily COVID-19 cases and hospitalizations, and increasing rates of vaccination amongst its constituents, the Commonwealth continued to implement its reopening plan, and by the end of May 2021, nearly all COVID-19 restrictions were lifted and all industries were permitted to open. On June 15, 2021, the state of emergency in the Commonwealth related to COVID-19 was terminated.

 

The federal government enacted several laws related to the COVID-19 pandemic, which provided resources for emergency response and recovery efforts and economic assistance, including unemployment insurance to state and local governments, businesses and individuals. The Commonwealth estimates the total value of these federal measures within Massachusetts at approximately $116 billion. Among this assistance was receipt by the Commonwealth of $2.46 billion through the federal Coronavirus Relief Fund (“CRF”) created under the Coronavirus Aid, Relief and Economic Security Act and $5.29 billion from the Coronavirus State Fiscal Recovery Fund (“CSFRF”) created under the American Rescue Plan Act of 2021 (ARPA). The CRF funds have been fully expended. Approximately $5.0 billion of the CSFRF funds have been allocated to a specific use, and $2.3 billion of the CSFRF funds have been spent as of December 31, 2022. The Executive Office for Administration and Finance estimates that approximately $300 million of federal COVID-19 financial assistance remains to be allocated.

 

 

The continued and ultimate impact of the COVID-19 pandemic on the financial condition of the Commonwealth remains unknown and is dependent on numerous and highly uncertain factors, many of which are beyond the Commonwealth’s control.

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Issue ratings. According to an Official Statement dated as of June 28, 2023, the Commonwealth of Massachusetts General Obligation Bonds have been assigned long-term credit ratings of AA+ by Fitch Ratings, Aa1 by Moody’s Investors Service, Inc., and AA by S&P Global Ratings. From time to time, the rating agencies may change or adjust their ratings for different bond issues.

 

 

Tax information. For Massachusetts resident individual shareholders, distributions received from the Massachusetts Fund are generally exempt from Massachusetts personal income tax to the extent that they are exempt-interest dividends that are directly attributable to the interest received by the Massachusetts Fund from obligations issued by the Commonwealth of Massachusetts, any political subdivision thereof or any Massachusetts agency or instrumentality or obligations issued by or on behalf of the United States government and certain of its possessions and are properly designated as such. If, however, any portion of exempt-interest dividends from the Massachusetts Fund is attributable to income received by the Massachusetts Fund from municipal securities of any state other than Massachusetts, such income will be subject to Massachusetts personal income tax. The Massachusetts Fund has obtained a tax ruling which recognizes for Massachusetts personal income tax purposes the tax-exempt character of gains realized by the Massachusetts Fund on the sale of certain tax-exempt securities of Massachusetts issuers when those gains are distributed to shareholders and properly designated as such.

Distributions from investment income and capital gains, including exempt-interest dividends, are not exempt, however, from Massachusetts corporate excise tax.

Minnesota

General information. The Minnesota Fund’s investments in Minnesota securities may be vulnerable to events adversely affecting the Minnesota economy. While the Minnesota economy is relatively diverse, including the agriculture, forestry, mining, manufacturing, retail, financial services, healthcare, and biomedical industries, a downturn in any of these could hurt Minnesota economic conditions. Minnesota businesses generally face a high cost of doing business, which also may negatively affect economic conditions in the state.

 

Minnesota’s budget and economic outlook is stable. In its February 2023 Budget and Economic Forecast (February 2023 Forecast), the Minnesota Office of Management and Budget (OMB) projected that the FY 2022-2023 biennium would end with a budget surplus of $12.484 billion, citing higher collections relative to previous forecasts and slightly lower spending. The state projects a budgetary balance of $17.455 billion for the FY 2024-2025 biennium.

Minnesota expects its economic recovery from the COVID-19 pandemic to continue. This recovery is driven in part by a strong labor market. According to the state’s

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February 2023 Forecast, Minnesota has the fourth lowest unemployment rate and the sixth highest labor force participation rate in the U.S. And although the State’s employment growth is constrained by an aging workforce, and the State continues to recover from payroll jobs lost during the height of the pandemic, Minnesota employers continue to add jobs. The State added an average of 7,600 jobs per month through 2022, a 2.8 percent increase over the prior year. However, due to lower forecasted wage growth nationally, Minnesota forecasts that its wage growth will slow after 2023.

 

In its July 10, 2023 Revenue and Economic Update, the Office of Management and Budget (OMB) reported that its net general funds receipts for FY 2023 were estimated to total $30.384 billion, $529 million (1.8 percent) more than projected in the February 2023 Forecast. The OMB noted that, as of July 2023, the outlook for U.S. real GDP growth in 2023 improved since Minnesota’s February 2023 Forecast was prepared.

However, the forecasts for growth in 2024 and 2025 were 0.4 and 0.5 percentage points lower than in the February 2023 Forecast, respectively.

Tax information. Minnesota generally uses federal taxable income as the starting point for the determination of state taxable income for trusts, estates, and corporations. Minnesota uses federal adjusted gross income as the starting point for determining state taxable income for individuals. Since Minnesota law adopts federal adjusted gross income as the starting point for computing Minnesota income tax, dividends reported as capital gains for federal income tax purposes are included in an individual shareholder’s Minnesota taxable income. Unlike the federal income tax, Minnesota does not have a preferential tax rate for capital gains. (Minn. Stat. § 290.06, Subd. 2c). Minnesota excludes from the taxable income of individuals, estates and trusts the exempt-interest dividends as defined in Section 852(b)(5) of the Internal Revenue Code paid by a regulated investment company provided that the income is either exempt from state taxation under the laws of the United States, or the portion of the exempt-interest dividends is derived from interest income on obligations of the State of Minnesota or its political subdivisions, municipalities, governmental agencies or instrumentalities, but only if the portion of the exempt-interest dividend from such Minnesota sources paid to all shareholders represents 95 percent or more of the exempt-interest dividends. (Minn. Stat. § 290.0131, Subd. 2(b)). To the extent the exempt-interest dividends are taken into account as a preference item for purposes of determining federal alternative minimum taxable income, the exempt-interest dividends may be taxable for Minnesota alternative minimum tax purposes if the interest income relates to obligations of any state other than Minnesota or its political subdivisions. (Minn. Stat. § 290.091, Subd. 2(a)(5)).

 

 

Minnesota has enacted a statement of intent that interest on obligations of Minnesota and its political subdivisions and Indian tribes, of any particular character or type, be included in net income of individuals, estates and trusts for Minnesota income tax purposes if it is judicially determined that Minnesota’s exemption of such interest and taxation of interest on comparable obligations of other states and their political subdivisions and Indian tribes unlawfully discriminates against interstate commerce.

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See Minn. Stat. § 289A.50, subd. 10. This provision applies to taxable years that begin during or after the calendar year in which any such determination becomes final.

 

On May 19, 2008, the U.S. Supreme Court decided the case of Department of Revenue of Kentucky v. Davis, in which a taxpayer had challenged Kentucky’s scheme of taxation that exempted from taxation interest on the bonds of Kentucky and its political subdivisions while taxing interest on the bonds of other states and their political subdivisions. The Supreme Court held that Kentucky’s taxing scheme did not violate the Commerce Clause. This decision, however, dealt with bonds that financed governmental projects, and the Court noted that the case did not present any question concerning the treatment of “private activity bonds” issued by states and their political subdivisions to finance projects for private entities. (The Court’s opinion also did not address the issue of discriminatory treatment of Indian tribal bonds.) The Court’s opinion left open the possibility that another party could challenge a state’s discriminatory treatment of the interest on private activity bonds.

The management of the Minnesota Fund is not aware of any pending litigation involving private activity bonds. Nevertheless, a court in the future could hold that a state’s discriminatory treatment of private activity bonds violates the Commerce Clause, and in that case the Minnesota statute could take effect and interest on Minnesota private activity obligations held by the Minnesota Fund would become taxable in Minnesota.

That percentage of interest on indebtedness incurred or continued to purchase or carry shares of an investment company paying exempt-interest dividends, such as the Minnesota Fund, that is equal to the percentage of the Minnesota Fund’s distributions from investment income and short-term capital gains that is exempt from federal income tax, will not be deductible by the investor for Minnesota income tax purposes. Minn. Stat. § 290.0122, Subd 5; Schedule M1SA Instructions.

New Jersey

General information. The following information provides only a brief summary of selected information relating to New Jersey’s economic conditions, does not purport to be a complete description, and is based on information drawn from publicly available offering statements relating to New Jersey municipal debt offerings. This information has not been independently verified.

 

The following industries are the center of New Jersey’s diverse economy: technology, transportation and logistics, health care, financial services, biopharmaceuticals, and advanced manufacturing. There is also a strong commercial agriculture sector in the rural areas. The Jersey Shore, part of the Atlantic Seaboard, is a focus of New Jersey’s tourism sector and includes gambling in Atlantic City. New Jersey is part of a megalopolis which extends from Boston to Washington D.C. and includes about one-sixth of the country’s population, making it an attractive location for businesses due to its central location and ability to access both regional and world markets.

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In 2022, New Jersey’s economy continued to recover from the recession caused by the COVID-19 pandemic. New Jersey’s Gross Domestic Product (“GDP”) – a broad measure of economic output – showed moderate growth and employment levels continued to improve, surpassing pre-pandemic levels. Higher interest rates, intended to tame inflation, began to slow economic activity in some sectors, most notably the housing market. In 2023, the near-term economic outlook for New Jersey is for continued slowing with ongoing uncertainty related to the impact of inflation and interest rates.

Overall, New Jersey’s economy experienced moderate growth over the course of 2022. Real GDP growth slowed from its rapid pace in 2021 to a seasonally adjusted annual rate of 2.6 percent.

New Jersey’s labor market saw solid gains in 2022. Following a record 265,000 jobs gained in 2021, employment grew in ten out of twelve months, gaining 129,700 jobs through December 2022. New Jersey’s unemployment rate, which soared to 15.3 percent in May 2020, improved to a pre-pandemic level of 3.3 percent in December 2022, 2.1 percentage points lower than December 2021. New Jersey’s December 2022 labor force participation rate of 64.1 percent was 0.4 percent lower than the pre-pandemic level of 64.5 percent, but 1.3 percentage points higher than in December 2021.

The housing market in 2022 slowed substantially from the quick pace of the prior two years amidst rapidly rising mortgage interest rates and elevated home prices. According to New Jersey Realtors data, existing-home sales growth started to fall off near the end of 2021 and total closed sales fell 17.8 percent in 2022 from 2021, matching levels last seen in 2015. The number of single-family homes sold, which represents over two-thirds of existing-home sales in New Jersey, was 18.6 percent below 2021, while the number of townhomes and condos sold was 17.8 percent lower. Transaction prices continued to rise substantially, with the average price of a single-family home reaching nearly $593,000 in 2022, a 9.3 percent increase over 2021.

New Jersey wages and salaries increased 9.3 percent in 2022, while personal income, which was hindered by falling transfer receipts and weaker growth in other components, rose 2.1 percent overall. National personal saving as a percentage of disposable income has fluctuated sharply in recent years. From a pre-pandemic level of over 8.0 percent, savings rose to a high of 26.4 percent spurred by federal economic impact payments and limited spending options. The savings rate subsequently fell to under 4.0 percent in the final three quarters of 2022 as households adjusted to high price inflation. The economic outlook has softened recently in New Jersey, as rising interest rates and persistently high inflation erode purchasing power and slow the pace of the economy. Wage gains have struggled to keep up with the pace of inflation, which has dampened consumer spending.

New Jersey’s location on the eastern seaboard of the United States exposes it to a variety of climate risks such as severe storms and hurricanes, which can damage New Jersey’s infrastructure. In addition, much of New Jersey’s coastal and riverine areas

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may be vulnerable to sea level rise or flooding from increasing and extreme precipitation and other impacts of climate change. These climate-related phenomena may damage significant portions of New Jersey’s assets and may require New Jersey to construct additional infrastructure. Further, a changing climate may negatively impact the economy of New Jersey, however, the impact that these climate events may have on New Jersey’s financial condition cannot be predicted.

 

The New Jersey Office of information Technology (“NJOIT”) serves as New Jersey’s centralized infrastructure technology provider. NJOIT has enhanced existing technologies and put in place multiple additional measures to mitigate cyber risks over the past 24 months. These measures are recognized as industry standard modern cyber protection mechanisms and serve to reduce the risk of successful cyber-attacks upon New Jersey’s information technology assets. However, despite these measures, it is recognized in the cybersecurity industry that no amount of preventative countermeasures and security features successfully prevent 100% of all cyber attacks. To further manage risk, New Jersey maintains cyber liability insurance coverage.

 

 

Tax information. The New Jersey Fund intends to be a Qualified Investment Fund under the laws of New Jersey, except when investing for defensive purposes under certain circumstances. As long as the New Jersey Fund is a Qualified Investment Fund, to the extent its distributions are derived from interest or net gains on Tax-Exempt Obligations, such distributions will be exempt from the New Jersey Gross Income Tax. Gains resulting from the redemption or sale of shares of the New Jersey Fund will also be exempt from the New Jersey Gross Income Tax.

Under New Jersey law, the New Jersey Fund will be a "Qualified Investment Fund" for the calendar year in which the distribution is paid if it both (i) has no investments other than Interest-Bearing Obligations, Cash, and Certain Financial Instruments, and (ii) at the close of each quarter of the taxable year, has not less than 80 percent of the aggregate principal amount of all its investments-excluding Cash and Certain Financial Instruments-invested in Tax-Exempt Obligations. For this purpose: "Interest-Bearing Obligations" include interest-bearing obligations and obligations issued at a discount; "Cash" includes cash and cash items, including receivables; and "Certain Financial Instruments" means financial options, futures, forward contracts, and other similar financial instruments related to interest-bearing obligations, obligations issued at a discount, or bond indexes related thereto.

For purposes of this section, "Tax-Exempt Obligations" means obligations, the income of which is exempt from the New Jersey Gross Income Tax under New Jersey or federal law. Tax-Exempt Obligations generally include both (a) obligations issued by or on behalf of New Jersey or any county, municipality, school or other district, agency, authority, commission, instrumentality, public corporation (including one created or existing pursuant to an agreement or compact with New Jersey or any other state), body corporate, and politic or political subdivision of New Jersey, and (b) obligations

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issued by or on behalf of the United States Government or the territories of Puerto Rico, Guam, or the Virgin Islands.

 

Distributions by the New Jersey Fund derived from income or net gains on investments other than Tax-Exempt Obligations, whether paid in cash or reinvested in additional shares, will be taxable as gross income under the New Jersey Gross Income Tax Act. In addition, if the New Jersey Fund is below the 80 percent requirement at the end of any calendar quarter for any reason, then the New Jersey Fund will fail to qualify as a Qualified Investment Fund for the entire calendar year and all distributions derived from interest or gains from such year, whether or not attributable to Tax-Exempt Obligations, and all gains resulting from the redemption or sale of shares, will be taxable under the New Jersey Gross Income Tax Act.

The New Jersey Gross Income Tax is not applicable to corporations. For all corporations subject to the New Jersey Corporation Business Tax, distributions derived from interest or net gains on Tax-Exempt Obligations, as well as gains on the redemption or sale of shares, are included in the net income tax base for purposes of computing the Corporation Business Tax. Also, to the extent any distributions or gains on redemption or sale are considered to be a New Jersey gross receipt (that is, generally, a business receipt sourced to New Jersey), such distributions or gains may be included in a corporate shareholder's gross receipts base for purposes of computing the alternative minimum assessment component of the Corporation Business Tax.

The New Jersey Fund will notify shareholders by February 15 of each calendar year as to (i) the amounts of dividends and distributions made with respect to the preceding calendar year that are exempt from federal income taxes and the New Jersey Gross Income Tax, and (ii) the amounts, if any, which are subject to such taxes. The New Jersey Fund will also make appropriate certification of its status for the New Jersey tax authorities, if requested by the Division of Taxation.

Ohio

 

General information. The fund’s investments in Ohio municipal securities may be vulnerable to events adversely affecting Ohio and its economy as a whole, or industry segments in that economy or geographic areas within the State, including events such as the global pandemic spread of the novel coronavirus known as COVID-19 (see below). Ohio ranks fourth among the states in the manufacturing sector and fifth in the durable goods sector with manufacturing responsible for 15.7% of Ohio’s preliminary 2022 gross state product (GSP), the production of durable goods responsible for 23.0% of Ohio’s preliminary 2022 GSP and business services sectors, including finance, insurance and real estate responsible for 33.6% of Ohio’s preliminary 2022 GSP. Ohio is the ninth largest exporting state with 2022 merchandise exports totaling $56.4 billion, with machinery (including electrical machinery), motor vehicles (including parts), aircraft/spacecraft and plastics accounting for more than half of that total. And, with 13.5 million acres (of a total land area of 26.4 million acres) in farmland and an estimated

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77,800 individual farms, agriculture combined with related agricultural sectors remains an important segment of the State’s economy.

 

Ohio’s 2023 census population estimate (as of July 1, 2023) of 11,756,058 ranked it seventh among the states, and was a 0.35% decrease over the 2020 decennial census population of 11,797,517. Ohio’s unemployment rate (seasonally adjusted) was 3.4% as of June 2023.

The continued spread of COVID-19 has had and may continue to have a material impact on Ohio’s economy although the full impact of COVID-19 on Ohio’s economy is unknown at this time. In response to the public health crisis, the Governor and the Director of the Ohio Department of Health took certain actions to limit the spread of the virus and its impact on the State’s local communities and health care services, including the declaration of a state of emergency in the State on March 9, 2020 and the closure of all non-essential businesses from March 23, 2020 through May 1, 2020. In addition, the Governor and the General Assembly took certain actions to mitigate the economic effect of the COVID-19 outbreak on the State’s financial position. The State ended Fiscal Year 2021 with a general revenue fund cash balance of $4.72 billion, Fiscal Year 2022 with a general revenue fund cash balance of $6.54 billion and Fiscal Year 2023 with a general revenue fund cash balance of $8.99 billion.

 

 

Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) the State was directly allocated a minimum of $2.49 billion of the total $4.53 billion granted by the Federal government to the State and its eligible local governments with the funds being used for costs that are necessary expenditures incurred due to COVID-19. Under the American Rescue Plan Act of 2021 (ARPA), the Federal government allocated approximately $5.6 billion directly to the State with an additional $274 million allocated specifically for use in State capital projects out of a total $11.2 billion granted to the State and its eligible local governments to continue efforts to mitigate the fiscal effects stemming from COVID-19.

The COVID-19 outbreak caused a sudden spike in unemployment and furloughs in Ohio during 2020. As a result of this spike in unemployment, Ohio’s Unemployment Trust Fund balance was completely drawn down between March 1, 2020 and June 30, 2020. Because of this increased demand, the State applied for federal assistance and began drawing funds on June 16, 2020. In September, 2021, the State repaid its $1.5 billion unemployment compensation debt using ARPA monies provided to Ohio.

Tax information. Distributions received from the Ohio Fund are exempt from Ohio personal income tax and municipal and school district income taxes in Ohio and will be excluded from the net income base of the Ohio corporation franchise tax to the extent they are properly attributable to interest on obligations issued by the State of Ohio, its political subdivisions, or its agencies or instrumentalities ("Ohio Obligations"), provided that the Ohio Fund continues to qualify as a regulated investment company for federal income tax purposes and that at all times at least 50% of the value of the total assets of

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the fund consists of Ohio Obligations or similar obligations of other states or their subdivisions. It is assumed for purposes of this discussion of Ohio taxation that these requirements are satisfied. The Ohio Fund's shares will be included in a shareholder's tax base for purposes of the Ohio financial institutions tax and in computing the Ohio corporation franchise tax on the net worth basis.

 

Distributions from the Ohio Fund of capital gains earned or received by the Ohio fund are exempt from Ohio personal income tax and municipal and school district income taxes in Ohio and will be excluded from the net income base of the Ohio corporation franchise tax, in each case to the extent that such distributions are properly attributable to profit made on the sale, exchange or other disposition by the Ohio Fund of Ohio Obligations.

Distributions properly attributable to interest on obligations of the United States or of any authority, commission, or instrumentality of the United States (“Federal Obligations”) are exempt from Ohio personal income tax, the net income base of the Ohio corporation franchise tax, and municipal and school district income taxes in Ohio, regardless of the amount of Federal Obligations or Ohio Obligations held by the Ohio Fund. Distributions properly attributable to interest on obligations of American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands, or their authorities or instrumentalities (“Possessions Obligations”), are exempt from Ohio personal income tax and municipal and school district income taxes in Ohio to the extent the interest on such Possessions Obligations is exempt under federal law from state and local income taxes, regardless of the amount of Ohio Obligations or Possessions Obligations held by the Ohio Fund. Distributions properly attributable to interest on Possessions Obligations are excluded from the net income base of the Ohio corporation franchise tax to the extent such interest is excluded from gross income for federal income tax purposes.

Distributions received from the Ohio Fund are exempt from the Ohio commercial activity tax regardless of whether the requirements described in the first paragraph of this discussion are satisfied. Except to the extent set forth below, distributions received from the Ohio Fund are also exempt from municipal income taxes and joint economic development district income taxes in Ohio regardless of whether the requirements described in the first paragraph of this discussion are satisfied. If those requirements are not satisfied, however, such distributions received by a resident of a “qualified municipal corporation” (within the meaning of Ohio revised Code Chapter 718) are subject to tax by that municipal corporation, and up to 5% of such distributions can be included in the computation of certain business net profits that are subject to municipal income taxes and joint economic development district income taxes in Ohio.

Pennsylvania

General information. Because the Pennsylvania Fund invests in Pennsylvania municipal securities, it is susceptible to political, economic, regulatory or other factors affecting issuers of Pennsylvania municipal securities. Without intending to be complete, the information set forth below briefly summarizes some of the factors affecting the financial situation in the Commonwealth of Pennsylvania (the "Commonwealth" or

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"Pennsylvania"). Such information is generally derived from official statements utilized in connection with the issuance of Pennsylvania municipal securities, as well as from other publicly available documents. Such information has not been independently verified and the Pennsylvania Fund assumes no responsibility for the completeness or accuracy of such information. In addition, the information provided is updated only through the information available as of the date of this Statement of Additional Information. The information and risks set forth below could change quickly and without notice due to additional information available, market or economic changes or other unforeseen events, among other things.

 

Many factors affect the financial condition of Pennsylvania and its political subdivisions, such as social, environmental and economic conditions, many of which are not within the control of such entities. Such factors could have an adverse impact on the financial condition of issuers of securities in which the Pennsylvania Fund invests. The creditworthiness of obligations issued by local Pennsylvania issuers may be unrelated to the creditworthiness of obligations issued by Pennsylvania, and there is generally no obligation on the part of Pennsylvania to make payments on such local obligations. There may be specific factors that are applicable in connection with obligations of particular issuers located within Pennsylvania, and it is possible the Pennsylvania Fund will invest in obligations of particular issuers as to which such specific factors are applicable. There can be no assurance that Pennsylvania or a political subdivision thereof will not experience a decline in economic conditions, or that portions of the Pennsylvania municipal securities purchased by the Pennsylvania Fund will not be affected by such a decline.

The coronavirus (“COVID-19”) outbreak in 2020 has impacted the global economy and public health, and federal, state, and local governments, including those in Pennsylvania, have enacted legislation and issued administrative orders, directives and guidance to mitigate the impact of COVID-19 on the general population and the economy.

According to information in an Official Statement, dated May 20, 2021, issued in connection with the sale of Pennsylvania general obligation bonds, Pennsylvania received $3.9 billion in CARES ACT funding from the federal government. As of the date of the Official Statement, the Commonwealth had expended, or the costs had been incurred for the majority of the $3.9 billion received in CARES Act funds. The Coronavirus State Fiscal Recovery Funds program, enacted as a part of the Federal American Rescue Plan Act of 2021 (“ARPA”), delivered $7.291 billion to Pennsylvania to support the response to and recovery from the COVID-19 pandemic.

 

As of June 30, 2023, all ARPA dollars allocated to Pennsylvania have been appropriated to 30 specific uses via acts of the Pennsylvania General Assembly.

 

 

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Pennsylvania is one of the most populous states, ranking fifth behind California, Texas, Florida, and New York. Pennsylvania stakes claim to a diverse economy and many thriving industries. At different times throughout its history, the Commonwealth has been the nation's principal producer of ships, iron, chemicals, lumber, oil, textiles, glass, coal and steel. This led Pennsylvania to be identified historically as a heavy industrial state. That reputation has changed over the last several decades as the coal, steel and railroad industries declined. Pennsylvania's business environment readjusted with a more diversified economic base. Currently, the major sources of growth in Pennsylvania are in the service sector, including healthcare, leisure-hospitality, transport and storage.

Development of natural gas continues to be one of the biggest factors in Pennsylvania's economic outlook. Although direct employment in natural resources and mining is a small part of total jobs in the state, its rapidly rising location quotient helps to illustrate the growth seen in the last few years. More important to the economy at all levels are the related jobs created in other sectors, such as construction, transportation, and professional services. State manufacturers have already benefitted from demand for steel and equipment being used to drill the wells and get them connected to demand centers via pipelines. Pennsylvania's competitiveness in manufacturing should be enhanced by the decreased costs of energy and petrochemical feedstocks coming from beneath the state.

 

Pennsylvania exported $49.8 billion in goods to foreign markets in 2022. Chemicals remain Pennsylvania's top export category. This category includes pharmaceuticals, a key output of the state economy. Canada remained the state's primary export destination. Technology firms are steadily gaining a significant presence in the Pittsburgh region due to the young and talented workforce emerging from schools like Carnegie Mellon and the University of Pittsburgh. Tech giants Google and eBay have moved into the area, while Westinghouse is in the process of expanding headquarters in the region. Investment by Westinghouse in nuclear engineering and research will propel this sector through the next several years.

 

 

Pennsylvania's geographic location makes it a prime corridor for the transportation of goods. From its extensive rail service and ports to its grid of interstate highways, Pennsylvania remains an integral part of the northeast region's economic activity.

 

As of June 2023, Pennsylvania’s unemployment rate is 3.8%, which is the lowest on record (dating back to January 1976). Pennsylvania’s unemployment rate dropped significantly since 2020, when the unemployment rate was 9.1% due to the COVID -19 pandemic.

Pennsylvania operates on a fiscal year beginning July 1 and ending June 30. According to a July 3, 2023 Pennsylvania Department of Revenue press release, Pennsylvania ended the 2022-2023 fiscal year with $44.9 billion in General Fund collections. That

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total is $1.3 billion, or 3.1%, above estimate. This has been a trend in recent years as Pennsylvania's economy has rebounded from the impact of the COVID-19 pandemic.

On August 3, 2023, Pennsylvania Governor Joshua Shapiro signed the 2023-2024 budget into law. The total budget is approximately $45.55 billion, with little increase over the 2022-2023 budget.

 

 

Tax information. Distributions paid by the Pennsylvania Fund will not be subject to the Pennsylvania personal income tax or (in the case of residents of the City of Philadelphia) the Philadelphia school district investment net income tax to the extent that the distributions are properly attributable to interest on (i) obligations issued by the Commonwealth of Pennsylvania, its political subdivisions, or its agencies or instrumentalities ("Pennsylvania Obligations"), (ii) direct obligations of the United States or of any qualifying authority, commission, or instrumentality of the United States, or (iii) qualifying obligations of certain United States territories or possessions the interest on which is exempt from state income taxes under the laws of the United States ("Possessions Obligations"). Distributions by the Pennsylvania Fund that are attributable to other sources (including indirect obligations of the United States such as Ginnie Maes, Fannie Maes, etc.) are generally not exempt and are subject to the Pennsylvania personal income tax and (in the case of residents of Philadelphia) to the Philadelphia school district investment net income tax whether paid in cash or reinvested in additional shares. In addition, distributions designated as capital gain dividends for federal income tax purposes will also generally be exempt from the Philadelphia school district investment net income tax.

To the extent that distributions that are attributable to interest on Pennsylvania Obligations and Possessions Obligations are excluded from taxable income for federal income tax purposes (determined before net operating loss carryovers and special deductions), they will not be subject to the Pennsylvania corporate net income tax. In addition, a deduction is permitted in computing Pennsylvania taxable income (for purposes of the corporate net income tax) for the amount of distributions paid by the Pennsylvania Fund attributable to interest on (i) direct obligations of the United States or of any qualifying authority, commission or instrumentality of the United States, and (ii) Possessions Obligations, to the extent such amount is included in federal taxable income, but such a deduction is reduced by any interest on indebtedness incurred to carry such obligations and other expenses incurred in the production of such interest income (including expenses deducted on the federal income tax return that would not have been allowed under the Internal Revenue Code if the interest were exempt from federal income tax). Distributions by the Pennsylvania Fund that are attributable to other sources (including indirect obligations of the United States such as Ginnie Maes, Fannie Maes, etc.) are generally not exempt and are subject to the corporate net income tax.

 

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS

 

PricewaterhouseCoopers LLP, 101 Seaport Boulevard, Boston, Massachusetts 02210, is the funds’ independent registered public accounting firm providing audit services, tax return review and other tax consulting services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The Report of Independent Registered Public Accounting Firm, financial highlights and financial statements included in each fund’s Annual Report for each fund’s most recent fiscal year are included as Appendix B to this SAI. The financial highlights included in the prospectus and this SAI and the financial statements included in this SAI (which is incorporated by reference into the prospectus) have been so included in reliance upon the Report of Independent Registered Public Accounting Firm, given on their authority as experts in auditing and accounting.

 

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THE PUTNAM FUNDS

STATEMENT OF ADDITIONAL INFORMATION (“SAI”)

PART II

 

 

HOW TO BUY SHARES

 

Each prospectus of a fund (a “prospectus”) describes briefly how investors may buy shares of the fund and identifies the share classes offered by that prospectus. For a fund that offers multiple classes of shares, the investment performance of the classes will vary because of different sales charges and expenses. This section of the SAI contains more information on how to buy shares. For more information, including your eligibility to purchase certain classes of shares, contact your investment dealer or Putnam Investor Services, Inc., the funds’ investor servicing agent (“Putnam Investor Services”), at 1-800-225-1581. Investors who purchase shares at net asset value through employer-sponsored retirement plans (including, for example, 401(k) plans, employer-sponsored 403(b) plans, and 457 plans, as well as “non-qualified” deferred compensation plans) should also consult their employer for information about the extent to which the matters described in this section and in the sections that follow apply to them.

 

Except as set forth below, the fund does not accept new accounts or additional investments (including by way of exchange from another fund) into existing accounts held in the name of persons or entities that do not have both a residential or business address within the United States (including APO/FPO addresses) and a valid U.S. tax identification number. Any existing account that is updated to reflect a non-U.S. address will also be restricted from making additional investments. Individuals resident in the European Economic Area (“EEA”), in particular, should take note that the fund’s shares are not offered for sale in the EEA.

 

Non-U.S. institutional clients may invest in a fund, provided that the client is acting for its own account and is not a financial institution (e.g., a broker-dealer purchasing shares on behalf of its customers), and has provided Putnam with documentation (i) that is appropriate to the type of entity seeking to establish the account and (ii) sufficient to enable Putnam Investor Services to determine that the investment would not violate any applicable securities laws or regulations, including non-U.S. laws and regulations. Non-U.S. employees of Putnam, its parent company, Power Corporation of Canada (“Power”), subsidiaries and affiliates of Power, and certain related entities, and the immediate family members of such employees may invest in a fund during the term of employment of the employee, subject to applicable law and certain procedural requirements.

 

In addition, class M shares are only available (1) to certain employer-sponsored retirement plans investing in George Putnam Balanced Fund and (2) for Putnam Diversified Income Trust, Putnam High Yield Fund, and Putnam Income Fund for public offering in Japan through certain Japanese registered broker-dealers with whom Putnam Retail Management Limited Partnership has an agreement. All other class M shares of the Putnam open-end mutual funds (“Putnam Funds”) were converted into class A shares effective November 25, 2019, except that class M shares of Putnam Global Income Trust and Putnam Mortgage Securities Fund held in Japan were liquidated effective December 9, 2019.

 

In addition, shares of Putnam Ultra Short MAC Series are only available to “wrap” account clients (“eligible investors”) where Putnam Management has an agreement to serve as investment adviser to the wrap program sponsor (typically a registered investment adviser or broker-dealer) or directly to the wrap account clients of the wrap program sponsor.

 

In addition, the fund does not accept new accounts or additional investments (including by way of exchange from another fund) into existing accounts by entities that Putnam Investor Services has reason to believe are involved in the sale or distribution of marijuana, even if such sale or distribution is licensed by a state.

 

August 30, 2023  II-1  
 

General Information

 

The fund is currently making a continuous offering of its shares. The fund receives the entire net asset value of shares sold. The fund will accept unconditional orders for shares to be executed at the current offering price based on the net asset value per share next determined after the order is placed. In the case of class A shares, class M shares and class N shares, the offering price is the net asset value plus the applicable sales charge, if any. (The offering price is thus calculable by dividing the net asset value by 100% minus the sales charge, expressed as a percentage.) No sales charge is included in the offering price of other classes of shares. In the case of orders for purchase of shares placed through dealers, the offering price will be based on the net asset value determined on the day the order is placed, but only if the dealer or a registered transfer agent or registered clearing agent receives the order, together with all required identifying information, before the close of regular trading on the New York Stock Exchange (the “NYSE”). If the dealer or registered transfer agent or registered clearing agent receives the order after the close of the NYSE, the price will be based on the net asset value next determined. If funds for the purchase of shares are sent directly to Putnam Investor Services, they will be invested at the offering price based on the net asset value next determined after all required identifying information has been collected. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.

Initial purchases are subject to the minimums stated in the prospectus, except that (i) individual investments under certain employer-sponsored retirement plans or Tax Qualified Retirement Plans may be lower, and (ii) the minimum investment is waived for investors participating in systematic investment plans or military allotment plans. Information about these plans is available from investment dealers or Putnam Investor Services. Currently Putnam is waiving the minimum for all initial purchases, but reserves the right to reject initial purchases under the minimum in the future, except as noted in the first sentence of this paragraph.

 

Systematic investment plan. As a convenience to investors, shares (other than shares of Putnam Multi-Asset Income Fund and shares of Putnam Ultra Short MAC Series) may be purchased through a systematic investment plan. Pre-authorized periodic (e.g., monthly, quarterly, semi-annually, or annually) bank drafts for a fixed amount ($200,000 or less) are used to purchase fund shares at the applicable offering price next determined after Putnam Retail Management Limited Partnership (“Putnam Retail Management”) receives the proceeds from the draft. A shareholder may choose any day of the month for these investments; however, if the selected date falls on a weekend or holiday, the investment will be processed on the next business day. For February, April, June, September and November, if the selected date does not occur (the 29th, 30th, or 31st, as applicable), the investment will be processed the prior business day. Further information and application forms are available from the investment dealers or from Putnam Retail Management.

 

Reinvestment of distributions. Distributions to be reinvested are reinvested without a sales charge in shares of any Putnam Fund the shareholder is eligible to invest in under the shareholder's account as of the ex-dividend date using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. Dividends for Putnam money market funds are credited to a shareholder's account on the payment date. Distributions for all other funds that declare a distribution daily are reinvested without a sales charge as of the last day of the period for which distributions are paid using the net asset value determined on that date, and are credited to a shareholder's account on the payment date.

 

Purchasing shares with securities (“in-kind” purchases). In addition to cash, the fund will consider accepting securities as payment for fund shares at the applicable net asset value. Generally, the fund will only consider accepting securities to increase its holdings in a portfolio security, or if Putnam Investment Management, LLC (“Putnam Management”) determines that the offered securities are a suitable investment for the fund and in a sufficient amount for efficient management.

 

August 30, 2023  II-2  
 

While no minimum has been established, it is expected that the fund would not accept securities with a value of less than $100,000 per issue as payment for shares. The fund may reject in whole or in part any or all offers to pay for purchases of fund shares with securities, may require partial payment in cash for such purchases to provide funds for applicable sales charges, and may discontinue accepting securities as payment for fund shares at any time without notice. The fund will value accepted securities in the manner described in the section "Determination of Net Asset Value" for valuing shares of the fund. The fund will only accept securities that are delivered in proper form. The fund will not accept certain securities, for example, options or restricted securities, as payment for shares. The acceptance of securities by certain funds in exchange for fund shares is subject to additional requirements. For federal income tax purposes, a purchase of fund shares with securities will be treated as a sale or exchange of such securities on which the investor will generally realize a taxable gain or loss. The processing of a purchase of fund shares with securities involves certain delays while the fund considers the suitability of such securities and while other requirements are satisfied. For information regarding procedures for payment in securities, contact Putnam Retail Management. Investors should not send securities to the fund except when authorized to do so and in accordance with specific instructions received from Putnam Retail Management.

 

Sales Charges and Other Share Class Features

 

This section describes certain key features of share classes offered to retail investors and retirement plans that do not purchase shares at net asset value. Much of this information addresses the sales charges, including initial sales charges and contingent deferred sales charges (“CDSCs”) imposed on the different share classes and various commission payments made by Putnam to dealers and other financial intermediaries facilitating shareholders’ investments. This information supplements the descriptions of these share classes and payments included in the prospectus.

Initial sales charges, dealer commissions and CDSCs on shares sold outside the United States may differ from those applied to U.S. sales.

Initial sales charges for class A, class M and class N shares. The offering price of class A, class M and class N shares is the net asset value plus a sales charge that varies depending on the size of your purchase (calculable as described above). The fund receives the net asset value. The tables below indicate the sales charges applicable to purchases of class A, class M and class N shares of the funds by style category.

 

The sales charge for class A, class M and class N shares is allocated between your investment dealer and Putnam Retail Management as shown in the tables below, except when Putnam Retail Management, in its discretion, allocates the entire amount to your investment dealer.

 

The underwriter's commission, or dealer reallowance, is the sales charge shown in the prospectus less any applicable dealer discount. Putnam Retail Management will give dealers ten days' notice of any changes in the dealer discount.

 

Putnam Retail Management retains the entire sales charge on any retail sales made by it. The Putnam Funds require that a broker-dealer be associated with every account (a “broker-dealer of record”). In instances where the registered account owner has not designated a broker-dealer of record, Putnam Retail Management will be defaulted as the broker-dealer of record for the account. Putnam Retail Management is not a full-service broker-dealer, and does not provide investment advice. As default broker-dealer of record, Putnam Retail Management will not be able to provide services that are typically offered by a brokerage firm, such as assisting with financial planning or providing recommendations, or otherwise assisting with investment decisions. Where Putnam Retail Management is listed as the default broker-dealer of record for an account, it will receive all applicable sales charges and service fees associated with the account.

 

August 30, 2023  II-3  
 

For purchases of class A shares by retail investors that qualify for the highest sales charge breakpoint described in the prospectus, and certain Employer-Sponsored Retirement Plans approved by Putnam Retail Management, Putnam Retail Management pays commissions on sales during the one-year period beginning with the date of the initial purchase qualifying for that breakpoint. Each subsequent one-year measuring period for these purposes begins with the first qualifying purchase following the end of the prior period. For all funds, except for purchases of Putnam Short Duration Bond Fund on or after January 1, 2021, these commissions are paid at the rate of 1.00% of the amount of qualifying purchases up to $4 million, 0.50% of the next $46 million of qualifying purchases and 0.25% of qualifying purchases thereafter. For purchases of Putnam Short Duration Bond Fund on or after January 1, 2021, these commissions are paid at the rate of 0.75% of the amount of qualifying purchases up to $4 million, 0.50% of the next $46 million of qualifying purchases and 0.25% of qualifying purchases thereafter.

 

For purchases of class N shares over $250,000, Putnam Retail Management pays commissions on sales during the one-year period beginning with the date of the initial purchase. Each subsequent one-year measuring period for these purposes begins with the first qualifying purchase following the end of the prior period. Commissions for these purchases are paid at the rate of 0.25% of the amount of qualifying purchases up to $4 million, 0.15% of the next $46 million of qualifying purchases and 0.10% of qualifying purchases thereafter.

 

For Growth Funds, Blend Funds, Value Funds, Asset Allocation Funds (excluding George Putnam Balanced Fund and Putnam Multi-Asset Income Fund), Global Sector Funds, Putnam Retirement Advantage Funds (excluding Putnam Retirement Advantage Maturity Fund) and Putnam Sustainable Retirement Funds (excluding Putnam Sustainable Retirement Maturity Fund) only:

 

  CLASS A    

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price    
Under 50,000 5.75% 5.00%    
50,000 but under 100,000 4.50 3.75    
100,000 but under 250,000 3.50 2.75    
250,000 but under 500,000 2.50 2.00    
500,000 but under 1,000,000 2.00 1.75    
1,000,000 and above NONE NONE    

 

August 30, 2023  II-4  
 

For Putnam Retirement Advantage Maturity Fund, Putnam Sustainable Retirement Maturity Fund, Taxable Income Funds (except for Putnam Core Bond Fund, Money Market Funds, Putnam Floating Rate Income Fund, Putnam Ultra Short Duration Income Fund, Putnam Diversified Income Trust, Putnam High Yield Fund, Putnam Income Fund, and Putnam Short Duration Bond Fund), and for purchases of Tax-Exempt Funds (except for Putnam Short-Term Municipal Income Fund) prior to July 1, 2022:

 

  CLASS A    

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price    
Under 50,000 4.00% 3.50%    
50,000 but under 100,000 4.00 3.50    
100,000 but under 250,000 3.25 2.75    
250,000 but under 500,000 2.50 2.00    
500,000 and above NONE NONE    

 

 

For purchases of Tax-Exempt Funds (except for Putnam Short-Term Municipal Income Fund and Putnam Strategic Intermediate Municipal Fund) on or after July 1, 2022 and for purchases of Putnam Multi-Asset Income Fund and Putnam Core Bond Fund:

 

  CLASS A    

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price    
Under 50,000 4.00% 3.50%    
50,000 but under 100,000 3.25 2.75    
100,000 but under 250,000 2.50 2.00    
250,000 and above NONE NONE    
       
         

 

 

For Putnam Floating Rate Income Fund only:

 

  CLASS A    

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price    
Under 100,000 2.25% 2.00%    
100,000 but under 250,000 1.75% 1.50%    
250,000 but under 500,000 1.25% 1.00%    
500,000 and above NONE NONE    

 

 

August 30, 2023  II-5  
 

For purchases of Putnam Short-Term Municipal Income Fund, purchases of Putnam Strategic Intermediate Municipal Fund only on or after July 1, 2022, and purchases of Putnam Short Duration Bond Fund only prior to January 1, 2021:

 

  CLASS A    

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price    
Under 100,000 2.25% 2.00%    
100,000 but under 250,000 1.25% 1.00%    
250,000 and above NONE NONE    

 

For purchases of Putnam Short Duration Bond Fund on or after January 1, 2021:

 

 

  CLASS A    

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price    
Under 100,000 2.25% 2.00%    
100,000 – 249,999 1.25% 1.00%    
250,000 and above NONE NONE    

 

 

For George Putnam Balanced Fund only:

 

  CLASS A CLASS M

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price

 

Under 50,000 5.75% 5.00% 3.50% 3.00%
50,000 but under 100,000 4.50 3.75 2.50 2.00
100,000 but under 250,000 3.50 2.75 1.50 1.00
250,000 but under 500,000 2.50 2.00 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 1.00 1.00
1,000,000 and above NONE NONE N/A N/A

 

 

August 30, 2023  II-6  
 

For Putnam Diversified Income Trust, Putnam High Yield Fund and Putnam Income Fund only:

 

  CLASS A CLASS M

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price

 

 

 

Sales charge as a percentage of offering price

Amount of sales charge reallowed to dealers as a percentage of offering price

 

Under 50,000 4.00% 3.50% 3.25% 3.00%
50,000 but under 100,000 4.00 3.50 2.25 2.00
100,000 but under 250,000 3.25 2.75 1.25 1.00
250,000 but under 500,000 2.50 2.00 1.00 1.00
500,000 and above NONE NONE N/A* N/A*

 

*The funds will not accept purchase orders for class M shares (other than by employer-sponsored retirement plans) where the total of the current purchase, plus existing account balances that are eligible to be linked under a right of accumulation (as described below) is $500,000 or more.

For all Putnam Funds that offer class N shares:

 

  CLASS N    

 

 

 

 

 

Amount of transaction at offering price ($)

 

 

 

Sales charge as a percentage of offering price

 

 

Amount of sales charge reallowed to dealers as a percentage of offering price

   
Under 50,000 1.50% 1.25%    
50,000 but under 100,000 1.25% 1.00%    
100,000 but under 250,000 1.00% 0.75%    
250,000 and above NONE NONE    

 

Purchases of class A and class N shares without an initial sales charge. Class A shares of any Putnam Fund (other than Putnam Short Duration Bond Fund, Putnam Ultra Short Duration Income Fund, Putnam Short-Term Municipal Income Fund, Putnam Government Money Market Fund, and Putnam Money Market Fund) purchased by retail investors that are not subject to an initial sales charge (in accordance with the schedules stated above) are subject to a CDSC of 1.00% if redeemed before the first day of the month in which the twelve-month anniversary of that purchase occurs. Class A shares of Putnam Short Duration Bond Fund purchased prior to January 1, 2021 and class A shares of Putnam Short-Term Municipal Income Fund purchased by retail investors that are not subject to an initial sales charge (in accordance with the schedules stated above) are subject to a CDSC of 1.00% if redeemed before the first day of the month in which the nine-month anniversary of that purchase occurs. Class A shares of Putnam Short Duration Bond Fund purchased on or after January 1, 2021 by retail investors that are not subject to an initial sales charge (in accordance with the schedules stated above) are subject to a CDSC of 0.75% if redeemed before the first day of the month in which the nine-month anniversary of that purchase occurs. Class A shares of Putnam Ultra Short Duration Income Fund, Putnam Money Market Fund and Putnam Government Money Market Fund purchased by retail investors by exchanging shares from another Putnam Fund that were not subject to an initial sales charge (in accordance with the schedules stated above) are subject to a CDSC of 1.00% if redeemed before the first day of the month in which the twelve-month anniversary of the original purchase occurs. Class N shares of any Putnam Fund purchased by retail investors that are not subject to an initial sales charge (in accordance with the schedules stated above) are subject to a CDSC of 0.25% if redeemed before the first day of the month in which the nine-month anniversary of that purchase occurs.

August 30, 2023  II-7  
 

The CDSC assessed on redemptions of fewer than all of an investor's class A shares or class N shares subject to a CDSC will be based on the amount of the redemption minus the amount of any appreciation on the investor's CDSC-subject shares since the purchase of such shares. The CDSC assessed on full redemptions of CDSC-subject shares will be based on the lower of the shares' cost and current NAV. Class A shares that are exchanged between Putnam Funds will maintain the CDSC time period for the fund in which the initial purchase was made. Putnam Retail Management will retain any CDSC imposed on redemptions of such shares to compensate it for the up-front commissions paid to financial intermediaries for such share sales.

 

Purchases of class A shares for rollover IRAs. Purchases of class A shares for a Putnam Rollover IRA or a rollover IRA of a Putnam affiliate, from a retirement plan for which an affiliate of Putnam Management or a business partner of such affiliate is the administrator, including subsequent contributions, are not subject to an initial sales charge or CDSC.

 

Commission payments and CDSCs for class B and class C shares. Except in the case of Putnam Money Market Fund, Putnam Government Money Market Fund and Putnam Ultra Short Duration Income Fund, Putnam Retail Management will pay a 4% commission on sales of class B shares of the fund only to those financial intermediaries who have entered into service agreements with Putnam Retail Management. For tax-exempt funds, this commission includes a 0.20% pre-paid service fee (except for Putnam Tax-Free High Yield Fund and Putnam Strategic Intermediate Municipal Fund, each of which has a 0.25% pre-paid service fee). For Putnam Floating Rate Income Fund, Putnam Short Duration Bond Fund, and Putnam Core Bond Fund, Putnam Retail Management will pay a 1.00% commission to financial intermediaries selling class B shares of the fund.

 

Except in the case of Putnam Money Market Fund, Putnam Government Money Market Fund and Putnam Ultra Short Duration Income Fund, Putnam Retail Management pays financial intermediaries a 1.00% commission on sales of class C shares of a fund.

 

Putnam Retail Management will retain any CDSC imposed on redemptions of class B and class C shares to compensate it for the cost of paying the up-front commissions paid to financial intermediaries for class B or class C share sales.

 

Conversion of class B shares into class A shares. Class B shares will automatically convert to class A shares during the month eight years after the purchase date (for Putnam Small Cap Value Fund, during the month six years after the purchase date, and for Putnam Sustainable Future Fund, during the month five years after the purchase date). Class B shares acquired by exchanging class B shares of another Putnam Fund will convert to class A shares based on the time of the initial purchase, and the holding period of the fund of initial purchase will apply. Any CDSC for such shares will be calculated using the schedule of the fund into or from which shares have been exchanged that would result in the highest CDSC applicable to such shares. Class B shares acquired through reinvestment of distributions will convert to class A shares based on the date of the initial purchase to which such shares relate. For this purpose, class B shares acquired through reinvestment of distributions will be attributed to particular purchases of class B shares in accordance with such procedures as the Trustees may determine from time to time. The conversion of class B shares to class A shares is subject to the condition that such conversions will not constitute taxable events for federal tax purposes. Shareholders should consult with their tax advisers regarding the state and local tax consequences of the conversion of class B shares to class A shares, or any other exchange or conversion of shares. Average annual total return performance information for class B shares shown in the fund's prospectus assumes conversion to class A shares after the applicable period described in the fund’s prospectus.

 

Conversion of class C shares into class A shares. Class C shares will automatically convert to class A shares during the month eight years after the purchase date, provided that Putnam Investor Services, or the financial intermediary through which a shareholder purchased class C shares has records verifying that the class C shares have been held for at least eight years, and that class A shares are available for purchase by residents in the shareholder’s jurisdiction. In certain cases, records verifying that the class C shares have been held for at least eight years may not be available (for example, participant level share lot aging may not be tracked by

August 30, 2023  II-8  
 

group retirement plan recordkeeping platforms through which class C shares of the fund are held in an omnibus account). If such records are unavailable, Putnam Investor Services or the relevant financial intermediary may not effect the conversion or may effect the conversion on a different schedule determined by Putnam Investor Services or the financial intermediary, which may be shorter or longer than eight years. Class C shares acquired by exchanging class C shares of another Putnam Fund will convert to class A shares based on the time of the initial purchase. Any CDSC for such shares will be calculated using the schedule of the fund into or from which shares have been exchanged that would result in the highest CDSC applicable to such shares. Class C shares acquired through reinvestment of distributions will convert to class A shares based on the date of the initial purchase to which such shares relate. For this purpose, class C shares acquired through reinvestment of distributions will be attributed to particular purchases of class C shares in accordance with such procedures as the Trustees may determine from time to time. The conversion of class C shares to class A shares is subject to the condition that such conversions will not constitute taxable events for federal tax purposes. Shareholders should consult with their tax advisers regarding the state and local tax consequences of the conversion of class C shares to class A shares, or any other exchange or conversion of shares. Prior to March 1, 2021, class C shares converted to class A shares after ten years.

 

Sales without sales charges or contingent deferred sales charges

 

In addition to the categories of investors eligible to purchase fund shares without a sales charge or CDSC set forth in the fund’s prospectus, in connection with settlements reached between certain firms and the Financial Industry Regulatory Authority (“FINRA”) and/or Securities and Exchange Commission (the “SEC”) regarding sales of class B and class C shares in excess of certain dollar thresholds, the fund will permit shareholders who are clients of these firms (and applicable affiliates of such firms) to redeem class B and class C shares of the fund and concurrently purchase class A shares (in an amount to be determined by the dealer of record and Putnam Retail Management in accordance with the terms of the applicable settlement) without paying a sales charge.

 

The fund may issue its shares at net asset value without an initial sales charge or a CDSC in connection with the acquisition of substantially all of the securities owned by other investment companies or personal holding companies. The CDSC will be waived on redemptions to pay premiums for insurance under Putnam’s insured investor program.

 

In the case of certain sales charge waivers described in the prospectus to (i) current and former Trustees of the fund, their family members, business and personal associates; current and former employees of Putnam Management and certain current and former corporate affiliates, their family members, business and personal associates; employer-sponsored retirement plans for the foregoing; and partnerships, trusts or other entities in which any of the foregoing has a substantial interest and (ii) shareholders reinvesting the proceeds from a Putnam Corporate IRA Plan distribution into a nonretirement plan account, the availability of shares at NAV has been determined to be appropriate because involvement by Putnam Retail Management and other brokers in purchases by these investors is typically minimal.

 

As described in the prospectus, specific sales charge waivers may be available through your particular financial intermediary. Please see the prospectus for additional information about financial intermediary-specific waivers.

 

Application of CDSC to Systematic Withdrawal Plans (“SWP”). The SWP provisions relating to CDSC waivers described below do not apply to customers purchasing shares of the fund through a Specified Intermediary, unless otherwise specified in the Appendix to the fund’s prospectus. Please refer to the Appendix to the fund’s prospectus for the SWP provisions that are applicable to each Specified Intermediary.

 

August 30, 2023  II-9  
 

Investors who set up a SWP for a share account (see "INVESTOR SERVICES — Plans Available to Shareholders -- Systematic Withdrawal Plan") may withdraw through the SWP up to 12% of the net asset value of the account (calculated as set forth below) each year without incurring any CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 12% limitation. If there are insufficient shares not subject to a CDSC, shares subject to the lowest CDSC liability will be redeemed next until the 12% limit is reached. The 12% figure is calculated on a pro rata basis at the time of the first payment made pursuant to an SWP and recalculated thereafter on a pro rata basis at the time of each SWP payment. Therefore, shareholders who have chosen an SWP based on a percentage of the net asset value of their account of up to 12% will be able to receive SWP payments without incurring a CDSC. However, shareholders who have chosen a specific dollar amount (for example, $100 per month from the fund that pays income distributions monthly) for their periodic SWP payment should be aware that the amount of that payment not subject to a CDSC may vary over time depending on the net asset value of their account. For example, if the net asset value of the account is $10,000 at the time of payment, the shareholder will receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly payments). However, if at the time of the next payment the net asset value of the account has fallen to $9,400, the shareholder will receive $94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and $6 subject to the lowest applicable CDSC. This SWP privilege may be revised or terminated at any time.

 

Other exceptions to application of CDSC. For purposes of the waiver categories set forth in subparagraphs (ii) – (iv) of the fund’s prospectus under the sub-section Additional reductions and waivers of sales charges – Class A, class B and class C shares, shares not subject to a CDSC are redeemed first in determining whether the CDSC applies to each redemption.

 

For purposes of the waiver categories set forth in subparagraph (v) of the fund’s prospectus under the sub-section Additional reductions and waivers of sales charges – Class A, Class B and Class C shares, Benefit Payments currently include, without limitation, (1) distributions from an IRA due to death or post-purchase disability, (2) a return of excess contributions to an IRA or 401(k) plan, and (3) distributions from retirement plans qualified under Section 401(a) of the Code or from a 403(b) plan due to death, disability, retirement or separation from service. These waivers may be changed at any time.

 

Ways to Reduce Initial Sales Charges—Class A, Class M and Class N Shares

 

There are several ways in which an investor may obtain reduced sales charges on purchases of class A shares, class M shares and class N shares. These provisions may be altered or discontinued at any time. The breakpoint discounts described below do not apply to customers purchasing shares of the fund through any of the financial intermediaries specified in the Appendix to the fund’s prospectus (each, a “Specified Intermediary”). Please refer to the Appendix to the fund’s prospectus for the breakpoint discounts that are applicable to each Specified Intermediary.

 

Right of accumulation. A purchaser of class A shares, class M shares or class N shares may qualify for a right of accumulation discount by combining all current purchases by such person with the value of certain other shares of any class of Putnam Funds already owned. The applicable sales charge is based on the total of:

 

(i) the investor's current purchase(s); and

 

(ii) the higher of (x) the maximum offering price (at the close of business on the previous day) or (y) the initial value of total purchases (less the value of shares redeemed on the applicable redemption date) of:

 

August 30, 2023  II-10  
 
  (a) all shares held in accounts registered to the investor and other accounts eligible to be linked to the investor’s accounts (as described below) in all of the Putnam Funds (except closed-end and money market funds, unless acquired as described in (b) below); and
  (b) any shares of money market funds acquired by exchange from other Putnam Funds.

 

For shares held on December 31, 2007, the initial value will be the value of those shares at the maximum offering price on that date.

 

The following persons may qualify for a right of accumulation discount:

 

(i) an individual, or a "company" as defined in Section 2(a)(8) of the Investment Company Act of 1940, as amended (the “1940 Act”) (which includes corporations which are corporate affiliates of each other);

 

(ii) an individual, his or her spouse and their children who were under age 21 at the time of the investor’s initial purchase, as well as any individual with an account registered under the same last name and same address as the individual, purchasing for his, her or their own account;

 

(iii) a trustee or other fiduciary purchasing for a single trust estate or single fiduciary account (including a pension, profit-sharing, or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code and Simplified Employer Pension Plans (SEPs) created pursuant to Section 408(k) of the Code);

 

(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the Code, (not including tax-exempt organizations qualifying under Section 403(b)(7) (a "403(b) plan") of the Code; and

 

(v) employer-sponsored retirement plans of a single employer or of affiliated employers, other than 403(b) plans.

 

A combined purchase currently may also include shares of any class of other continuously offered Putnam Funds (other than money market funds, Putnam Multi-Asset Income Fund, and class A shares of Putnam Ultra Short Duration Income Fund) purchased at the same time, if the dealer places the order for such shares directly with Putnam Retail Management.

 

For individual investors, Putnam Investor Services automatically links accounts the registrations of which are under the same last name and address. Account types eligible to be linked for the purpose of qualifying for a right of accumulation discount include the following (in each case as registered to the investor, his or her spouse and his or her children who were under the age of 21 at the time of the investor’s initial purchase):

 

  (i) individual accounts;
  (ii) joint accounts;
  (iii) accounts established as part of a plan established pursuant to Section 403(b) of the Code (“403(b) plans”) or an IRA other than a SIMPLE IRA, SARSEP or SEP IRA;
  (iv) shares owned through accounts in the name of the investor’s (or spouse’s or child’s) dealer or other financial intermediary (with documentation identifying to the satisfaction of Putnam Investor Services the beneficial ownership of such shares); and
  (v) accounts established as part of a Section 529 college savings plan managed by Putnam Management.
August 30, 2023  II-11  
 

Shares owned by a plan participant as part of an employer-sponsored retirement plan of a single employer or of affiliated employers (other than 403(b) plans) or a single fiduciary account opened by a trustee or other fiduciary (including a pension, profit-sharing, or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code) are not eligible for linking to other accounts attributable to such person to qualify for the right of accumulation discount, although all current purchases made by each such plan may be combined with existing aggregate balances of such plan in Putnam Funds for purposes of determining the sales charge applicable to shares purchased at such time by the plan.

 

To obtain the right of accumulation discount on a purchase through an investment dealer, when each purchase is made the investor or dealer must provide Putnam Retail Management with sufficient information to verify that the purchase qualifies for the privilege or discount. The shareholder must furnish this information to Putnam Investor Services when making direct cash investments. Sales charge discounts under a right of accumulation apply only to current purchases. No credit for right of accumulation purposes is given for any higher sales charge paid with respect to previous purchases for the investor’s account or any linked accounts.

 

Statement of Intention. Investors may also obtain the reduced sales charges for class A, class M or class N shares shown in the prospectus for investments of a particular amount by means of a written Statement of Intention (also referred to as a Letter of Intention), which expresses the investor's intention to invest that amount (including certain "credits," as described below) within a period of 13 months in shares of any class of the fund or any other continuously offered Putnam Fund (excluding Putnam money market funds, Putnam Multi-Asset Income Fund, and Putnam Ultra Short Duration Income Fund), including through an account established as part of a Section 529 college savings plan managed by Putnam Management. Each purchase of class A shares, class M shares or class N shares under a Statement of Intention will be made at the lesser of (i) the offering price applicable at the time of such purchase and (ii) the offering price applicable on the date the Statement of Intention is executed to a single transaction of the total dollar amount indicated in the Statement of Intention.

 

An investor may receive a credit toward the amount indicated in the Statement of Intention equal to the maximum offering price as of the close of business on the previous day of all shares he or she owns, or which are eligible to be linked for purposes of the right of accumulation described above, on the date of the Statement of Intention which are eligible for purchase under a Statement of Intention (plus any shares of money market funds and Putnam Ultra Short Duration Income Fund acquired by exchange of such eligible shares, and any class N shares of Putnam Ultra Short Duration Income Fund). Investors do not receive credit for shares purchased by the reinvestment of distributions. Investors qualifying for the "combined purchase privilege" (see above) may purchase shares under a single Statement of Intention.

 

The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount, and must be invested immediately. Class A shares, class M shares or class N shares purchased with the first 5% of such amount will be held in escrow to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased. When the full amount indicated has been purchased, the escrow will be released. If an investor desires to redeem escrowed shares before the full amount has been purchased, the shares will be released from escrow only if the investor pays the sales charge that, without regard to the Statement of Intention, would apply to the total investment made to date.

 

If an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge will be adjusted for the entire amount purchased at the end of the 13-month period, upon recovery by Putnam Retail Management from the investor's dealer of its portion of the sales charge adjustment. Once received from the dealer, which may take a period of time or may never occur, the sales charge adjustment will be used to purchase additional shares at the then current offering price applicable to the actual amount of the aggregate purchases. These additional shares will not be considered as part of the total investment for the purpose of determining the applicable sales charge pursuant to the

August 30, 2023  II-12  
 

Statement of Intention. No sales charge adjustment will be made unless and until the investor's dealer returns to Putnam Retail Management any excess commissions previously received.

 

If an investor purchases less than the dollar amount indicated on the Statement of Intention within the 13-month period, the sales charge will be adjusted upward for the entire amount purchased at the end of the 13-month period. This adjustment will be made by redeeming shares from the account to cover the additional sales charge, the proceeds of which will be paid to the investor's dealer and Putnam Retail Management. Putnam Retail Management will make a corresponding downward adjustment to the amount of the reallowance payable to the dealer with respect to purchases made prior to the investor’s failure to fulfill the conditions of the Statement of Intention. If the account exceeds an amount that would otherwise qualify for a reduced sales charge, that reduced sales charge will be applied. Adjustments to sales charges and dealer reallowances will not be made in the case of the shareholder’s death prior to the expiration of the 13-month period.

 

Statements of Intention are not available for certain employer-sponsored retirement plans.

 

Statement of Intention forms may be obtained from Putnam Retail Management or from investment dealers. In addition, shareholders may complete the applicable portion of the fund’s standard account application. Interested investors should read the Statement of Intention carefully.

 

DISTRIBUTION PLANS

 

If the fund or a class of shares of the fund has adopted a distribution (12b-1) plan, the prospectus describes the principal features of the plan. This SAI contains additional information which may be of interest to investors.

 

Continuance of a plan is subject to annual approval by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the fund and who have no direct or indirect interest in the plan or related arrangements (the "Qualified Trustees"), cast in person at a meeting called for that purpose. All material amendments to a plan must be likewise approved by the Trustees and the Qualified Trustees. No plan may be amended in order to increase materially the costs which the fund may bear for distribution pursuant to such plan without also being approved by a majority of the outstanding voting securities of the fund or the relevant class of the fund, as the case may be. A plan terminates automatically in the event of its assignment and may be terminated without penalty, at any time, by a vote of a majority of the Qualified Trustees or by a vote of a majority of the outstanding voting securities of the fund or the relevant class of the fund, as the case may be.

 

The fund makes payments under each plan to Putnam Retail Management to compensate Putnam Retail Management for services provided and expenses incurred by it for purposes of promoting the sale of the relevant class of shares, reducing redemptions of shares or maintaining or improving services provided to shareholders by Putnam Retail Management and investment dealers.

 

Putnam Retail Management compensates qualifying dealers (including, for this purpose, certain financial institutions) for sales of shares and the maintenance of shareholder accounts.

Putnam Retail Management may suspend or modify its payments to dealers. The payments are also subject to the continuation of the relevant distribution plan, the terms of the service agreements between the dealers and Putnam Retail Management and any applicable limits imposed by FINRA. Unless noted below or where Putnam Retail Management and the applicable dealer have agreed otherwise, these payments commence in the first year after purchase.

 

Financial institutions receiving payments from Putnam Retail Management as described above may be required to comply with various state and federal regulatory requirements, including among others those regulating the activities of securities brokers or dealers.

 

August 30, 2023  II-13  
 

Except as otherwise agreed between Putnam Retail Management and a dealer, for purposes of determining the amounts payable to dealers for shareholder accounts for which such dealers are designated as the dealer of record, "average net asset value" means the product of (i) the average daily share balance in such account(s) and (ii) the average daily net asset value of the relevant class of shares over the quarter.

 

Class A shares:

 

Putnam Retail Management makes quarterly (or in certain cases monthly) payments to dealers at up to the annual rates set forth below (as a percentage of the average net asset value of class A shares for which such dealers are designated the dealer of record) except as described below. No payments are made during the first year after purchase on shares purchased at net asset value by shareholders that invest at least the amount required to be eligible for the highest sales charge breakpoint as disclosed in the fund’s prospectus, unless, in the case of dealers of record for an employer-sponsored retirement plan investing at least $1 million, where such dealer has agreed to a reduced sales commission. In addition, no payments are made during the first year after purchase for shares purchased prior to April 1, 2017 where PRM has paid a commission as described above in “Commissions on Sales to Employee Retirement Plans.”

 

Rate* Fund
Effective July 1, 2020:
0.25% All funds currently making payments under a class A distribution plan, except for those listed below
0.10% Putnam Ultra Short Duration Income Fund
0.00%

Putnam Government Money Market Fund

Putnam Money Market Fund

Prior to July 1, 2020:
0.25% All funds currently making payments under a class A distribution plan, except for those listed below

0.20% for shares purchased before 3/21/05;

0.25% for shares purchased on or after 3/21/05**

Putnam Tax-Free High Yield Fund

0.20% for shares purchased before 4/1/05;

0.25% for shares purchased on or after 4/1/05

Putnam Strategic Intermediate Municipal Fund
0.20% for shares purchased on or before 12/31/89; 0.25% for shares purchased after 12/31/89

Putnam Convertible Securities Fund

George Putnam Balanced Fund

Putnam Focused International Equity Fund

Putnam Global Health Care Fund

0.20% for shares purchased on or before 3/31/90; 0.25% for shares purchased after 3/31/90 Putnam Mortgage Securities Fund

0.20% for shares purchased on or before 1/1/90;

0.25% for shares purchased after 1/1/90

Putnam Large Cap Value Fund
0.20% for shares purchased on or before 3/31/91; 0.25% for shares purchased after 3/31/91; Putnam Income Fund
0.10% Putnam Ultra Short Duration Income Fund

0.20% for shares purchased after 3/6/92 but before 4/1/05;

0.25% for shares purchased on or after 4/1/05

Putnam Minnesota Tax Exempt Income Fund

Putnam Ohio Tax Exempt Income Fund

August 30, 2023  II-14  
 

 

Rate* Fund

0.15% for shares purchased on or before 5/11/92; 0.20% for shares purchased after 5/11/92 but before 4/1/05;

0.25% for shares purchased on or after 4/1/05

Putnam Massachusetts Tax Exempt Income Fund

0.15% for shares purchased on or before 12/31/92; 0.20% for shares purchased after 12/31/92 but before 4/1/05;

0.25% for shares purchased on or after 4/1/05

Putnam California Tax Exempt Income Fund

Putnam New Jersey Tax Exempt Income Fund

Putnam New York Tax Exempt Income Fund

Putnam Tax Exempt Income Fund

0.15% for shares purchased on or before 7/8/93; 0.20% for shares purchased after 7/8/93 but before 4/1/05;

0.25% for shares purchased on or after 4/1/05

Putnam Pennsylvania Tax Exempt Income Fund
0.00%

Putnam Government Money Market Fund

Putnam Money Market Fund

 

*For purposes of this table, shares are deemed to be purchased on date of settlement (i.e., once purchased and paid for). Shares issued in connection with dividend reinvestments are considered to be purchased on the date of their issuance, not the issuance of the original shares.

 

**Shares of Putnam Tax-Free High Yield Fund issued in connection with the merger of Putnam Municipal Income Fund into that fund pay a commission at the annual rate of 0.20% or 0.25%, based on the date of the original purchase of the shareholder’s corresponding shares of Putnam Municipal Income Fund, as set forth below: 0.20% for shares purchased on or before 5/7/92; 0.25% for shares purchased after 5/7/92.

 

Class B shares:

 

Putnam Retail Management makes quarterly (or in certain cases monthly) payments to dealers at the annual rates set forth below (as a percentage of the average net asset value of class B shares for which such dealers are designated the dealer of record).

 

Rate Fund
0.25% All funds currently making payments under a class B distribution plan, except for those listed below
0.25%, except that the first years’ service fees of 0.25% are prepaid at time of sale

Putnam Strategic Intermediate Municipal Fund

Putnam Tax-Free High Yield Fund

0.20%, except that the first years’ service fees of 0.20% are prepaid at time of sale

Putnam California Tax Exempt Income Fund

Putnam Massachusetts Tax Exempt Income Fund

Putnam Minnesota Tax Exempt Income Fund

Putnam New Jersey Tax Exempt Income Fund

Putnam New York Tax Exempt Income Fund

Putnam Ohio Tax Exempt Income Fund

Putnam Pennsylvania Tax Exempt Income Fund

Putnam Tax Exempt Income Fund

0.00%

Putnam Government Money Market Fund

Putnam Money Market Fund

Putnam Ultra Short Duration Income Fund

August 30, 2023  II-15  
 

Class C shares:

 

Putnam Retail Management makes quarterly (or in certain cases monthly) payments to dealers at the annual rates set forth below (as a percentage of the average net asset value of class C shares for which such dealers are designated the dealer of record). No payments are made during the first year after purchase unless the shares were initially purchased without a CDSC, except that payments for Putnam Money Market Fund, Putnam Government Money Market Fund and Putnam Ultra Short Duration Income Fund will be made beginning in the first year.

 

Rate Fund
1.00% All funds currently making payments under a class C distribution plan, except for those listed below
0.50%

Putnam Government Money Market Fund *

Putnam Money Market Fund*

Putnam Ultra Short Duration Income Fund

 

* Putnam Money Market Fund and Putnam Government Money Market Fund limit the 12b-1 fees payable by class C shares to 0.00% of the average net asset value of class C shares for which such dealers are designated the dealer of record.

 

Different rates may apply to shares sold outside the United States.

 

Class M shares:

 

Putnam Retail Management makes quarterly (or in certain cases monthly) payments to dealers at the annual rates set forth below (as a percentage of the average net asset value of class M shares for which such dealers are designated the dealer of record).

 

Rate Fund
0.65% George Putnam Balanced Fund
0.40% Putnam Diversified Income Trust, Putnam High Yield Fund and Putnam Income Fund

 

Putnam Retail Management’s payments to dealers for plans investing in class M shares for which such dealers are designated the dealer of record may equal up to the annual rate of 0.75% of the average net asset value of such class M shares for George Putnam Balanced Fund and up to the annual rate of 0.50% of the average net asset value of such class M shares for Putnam Diversified Income Trust, Putnam Global Income Trust, Putnam High Yield Fund, Putnam Income Fund, and Putnam Mortgage Securities Fund.

 

Different rates may apply to shares sold outside the United States.

 

August 30, 2023  II-16  
 

Class N shares:

 

Putnam Retail Management makes quarterly (or in certain cases monthly) payments to dealers at the annual rate set forth below (as a percentage of the average net asset value of class N shares for which such dealers are designated the dealer of record).

 

Rate Fund
0.25% All funds currently making payments under a class N distribution plan

 

Class R shares:

 

Putnam Retail Management makes quarterly (or in certain cases monthly) payments to dealers at up to the annual rate set forth below (as a percentage of the average net asset value of class R shares for which such dealers are designated the dealer of record). No payments are made to dealers during the first year after purchase, with respect to shares purchased before April 1, 2017, if Putnam Retail Management paid a commission to the dealer at purchase as described above in “Commissions on Sales to Employee Retirement Plans.”

 

Rate Fund
0.50%

All funds currently making payments under a class R distribution plan*

 

 

* Putnam Money Market Fund and Putnam Government Money Market Fund limit the 12b-1 fees payable by class R shares to 0.00% of the average net asset value of class R shares for which such dealers are designated the dealer of record.

 

A portion of the class R distribution fee payable to dealers may be paid to third parties who provide services to plans investing in class R shares, and participants in such plans.

 

Class R3 shares:

 

Putnam Retail Management makes quarterly (or in certain cases monthly) payments to dealers at up to the annual rate set forth below (as a percentage of the average net asset value of class R3 shares for which such dealers are designated the dealer of record).

 

Rate Fund
0.25% All funds currently making payments under a class R3 distribution plan

 

August 30, 2023  II-17  
 

A portion of the class R3 distribution fee payable to dealers may be paid to third parties who provide services to plans investing in class R3 shares and participants in such plans.

 

Additional Dealer Payments

 

As described earlier in this section, dealers may receive different commissions, sales charge reallowances and other payments with respect to sales of different classes of shares of the funds. These payments may include servicing payments to retirement plan administrators and other institutions up to the same levels as described above. For purposes of this section the term “dealer” includes any broker, dealer, bank, bank trust department, registered investment advisor, financial planner, retirement plan administrator and any other institution having a selling, services, or any similar agreement with Putnam Retail Management or one of its affiliates.

 

Putnam Retail Management and its affiliates pay additional compensation to selected dealers under the categories described below. These categories are not mutually exclusive, and a single dealer may receive payments under all categories. These payments may create an incentive for a dealer firm or its representatives to recommend or offer shares of the fund or other Putnam Funds to its customers. These additional payments are made pursuant to agreements with dealers and do not change the price paid by investors for the purchase of a share or the amount a fund will receive as proceeds from such sales or the distribution (12b-1) fees and the expenses paid by the fund as shown under the heading “Fees and Expenses” in the prospectus.

 

Marketing Support Payments. Putnam Retail Management and its affiliates make payments to certain dealers for marketing support services. These payments are individually negotiated with each dealer firm, taking into account the marketing support services provided by the dealer, including business planning assistance, educating dealer personnel about the Putnam Funds and shareholder financial planning needs, placement on the dealer’s preferred or recommended fund company list, access to sales meetings, sales representatives and management representatives of the dealer, market data, as well as the size of the dealer’s relationship with Putnam Retail Management. Putnam Retail Management and its affiliates compensate dealers differently depending upon, among other factors, the level and/or type of marketing support provided by the dealer. Payments are generally based on one or more of the following factors: average net assets of Putnam’s retail mutual funds attributable to that dealer, gross or net sales of Putnam’s retail mutual funds attributable to that dealer, reimbursement of ticket charges (fees that a dealer firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment for services rendered. In addition, payments typically apply to retail sales and assets, but may not, in certain situations, apply to other specific types of sales or assets, such as to retirement plans or fee-based advisory programs.

 

Although the total of marketing support payments made to dealers in any year may vary, on average, the aggregate payments are not expected, on an annual basis, to exceed 0.085% of the average assets of Putnam’s retail mutual funds attributable to the dealers.

 

The following dealers (and such dealers’ respective affiliates) received marketing support payments from Putnam Retail Management and its affiliates during the calendar year ended December 31, 2022:

 

American Enterprise Investment Services Inc. Merrill Lynch, Pierce, Fenner & Smith, Inc.
Ascensus, Inc. Morgan Stanley Smith Barney LLC
Avantax Investment Services, Inc. OneAmerica Securities, Inc.
AXA Advisors, LLC Principal Life Insurance Company
Cambridge Investment Research, Inc. Raymond James & Associates, Inc.
Cetera Advisor Networks LLC Raymond James Financial Services, Inc.
Cetera Advisors LLC RBC Capital Markets, LLC
Cetera Financial Specialists LLC Resources Investment Advisors, LLC
Cetera Investment Services LLC Retirement Plan Advisory Group
Citigroup Global Markets Inc. Royal Alliance Associates
August 30, 2023  II-18  
 

 

Commonwealth Equity Services SagePoint Financial, Inc.
Empower Annuity Insurance Company of America Securities America, Inc.
First Allied Securities, Inc. Stifel, Nicolaus & Company, Incorporated
FSC Securities Corporation Teachers Insurance and Annuity Association of America
HUB International Limited Transamerica Retirement Solutions, LLC
J.P. Morgan Securities LLC Triad Advisors, LLC
Janney Montgomery Scott LLC UBS Financial Services, Inc.
John Hancock Retirement Plan Services, LLC Vanguard Marketing Corporation
Kestra Investment Services, LLC Voya Financial Advisors, Inc.
Lincoln Financial Advisors Corp. Wells Fargo Clearing Services, LLC
Lincoln Financial Distributors, Inc. Woodbury Financial Services, Inc
Lincoln Financial Securities Corporation XPonential Growth Solutions
LPL Financial LLC  

 

Additional dealers may receive marketing support payments in 2023 and in future years. Any additions, modifications or deletions to the list of dealers identified above that have occurred since December 31, 2022 are not reflected. You can ask your dealer about any payments it receives from Putnam Retail Management and its affiliates.

 

Program Servicing Payments. Putnam Retail Management and its affiliates also make payments to certain dealers that sell Putnam Fund shares through dealer platforms and other investment programs to compensate dealers for a variety of services they provide. A dealer may perform program services itself or may arrange with a third party to perform program services. In addition to shareholder recordkeeping, reporting, or transaction processing, program services may include services rendered in connection with dealer platform development and maintenance, fund/investment selection and monitoring, or other similar services. Payments by Putnam Retail Management and its affiliates for program servicing support to any one dealer are not expected, with certain limited exceptions, to exceed 0.20% of the total assets in the program on an annual basis. In addition, Putnam Retail Management and its affiliates make one-time or annual payments to selected dealers receiving program servicing payments in reimbursement of printing costs for literature for shareholders, account maintenance fees or fees for establishment of Putnam Funds on the dealer’s system. The amounts of these payments may, but will not normally (except in cases where the aggregate assets in the program are small), cause the aggregate amount of the program servicing payments to such dealer on an annual basis to exceed the amounts set forth above.

 

The following dealers (and such dealers’ respective affiliates) received program servicing payments from Putnam Retail Management and its affiliates during the calendar year ended December 31, 2022:

 

Charles Schwab & Co., Inc. RBC Capital Markets, LLC
Empower Financial Services, Inc. TD Ameritrade, Inc.
Merrill Lynch, Pierce, Fenner & Smith, Inc. TD Ameritrade Clearing, Inc.
National Financial Services LLC Transamerica Advisors Life Insurance Company
Pershing LLC  

 

Additional or different dealers may also receive program servicing payments in 2023 and in future years. Any additions, modifications or deletions to the list of dealers identified above that have occurred since December 31, 2022 are not reflected. You can ask your dealer about any payments it receives from Putnam Retail Management and its affiliates.

 

Other Payments. From time to time, Putnam Retail Management, at its expense, may provide additional compensation to dealers which sell or arrange for the sale of shares of the fund to the extent not prohibited by laws or the rules of any self-regulatory agency, such as FINRA. Such compensation provided by Putnam Retail Management may include financial assistance to dealers that enables Putnam Retail Management to participate

August 30, 2023  II-19  
 

in and/or present at dealer-sponsored conferences or seminars, sales or training programs for invited registered representatives and other dealer employees, dealer entertainment, and other dealer-sponsored events, and travel expenses, including lodging incurred by registered representatives and other employees in connection with prospecting, retention and due diligence trips. Putnam Retail Management makes payments for entertainment events it deems appropriate, subject to Putnam Retail Management’s internal guidelines and applicable law. These payments may vary upon the nature of the event.

 

Sub-accounting payments. Certain dealers or other financial intermediaries also receive payments from Putnam Investor Services or its affiliates in recognition of sub-accounting or other services they provide to shareholders or plan participants who invest in the fund or other Putnam Funds through their retirement plan. The amount paid for these services varies depending on the share class selected and by dealer or other financial intermediary, and may also take into account the extent to which the services provided by the dealer replace services that Putnam Investor Services or its affiliates would otherwise have to provide. Payments in respect of class R3 and class R4 shares are generally made at an annual rate of up to 0.25% of a fund’s average net assets attributable to such class of shares held by a dealer or other financial intermediary. Payments in respect of class R5 shares are generally made at an annual rate of up to 0.10% of a fund’s average net assets attributable to class R5 shares held by a dealer or other financial intermediary, except that an annual rate of up to 0.07% of a fund’s average net assets attributable to class R5 shares held by a dealer or other financial intermediary applies to Putnam Dynamic Asset Allocation Conservative Fund, Putnam Global Income Trust, Putnam Income Fund and Putnam Ultra Short Duration Income Fund. There are no such payments in respect of class R6 shares. Payments for other classes vary. See the discussion under the heading “MANAGEMENT – Investor Servicing Agent” for more details.

 

You can ask your dealer for information about payments it receives from Putnam Retail Management or its affiliates and the services it provides for those payments.

 

MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS

 

As noted in the prospectus, in addition to the main investment strategies and the principal risks described in the prospectus, the fund may employ other investment practices and may be subject to other risks, which are described below. Because the following is a combined description of investment strategies of all of the Putnam Funds, certain matters described herein may not apply to your fund. Unless a strategy or policy described below is specifically prohibited or limited by the investment restrictions discussed in the fund’s prospectus or in this SAI, or by applicable law, the fund may engage in each of the practices described below without limit. This section contains information on the investments and investment practices listed below. With respect to funds for which Putnam Investments Limited (“PIL”) and/or The Putnam Advisory Company, LLC (“PAC”) serve as sub-adviser (as described in the fund’s prospectus), references to Putnam Management in this section include PIL and PAC, as appropriate.

 

Bank Loans, Loan Participations, and Assignments Market Risk
Borrowing and Other Forms of Leverage Master Limited Partnerships (MLPs)
Collateralized Debt and Loan Obligations Money Market Instruments
Commodities and Commodity-Related Investments Mortgage-backed and Asset-backed Securities
Derivatives Options on Securities
ESG Considerations Preferred Stocks and Convertible Securities
Exchange-Traded Notes Private Placements and Restricted Securities
Floating Rate and Variable Rate Demand Notes Real Estate Investment Trusts (REITs)
Foreign Currency Transactions Redeemable Securities
Foreign Investments and Related Risks Repurchase Agreements
Forward Commitments and Dollar Rolls Securities Loans
Futures Contracts and Related Options Securities of Other Investment Companies
Hybrid Instruments Short Sales
Illiquid Investments Short-Term Trading
August 30, 2023  II-20  
 

 

Inflation-Protected Securities Special Purpose Acquisition Companies
Initial Public Offerings (IPOs) Structured Investments
Interfund Borrowing and Lending Swap Agreements
Inverse Floaters Tax-exempt Securities
Legal and Regulatory Risk Relating to Investment Strategy Temporary Defensive Strategies
London Interbank Offered Rate (LIBOR) Warrants
Lower-rated Securities Zero-coupon and Payment-in-kind Bonds

 

Bank Loans, Loan Participations, and Assignments

 

The fund may invest in bank loans. Bank loans are typically senior debt obligations of borrowers (issuers) and, as such, are considered to hold a senior position in the capital structure of the borrower. These may include loans that hold the most senior position, that hold an equal ranking with other senior debt, or loans that are, in the judgment of Putnam Management, in the category of senior debt of the borrower. This capital structure position generally gives the holders of these loans a priority claim on some or all of the borrower’s assets in the event of a default. Many loans are either partially or fully secured by the assets of the borrower, and some impose restrictive covenants which must be met by the borrower, although these covenants have become less common, and the terms of covenants have eroded, in recent years. Loans are typically made by a syndicate of banks, represented by an agent bank which has negotiated and structured the loan and which is responsible generally for collecting interest, principal, and other amounts from the borrower on its own behalf and on behalf of the other lending institutions in the syndicate, and for enforcing its and their other rights against the borrower. Each of the lending institutions, including the agent bank, lends to the borrower a portion of the total amount of the loan, and retains the corresponding interest in the loan.

 

By purchasing a loan, the fund acquires some or all of the interest of a bank or other lending institution in a loan to a particular borrower. The fund may acquire a loan interest directly by acting as a member of the original lending syndicate. The fund may also invest in a loan in other ways, including through novations, assignments and participating interests. In a novation, the fund assumes all of the rights of a lending institution in a loan, including the right to receive payments of principal and interest and other amounts directly from the borrower and to enforce its rights as a lender directly against the borrower. The fund assumes the position of a co-lender with other syndicate members. In an assignment, the fund purchases a portion of a lender’s interest in a loan. In this case, the fund may be required generally to rely upon the assigning bank to demand payment and enforce its rights against the borrower, but would otherwise be entitled to all of such bank’s rights in the loan. The fund may also purchase a participating interest in a portion of the rights of a lending institution in a loan. Participation interests typically result in a contractual relationship only with the lending institution, not with the borrower. In such case, the fund will be entitled to receive payments of principal, interest and premium, if any, but will not generally be entitled to enforce its rights directly against the agent bank or the borrower, and must rely for that purpose on the lending institution. In addition, with a participation interest, the fund generally will have no rights of set-off against the borrower, and the fund may not directly benefit from the collateral supporting the loan in which it has purchased the participation.

 

The fund’s ability to receive payments of principal and interest and other amounts in connection with loan interests held by it will depend primarily on the financial condition of the borrower (and, in some cases, the lending institution from which it purchases the loan). Adverse changes in the creditworthiness of the borrower may affect the borrower’s ability to pay principal and interest, and borrowers that are in bankruptcy or restructuring may never pay off their indebtedness, or may pay only a small fraction of the amount owed. The value of collateral, if any, securing a loan can decline, or may be insufficient to meet the borrower’s obligations or difficult to liquidate. In addition, the fund’s access to collateral may be limited by bankruptcy or other insolvency laws. The failure by the fund to receive scheduled interest or principal payments on a loan would adversely affect the income of the fund and would likely reduce the value of its assets, which would be reflected in a reduction in the fund’s net asset value. Banks and other lending institutions generally perform a credit analysis of the borrower before originating a loan or participating in a lending syndicate. In selecting the loan interests in which the fund will invest, however, Putnam Management will not rely solely on that credit

August 30, 2023  II-21  
 

analysis, but will perform its own investment analysis of the borrowers. Putnam Management’s analysis may include consideration of the borrower’s financial strength and managerial experience, debt coverage, additional borrowing requirements or debt maturity schedules, changing financial conditions, and responsiveness to changes in business conditions and interest rates. Putnam Management will generally not have access to non-public information to which other investors in syndicated loans may have access. Because loans in which the fund may invest are not generally rated by independent credit rating agencies, a decision by the fund to invest in a particular loan will depend almost exclusively on Putnam Management’s, and the original lending institution’s, credit analysis of the borrower. Investments in loans may be of any quality, including “distressed” loans, and will be subject to the fund’s credit quality policy. The loans in which the fund may invest include those that pay fixed rates of interest and those that pay floating rates – i.e., rates that adjust periodically based on a known lending rate, such as a bank’s prime rate. To the extent an applicable interest rate is based on LIBOR, the fund will be exposed to certain additional risks. See “London Interbank Offered Rate (LIBOR)” below for more information.

 

The fund will in many cases be required to rely upon the lending institution from which it purchases the loan interest to collect and pass on to the fund such payments and to enforce the fund’s rights under the loan. This may subject the fund to greater delays, expenses, and risks than if the fund could enforce its rights directly against the borrower. For example, an insolvency, bankruptcy or reorganization of the lending institution may delay or prevent the fund from receiving principal, interest and other amounts with respect to the underlying loan. When the fund is required to rely upon a lending institution to pay to the fund principal, interest and other amounts received by it, Putnam Management will also evaluate the creditworthiness of the lending institution.

 

The borrower of a loan in which the fund holds an interest may, either at its own election or pursuant to terms of the loan documentation, prepay amounts of the loan from time to time. The rate of such prepayments may be affected by, among other things, general business and economic conditions, as well as the financial status of the borrower. Prepayment would cause the actual duration of a loan to be shorter than its stated maturity. There is no assurance that the fund will be able to reinvest the proceeds of any loan prepayment at the same interest rate or on the same terms as those of the original loan.

 

Corporate loans in which the fund may invest are generally made to finance internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs and other corporate activities. A significant portion of the corporate loan interests purchased by the fund may represent interests in loans made to finance highly leveraged corporate acquisitions, known as “leveraged buy-out” transactions, leveraged recapitalization loans and other types of acquisition financing. The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse changes in economic or market conditions. The market for bank loans may not be highly liquid. In addition, loan interests generally are subject to restrictions on transfer, and only limited opportunities may exist to sell such interests in secondary markets. As a result, the fund may be unable to sell loan interests at a time when it may otherwise be desirable to do so or may be able to sell them only at a price that is less than their fair market value. The fund may hold investments in loans for a very short period of time when opportunities to resell the investments that Putnam Management believes are attractive arise.

 

Certain of the loan interests acquired by the fund may involve letters of credit, revolving credit facilities, or other standby financing commitments obligating the fund to make additional loans upon demand by the borrower pursuant to the terms specified in the loan documentation. This obligation may have the effect of requiring the fund to increase its investment in a borrower at a time when it would not otherwise have done so. To the extent that the fund is committed to make additional loans under the loan documentation, it will at all times set aside on its books liquid assets in an amount sufficient to meet such commitments.

 

Certain of the loan interests acquired by the fund may also involve loans made in foreign (i.e., non-U.S.) currencies. The fund’s investment in such interests would involve the risks of currency fluctuations described in this SAI with respect to investments in the foreign securities.

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With respect to its management of investments in bank loans, Putnam Management will normally seek to avoid receiving material, non-public information (“Confidential Information”) about the issuers of bank loans being considered for acquisition by the fund or held in the fund’s portfolio. In many instances, borrowers may offer to furnish Confidential Information to prospective investors, and to holders, of the issuer’s loans. Putnam Management’s decision not to receive Confidential Information may place Putnam Management at a disadvantage relative to other investors in loans (which could have an adverse effect on the price the fund pays or receives when buying or selling loans). Also, in instances where holders of loans are asked to grant amendments, waivers or consent, Putnam Management’s ability to assess their significance or desirability may be adversely affected. For these and other reasons, it is possible that Putnam Management’s decision not to receive Confidential Information under normal circumstances could adversely affect the fund’s investment performance.

 

Notwithstanding its intention generally not to receive material, non-public information with respect to its management of investments in loans, Putnam Management may from time to time come into possession of material, non-public information about the issuers of loan interests that may be held in the fund’s portfolio. Possession of such information may in some instances occur despite Putnam Management’s efforts to avoid such possession, but in other instances Putnam Management may choose to receive such information (for example, in connection with participation in a creditors’ committee with respect to a financially distressed issuer). As, and to the extent, required by applicable law, Putnam Management’s ability to trade in these loan interests for the account of the fund could potentially be limited by its possession of such information. Such limitations on Putnam Management’s ability to trade could have an adverse effect on the fund by, for example, preventing the fund from selling a loan interest that is experiencing a material decline in value. In some instances, these trading restrictions could continue in effect for a substantial period of time.

 

In some instances, other accounts managed by Putnam Management or an affiliate may hold other securities issued by borrowers in whose loans the fund may hold an interest. These other securities may include, for example, debt securities that are subordinate to the loan interests held in the fund’s portfolio, convertible debt or common or preferred equity securities. In certain circumstances, such as if the credit quality of the issuer deteriorates, the interests of holders of these other securities may conflict with the interests of the holders of the issuer’s loans. In such cases, Putnam Management may owe conflicting fiduciary duties to the fund and other client accounts. Putnam Management will endeavor to carry out its obligations to all of its clients (including the fund) to the fullest extent possible, recognizing that in some cases certain clients may achieve a lower economic return, as a result of these conflicting client interests, than if Putnam Management’s client accounts collectively held only a single category of the issuer’s securities.

 

The settlement period (the period between the execution of the trade and the delivery of cash to the purchaser) for some bank loan transactions may be significantly longer than the settlement period for other investments, and in some cases longer than seven days. Requirements to obtain the consent of the borrower and/or agent can delay or impede the fund’s ability to sell bank loan interests and can adversely affect the price that can be obtained. It is possible that sale proceeds from bank loan transactions will not be available to meet redemption obligations, in which case the fund may be required to utilize other sources to meet the redemption obligations, such as cash balances or proceeds from the sale of its more liquid investments or investments with shorter settlement periods.

 

Some loan interests may not be considered “securities” for certain purposes under the federal securities laws, and, as a result, purchasers, such as the fund, may not be entitled to rely on the anti-fraud protections of the federal securities laws.

 

If legislation or federal or state regulators impose additional requirements or restrictions on the ability of financial institutions to make loans that are considered highly leveraged transactions, the availability of bank loans for investment by a fund may be adversely affected. In addition, such requirements or restrictions could reduce or eliminate sources of financing for certain borrowers. This would increase the risk of default. If legislation or federal or state regulators require financial institutions to dispose of bank loans that are

August 30, 2023  II-23  
 

considered highly leveraged transactions or subject such bank loans to increased regulatory scrutiny, financial institutions may determine to sell such bank loans. If a fund attempts to sell a bank loan at a time when a financial institution is engaging in such a sale, the price a fund could get for the bank loan may be adversely affected.

 

Borrowing and Other Forms of Leverage

 

The fund may borrow money to the extent permitted by its investment policies and restrictions and by Section 18 of the 1940 Act. When the fund borrows money, it must pay interest and other fees, which will reduce the fund’s returns if such costs exceed the returns on the portfolio securities purchased or retained with such borrowings. In addition, if the fund makes additional investments while borrowings are outstanding, this may be considered a form of leverage.

 

Each Putnam Fund (other than Putnam Retirement Advantage Funds, Putnam Sustainable Retirement Funds, and Putnam Short Term Investment Fund) participates in a committed line of credit provided by State Street Bank and Trust Company and an uncommitted line of credit provided by State Street Bank and Trust Company. These lines of credit are intended to provide a temporary source of cash in extraordinary or emergency circumstances, such as unexpected shareholder redemption requests. The fund may pay a commitment or other fee to maintain a line of credit, in addition to the stated interest rate. Each participating fund in the committed line of credit is required to maintain a specified asset coverage ratio.

 

Leveraging tends to exaggerate the effect of any increase or decrease in the value of the fund’s holding. When the fund borrows money or otherwise leverages its portfolio, the value of an investment in the fund will be more volatile and other investment risks will tend to be compounded. Leveraging also may require that the fund liquidate portfolio securities when it may not be advantageous to do so to satisfy its obligations. Leveraging may expose the fund to losses in excess of the amounts invested. Furthermore, if the fund uses leverage through purchasing derivative instruments, the fund has the risk that losses may exceed the net assets of the fund.

 

Collateralized Debt and Loan Obligations.

 

The fund may invest in collateralized debt obligations (“CDOs”). CDOs are types of asset-backed securitized instruments and include collateralized loan obligations (“CLOs”) and other similarly structured securities. Although certain CDOs may benefit from credit enhancement in the form of a senior-subordinate structure, overcollateralization or bond insurance, such enhancement may not always be present, and may fail to protect a fund against the risk of loss on default of the collateral. CDOs may charge management and administrative fees, which are in addition to those of a fund. CDOs may be less liquid than other types of securities.

 

The risks of an investment in a CDO largely depend on the type of underlying collateral securities and the tranche in which a fund invests. CDOs are subject to the typical risks associated with debt instruments and fixed income and/or asset-backed securities discussed elsewhere in the prospectus and in this SAI, including interest rate risk (which may be exacerbated if the interest rate payable on a structured financing changes based on multiples of changes in interest rates or inversely to changes in interest rates), prepayment risk, credit risk (including adverse credit spread moves), liquidity risk and market risk. CDOs carry additional risks including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments and one or more tranches may be subject to up to 100% loss of invested capital; (ii) the possibility that the quality of the collateral may decline in value or default, due to factors such as the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans, or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral, and the capability of the servicer of the securitized assets (particularly where the underlying collateral in a loan portfolio is not individually assessed prior to purchase); (iii) market and illiquidity risks affecting the price of a structured finance investment, if required to be sold, at the time of sale; and (iv) if the particular structured

August 30, 2023  II-24  
 

product is invested in a security in which a fund is also invested, this would tend to increase the fund’s overall exposure to the credit of the issuer of such securities, at least on an absolute, if not on a relative basis. In addition, due to the complex nature of a CDO, an investment in a CDO may not perform as expected. An investment in a CDO also is subject to the risk that the issuer and the investors may interpret the terms of the instrument differently, giving rise to disputes.

 

A CLO is an obligation of a trust or other special purpose vehicle typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. CLOs may charge management and other administrative fees. Payments of principal and interest are passed through to investors in a CLO and divided into several tranches of rated debt securities, which vary in risk and yield, and typically at least one tranche of unrated subordinated securities, which may be debt or equity (“CLO Securities”). CLO Securities generally receive some variation of principal and/or interest installments and, with the exception of certain subordinated securities, bear different interest rates. If there are defaults or if a CLO’s collateral otherwise underperforms, scheduled payments to senior tranches typically take priority over less senior tranches.

 

CLO Securities may be privately placed and thus subject to restrictions on transfer to meet securities law and other legal requirements. In the event that any fund does not satisfy certain of the applicable transfer restrictions at any time that it holds CLO Securities, it may be forced to sell the related CLO Securities and may suffer a loss on sale. CLO Securities may be considered illiquid investments in the event there is no secondary market for the CLO Securities. CLOs are also subject to the same risks associated with CDOs, as described above.

 

Commodities and Commodity-Related Investments

 

Some funds may gain exposure to commodity markets by investing in physical commodities or commodity-related instruments directly or indirectly. Such instruments include, but are not limited to, futures contracts, swaps, options, forward contracts, and structured notes and equities, debt securities, convertible securities, and warrants of issuers in commodity-related industries.

 

Commodity prices can be extremely volatile and may be directly or indirectly affected by many factors, including changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or currency exchange rates, population growth and changing demographics, war, and factors affecting a particular industry or commodity, such as drought, floods, or other weather conditions or natural disasters, livestock disease, trade embargoes, economic sanctions, competition from substitute products, transportation bottlenecks or shortages, insufficient storage capacity, fluctuations in supply and demand, tariffs, and international regulatory, political, and economic developments (e.g., regime changes and changes in economic activity levels). In addition, some commodities are subject to limited pricing flexibility because of supply and demand factors, and others are subject to broad price fluctuations as a result of the volatility of prices for certain raw materials and the instability of supplies of other materials. In addition, certain commodities (and related derivatives) are susceptible to negative prices due to factors such as supply surpluses caused by global events.

 

Actions of and changes in governments, and political and economic instability, in commodity-producing and -exporting countries may affect the production and marketing of commodities. In addition, commodity-related industries throughout the world are subject to greater political, environmental, and other governmental regulation than many other industries. Changes in government policies and the need for regulatory approvals may adversely affect the products and services of companies in the commodities industries. For example, the exploration, development, and distribution of coal, oil, and gas in the United States are subject to significant federal and state regulation, which may affect rates of return on coal, oil, and gas and the kinds of services that the federal and state governments may offer to companies in those industries. In addition, compliance with environmental and other safety regulations has caused many companies in commodity-related industries to

August 30, 2023  II-25  
 

incur production delays and significant costs. Government regulation also may impede the development of new technologies. The effect of future regulations affecting commodity-related industries cannot be predicted. The value of commodity-related derivatives fluctuates based on changes in the values of the underlying commodity, commodity index, futures contract, or other economic variable to which they are related. Additionally, economic leverage will increase the volatility of these instruments as they may result in gains or losses greater than the amount invested in the instrument. See “Derivatives,” “Forward Commitments and Dollar Rolls,” “Futures Contracts and Related Options,” “Hybrid Instruments,” “Short Sales,” “Structured Investments,” “Swap Agreements” and “Warrants” herein for more information on the fund’s investments in derivatives, including commodity-related derivatives such as swap agreements, commodity futures contracts, and options on commodity futures contracts.

 

In order for a fund to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) the fund must derive at least 90 percent of its gross income each taxable year from certain sources of “qualifying income” specified in the Code. See the “Taxes” sections for more information.

 

Derivatives

 

Certain of the instruments in which the fund may invest, such as futures contracts, certain foreign currency transactions, options, warrants, hybrid instruments, forward contracts, swap agreements and structured investments, are considered to be “derivatives.” Derivatives are financial instruments whose value depends upon, or is derived from, the value or other attributes of one or more underlying investments, pools of investments, indexes or currencies. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to that investment.

 

The value of derivatives may move in unexpected ways due to unanticipated market movements, the use of leverage, imperfect correlation between the derivative instrument and the reference asset, or other factors, especially in unusual market conditions, and volatility in the value of derivatives could adversely impact the fund’s returns, obligations and exposures. Derivatives may be difficult to value and may increase the fund’s transactions costs. The successful use of derivatives depends on the ability to manage these sophisticated instruments. There is no assurance that the fund’s use of derivative instruments will enable the fund to achieve its investment objective or that Putnam Management will be able to predict correctly the direction of securities prices, interest rates, currency exchange rates and other economic factors.

 

The fund’s use of derivatives may cause the fund to recognize higher amounts of short-term capital gains, which are generally taxed to individual shareholders at ordinary income tax rates, and higher amounts of ordinary income, and more generally may affect the timing, character and amount of a fund’s distributions to shareholders. The fund’s use of commodity-linked derivatives can be limited by the fund’s intention to qualify as a “regulated investment company” under the Code or bear adversely on the fund’s ability to so qualify, as discussed in “Taxes” below.

 

The fund’s use of certain derivatives may in some cases involve forms of financial leverage, which means they provide the fund with investment exposure greater than the value of the fund’s investment in the derivatives. The use of leverage involves risk and may increase the volatility of the fund’s net asset value.

 

In its use of derivatives, the fund may take both long positions (the values of which move in the same direction as the prices of the underlying investments, pools of investments, indexes or currencies), and short positions (the values of which move in the opposite direction from the prices of the underlying investments, pools of investments indexes or currencies). Short positions may involve greater risks than long positions, as the risk of loss may be theoretically unlimited (unlike a long position, in which the risk of loss may be limited to the amount invested). The fund may use derivatives that combine “long” and “short” positions in order to capture the difference between underlying investments, pools of investments, indexes or currencies.

August 30, 2023  II-26  
 

 

Some derivatives transactions are required to be centrally cleared and others are available for voluntary clearing. A party to a cleared derivatives transaction is subject to the credit and counterparty risk of the clearing house and the clearing member through which it holds its cleared position. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system or on the fund’s ability to exercise remedies. Also, the fund is subject to risk if it enters into a derivatives transaction that is required to be cleared, and no clearing member is willing or able to clear the transaction on the fund’s behalf.

 

Some derivative contracts may be privately negotiated in the over-the-counter market. These contracts also involve exposure to credit risk, since contract performance depends in part on the financial condition of the counterparty, and counterparty risk, since the counterparty may be unable or unwilling to perform its obligations under the contract for reasons unrelated to its financial condition, such as operational issues, business interruptions or contract disputes. If a privately negotiated over-the-counter contract calls for payments by the fund, the fund must be prepared to make the payments when due. If a counterparty’s creditworthiness declines or the counterparty is otherwise unable or unwilling to perform its obligations under the contract, the fund may not receive payments owed under the contract, or the payments may be delayed and the value of the agreements with the counterparty may decline, potentially resulting in losses to the fund.

 

Derivatives also are subject to the risk that the fund may be delayed or prevented from recovering margin or other amounts deposited with a clearinghouse, futures commission merchant or other counterparty. If the fund has insufficient cash, it may have to sell securities to meet margin requirements at a time when it may be disadvantageous to do so.

 

Other risks arise from the potential inability to terminate or sell derivatives positions. Derivatives may be subject to liquidity risk due to the fund’s obligation to make payments of margin, collateral, or settlement payments to counterparties. A liquid secondary market may not always exist for the fund’s derivatives positions. In fact, certain over-the-counter instruments may be considered illiquid, and it may not be possible for the fund to liquidate a derivative position at an advantageous time or price, which may result in significant losses.

 

Legislation and regulation of derivatives in the U.S. and other countries, including margin, clearing, trading and reporting requirements, and leveraging and position limits, may make derivatives more costly and/or less liquid, limit the availability of certain types of derivatives, cause the Fund to change its use of derivatives, or otherwise adversely affect a Fund’s use of derivatives.

 

Further information about these instruments and the risks involved in their use is included elsewhere in the prospectus and in this SAI.

 

Combined Positions

 

A fund may purchase and write options in combination with each other, or in combination with futures or forward contracts, options on futures contracts, indexed securities, swap agreements or other derivative instruments, to adjust the risk and return characteristics of its overall position. For example, a fund may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.

 

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ESG Considerations

 

A fund may integrate environmental, social, or governance (“ESG”) considerations into its research process and/or investment decision-making. Putnam Management believes that ESG considerations, like other, more traditional subjects of investment analysis such as market position, growth prospects, and business strategy, have the potential to impact risk and returns. The relevance and materiality of ESG considerations in a fund’s process will differ from strategy to strategy, from sector to sector, and from portfolio manager to portfolio manager, and, in some cases (such as where Putnam Management lacks relevant ESG data), ESG considerations may not represent a material component of a fund’s investment process. Other than in the case of Putnam Sustainable Future Fund, Putnam Sustainable Leaders Fund and the Putnam Sustainable Retirement Funds, the consideration of ESG factors as part of a fund’s investment process does not mean that a fund pursues a specific “ESG” or “sustainable” investment strategy, and, depending on the fund, Putnam Management may sometimes make investment decisions other than on the basis of relevant ESG considerations.

 

Exchange-Traded Notes

 

The fund may invest in exchange-traded notes (“ETNs”). An ETN is a type of senior, unsecured, unsubordinated debt security whose returns are linked to the performance of a particular market index or other reference assets less applicable fees and expenses. ETNs are listed on an exchange and traded in the secondary market. Investors may hold the ETN until maturity, at which time the issuer is obligated to pay a return linked to the performance of the relevant market index less applicable fees and expenses. ETNs typically do not make periodic interest payments and principal typically is not protected.

 

The market value of an ETN may be influenced by, among other things, time to maturity, level of supply and demand of the ETN, economic, legal, political or geographic events that affect the reference assets, volatility and lack of liquidity in the reference assets, changes in the applicable interest rates, the current performance of the market index to which the ETN is linked, and the credit rating of the ETN issuer. The market value of an ETN may differ from the performance of the applicable market index, and there may be times when an ETN trades at a premium or discount. This difference in price may be due to the fact that the supply and demand in the market for ETNs at any point in time is not always identical to the supply and demand in the market for the securities underlying the market index that the ETN seeks to track. A change in the issuer’s credit rating may also impact the value of an ETN despite the underlying market index remaining unchanged.

 

ETNs are also subject to tax risk. No assurance can be given that the Internal Revenue Service (the “IRS”) will accept, or a court will uphold, how the fund characterizes and treats ETNs for tax purposes.

 

An ETN that is tied to a specific market index may not be able to replicate and maintain exactly the composition and relative weighting of securities, commodities or other components in the applicable market index. ETNs also incur certain expenses not incurred by their applicable market index, and the fund would bear a proportionate share of any fees and expenses borne by the ETN in which it invests.

 

The fund’s ability to sell its ETN holdings may be limited by the availability of a secondary market. In addition, although an ETN may be listed on an exchange, the issuer may not be required to maintain the listing, and there can be no assurance that a secondary market will exist for an ETN. Some ETNs that use leverage in an effort to amplify the returns of an underlying market index can, at times, be relatively illiquid and may therefore be difficult to purchase or sell at a fair price. Leveraged ETNs may offer the potential for greater return, but the potential for loss and speed at which losses can be realized also are greater. The extent of the fund’s investment in commodity-linked ETNs, if any, is limited by tax considerations. For more information regarding the tax treatment of commodity-linked ETNs, please see “Taxes” below.

 

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ETNs are generally similar to structured investments and hybrid instruments. For discussion of these investments and the risks generally associated with them, see “Hybrid Instruments” and “Structured Investments” in this SAI.

 

Floating Rate and Variable Rate Demand Notes

 

The fund may purchase taxable or tax-exempt floating rate and variable rate demand notes for short-term cash management or other investment purposes. Floating rate and variable rate demand notes are debt instruments that provide for periodic adjustments in the interest rate. The interest rate on these instruments may be reset daily, weekly or on some other reset period and may have a floor or ceiling on interest rate changes. The interest rate of a floating rate instrument may be based on a known lending rate, such as a bank’s prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset at specified intervals at a market rate. To the extent an applicable interest rate is based on LIBOR, the fund will be exposed to certain additional risks. See “London Interbank Offered Rate (LIBOR)” below for more information.

 

Interest rate adjustments are designed to help stabilize the instrument’s price or maintain a fixed spread to a predetermined benchmark. While this feature may protect against a decline in the instrument’s market price when interest rates or benchmark rates rise, it lowers the fund’s income when interest rates or benchmark rates fall. The fund’s income from its floating rate and variable rate investments also may increase if interest rates rise. Floating rate and variable rate obligations are less effective than fixed rate instruments at locking in a particular yield. Nevertheless, such obligations may fluctuate in value in response to interest rate changes if there is a delay between changes in market interest rates and the interest reset date for the obligation, or for other reasons.

 

The fund’s ability to receive payments of principal and interest and other amounts in connection with loans held by it will depend primarily on the financial condition of the issuer. The failure by the fund to receive scheduled interest or principal payments on a loan would adversely affect the income of the fund and would likely reduce the value of its assets, which would be reflected in a reduction in the fund’s NAV.

 

Floating rate and variable rate demand notes and bonds may have a stated maturity in excess of one year, but may have features that permit a holder to demand payment of principal plus accrued interest upon a specified number of days’ notice. Frequently, such obligations are secured by letters of credit or other credit support arrangements provided by banks. If these obligations are not secured by letters of credit or other credit support arrangements, the fund’s right to demand payment will be dependent on the ability of the issuer to pay principal and interest on demand. In addition, these obligations frequently are not rated by credit rating agencies and may involve heightened risk of default by the issuer. The issuer of such obligations normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number of days notice to the holders. There is no assurance that the fund will be able to reinvest the proceeds of any prepayment at the same interest rate or on the same terms as those of the original instrument.

 

The absence of an active secondary market for floating rate and variable rate demand notes could make it difficult for the fund to dispose of the instruments, and the fund could suffer a loss if the issuer defaults or during periods in which the fund is not entitled to exercise its demand rights. When a reliable trading market for the floating rate and variable rate instruments held by the fund does not exist and the fund may not demand payment of the principal amount of such instruments within seven days, the instruments may be deemed illiquid and therefore subject to the fund’s limitation on investments in illiquid securities.

 

Foreign Currency Transactions

The fund may engage in foreign currency exchange transactions, including purchasing and selling foreign currency, foreign currency options, foreign currency forward contracts and foreign currency futures contracts and related options. The fund may engage in these transactions for a variety of reasons, including to manage the exposure to foreign currencies inherent in the fund’s investments, to increase its returns, and to offset some

August 30, 2023  II-29  
 

of the costs of hedging transactions. Foreign currency transactions involve costs, and, if unsuccessful, may reduce the fund’s return.

Generally, the fund may engage in both “transaction hedging” and “position hedging” (e.g., the sale of forward currency with respect to portfolio security positions). The fund may also engage in foreign currency transactions for non-hedging purposes, subject to applicable law. When it engages in transaction hedging, the fund enters into foreign currency transactions with respect to specific receivables or payables, generally arising in connection with the fund’s purchase or sale of portfolio securities. The fund will engage in transaction hedging when it desires to “lock in” the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging, the fund will attempt to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is earned, and the date on which such payments are made or received. The fund may also engage in position hedging, in which the fund enters into foreign currency transactions on a particular currency with respect to portfolio positions denominated or quoted in that currency. By position hedging, the fund attempts to protect against a decline in the value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of the currency in which securities the fund intends to buy are denominated or quoted). While such a transaction would generally offset both positive and negative currency fluctuations, such currency transactions would not offset changes in security values caused by other factors.

The fund may purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency or for other hedging or non-hedging purposes. If conditions warrant, for hedging or non-hedging purposes, the fund may also enter into contracts to purchase or sell foreign currencies at a future date (“forward contracts”) and purchase and sell foreign currency futures contracts. The fund may also purchase or sell exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies.

A foreign currency futures contract is a standardized exchange-traded contract for the future delivery of a specified amount of a foreign currency at a price set at the time of the contract. Foreign currency futures contracts traded in the United States are designed by and traded on exchanges regulated by the Commodity Futures Trading Commission (the “CFTC”), such as the Chicago Mercantile Exchange, and have margin requirements.

A foreign currency forward contract is a negotiated agreement to exchange currency at a future time, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. The contract price may be higher or lower than the current spot rate. In the case of a cancelable forward contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amount agreed upon by the parties rather than predetermined amounts. In addition, forward contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers, so that no intermediary is required. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades.

At the maturity of a forward or futures contract, the fund either may accept or make delivery of the currency specified in the contract or otherwise settle the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts may be effected only on a commodities exchange or board of trade which provides a market in such contracts; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.

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Positions in foreign currency futures contracts and related options may be closed out only on an exchange or board of trade that provides a market in such contracts or options. Although the fund intends to purchase or sell foreign currency futures contracts and related options only on exchanges or boards of trade where there appears to be an active market, there is no assurance that a market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures or related option position and, in the event of adverse price movements, the fund would continue to be required to make daily cash payments of variation margin on its futures positions.

The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature. It is also impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the fund is obligated to deliver and a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the fund is obligated to deliver.

As noted above, the fund may purchase or sell exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. A put option on a futures contract gives the fund the right to assume a short position in the futures contract until or at the expiration of the option. A put option on a currency gives the fund the right to sell the currency at an exercise price until or at the expiration of the option. A call option on a futures contract gives the fund the right to assume a long position in the futures contract until or at the expiration of the option. A call option on a currency gives the fund the right to purchase the currency at the exercise price until or at the expiration of the option.

Options on foreign currencies operate similarly to options on securities, and are traded primarily in the over-the-counter market, although options on foreign currencies are also listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the euro, the joint currency of most countries in the European Union.

The fund will only purchase or write foreign currency options when Putnam Management believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time. Options on foreign currencies may be affected by all of those factors which influence foreign exchange rates and investments generally.

The fund’s currency hedging transactions may call for the delivery of one foreign currency in exchange for another foreign currency and may at times not involve currencies in which its portfolio securities are then denominated. Putnam Management will engage in such “cross hedging” activities when it believes that such transactions provide significant hedging opportunities for the fund. Cross hedging transactions by the fund involve the risk of imperfect correlation between changes in the values of the currencies to which such transactions relate and changes in the value of the currency or other asset or liability which is the subject of the hedge.

Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities that the fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they involve costs to the fund and tend to limit any potential gain which might result from the increase in value of such currency.

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The fund may also engage in non-hedging currency transactions. For example, Putnam Management may believe that exposure to a currency is in the fund’s best interest but that securities denominated in that currency are unattractive. In this situation, the fund may purchase a currency forward contract or option in order to increase its exposure to the currency.

In addition, the fund may seek to increase its current return or to offset some of the costs of hedging against fluctuations in current exchange rates by writing covered call options and covered put options on foreign currencies. The fund receives a premium from writing a call or put option, which increases the fund’s current return if the option expires unexercised or is closed out at a net profit. The fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written.

The value of any currency, including U.S. dollars and foreign currencies, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of foreign currencies (and therefore the values of foreign currency options, forward contracts and futures contracts and related options) may be affected significantly, fixed, or supported directly or indirectly by U.S. and foreign government actions. Government intervention may increase risks involved in purchasing or selling foreign currency options, forward contracts and futures contracts and related options, since exchange rates may not be free to fluctuate in response to other market forces. The value of a foreign currency option, forward contract or futures contract or related option reflects the value of an exchange rate, which in turn reflects relative values of two currencies -- the U.S. dollar and the foreign currency in question. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (the “spread”) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the fund at one rate, while offering a lesser rate of exchange should the fund desire to resell that currency to the dealer. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of foreign currency options, forward contracts and futures contracts, the fund may be disadvantaged by having to deal in an odd-lot market for the underlying foreign currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of foreign currencies.

There is no systematic reporting of last sale information for foreign currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.

Numerous regulatory changes related to foreign currency transactions are expected to occur over time and could materially and adversely affect the ability of the fund to enter into foreign currency transactions or could increase the cost of foreign currency transactions. In the future, additional foreign currency transactions may be required to be subject to initial as well as variation margin requirements. Foreign currency transactions that are not centrally cleared are subject to the creditworthiness of the counterparty to the foreign currency transaction (usually large commercial banks), and their values may decline substantially if the counterparty’s creditworthiness deteriorates. In a cleared foreign currency transaction, performance of the transaction will be effected by a central clearinghouse rather than by the original counterparty to the transaction. Foreign currency transactions that are centrally cleared will be subject to the creditworthiness of the clearing member and the clearing organization involved in the transaction.

The decision as to whether and to what extent the fund will engage in foreign currency exchange transactions will depend on a number of factors, including prevailing market conditions, the composition of the fund’s portfolio and the availability of suitable transactions. There can be no assurance that suitable foreign currency

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transactions will be available for the fund at any time or that the fund will engage in foreign currency exchange transactions at any time or under any circumstances even if suitable transactions are available to it.

Successful use of currency management strategies will depend on Putnam Management’s skill in analyzing currency values. Currency management strategies may increase the volatility of the fund’s returns and could result in significant losses to the fund if currencies do not perform as Putnam Management anticipates. There is no assurance that Putnam Management’s use of currency management strategies will be advantageous to the fund or that it will hedge at appropriate times.

 

Foreign Investments and Related Risks

 

Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the fund’s foreign investments and the value of its shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar. In addition, the fund is required to compute and distribute its income in U.S. dollars. Therefore, if the exchange rate for a foreign currency declines after a fund’s income has been earned and translated into U.S. dollars (but before payment), the fund could be required to liquidate portfolio securities to make such distributions. Similarly, if an exchange rate declines between the time a fund incurs expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater than the equivalent amount in any such currency of such expenses at the time they were incurred.

 

There may be less information publicly available about a foreign issuer than about a U.S. issuer, and foreign issuers may not be subject to accounting, auditing, custody, disclosure and financial reporting standards and practices comparable to those in the United States. In addition, there may be less (or less effective) regulation of exchanges, brokers and listed companies in some foreign countries. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions, custodial expenses and other fees are also generally higher than in the United States.

 

Foreign settlement procedures and trade regulations may be more complex and involve certain risks (such as delay in payment or delivery of securities or in the recovery of the fund’s assets held abroad) and expenses not present in the settlement of investments in U.S. markets. For example, settlement of transactions involving foreign securities or foreign currencies (see below) may occur within a foreign country, and the fund may accept or make delivery of the underlying securities or currency in conformity with any applicable U.S. or foreign restrictions or regulations, and may pay fees, taxes or charges associated with such delivery. In addition, local market holidays or other factors may extend the time for settlement of purchases and sales of the Fund’s investments in securities that trade on foreign markets. Such investments may also involve the risk that an entity involved in the settlement may not meet its obligations. Extended settlement cycles or other delays in settlement may increase the fund’s liquidity risk and require the fund to employ alternative methods (e.g., through borrowings) to satisfy redemption requests during periods of large redemption activity in Fund shares.

 

In addition, foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of economic sanctions or embargoes (whether imposed by the United States or another country or other governmental or non-governmental organization), currency exchange controls, foreign withholding or other taxes or restrictions on the repatriation of foreign currency, confiscatory taxation, political, social or financial instability and diplomatic developments which could affect the value of the fund’s investments in certain foreign countries. Such actions could result in the devaluation of a country’s currency or a decline in the value and liquidity of securities of issuers in that country. In some cases (including in the case of sanctions), such actions also could result in a freeze on an issuer’s securities which would prevent the fund from selling securities it holds. Governments of many countries have exercised and continue to exercise substantial influence over many aspects of the private sector through the ownership or control of many companies, including some of the largest in these countries. As a result, government actions in the future could have a significant effect on economic conditions which may adversely affect prices of certain portfolio securities. There is also generally less government supervision and regulation of stock exchanges, brokers, and

August 30, 2023  II-33  
 

listed companies than in the United States. Moreover, foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to foreign withholding or other taxes, and special U.S. tax considerations may apply.

 

Note on MSCI indices. Due to the potential for foreign withholding taxes, MSCI, Inc. (MSCI) publishes two versions of its indices reflecting the reinvestment of dividends using two different methodologies: gross dividends and net dividends. While both versions reflect reinvested dividends, they differ with respect to the manner in which taxes associated with dividend payments are treated. In calculating the net dividends version, MSCI incorporates reinvested dividends applying the withholding tax rate applicable to foreign non-resident institutional investors that do not benefit from double taxation treaties. Putnam Management believes that the net dividends version of MSCI indices better reflects the returns U.S. investors might expect were they to invest directly in the component securities of an MSCI index.

 

Many foreign countries are heavily dependent upon exports, particularly to developed countries, and, accordingly, have been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the United States and other countries with which they trade. These economies also have been and may continue to be negatively impacted by economic conditions in the United States and other trading partners, which can lower the demand for goods produced in those countries.

 

Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries. The laws of some foreign countries may limit the fund’s ability to invest in securities of certain issuers organized under the laws of those foreign countries. These restrictions may take the form of prior governmental approval requirements, limits on the amount or type of securities held by foreigners and limits on the types of companies in which foreigners may invest (e.g., limits on investment in certain industries). Some countries also limit the investment of foreign persons to only a specific class of securities of an issuer that may have less advantageous terms or rights or preferences than securities of the issuer available for purchase by domestic parties (and such securities may be less liquid than other classes of securities of an issuer), or may directly limit foreign investors’ rights (such as voting rights). Although securities subject to such restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions. Foreign laws may also impact the availability of derivatives or hedging techniques relating to a foreign country’s government securities. In each of these situations, the funds’ ability to invest significantly in desired issuers, or the terms of such investments, could be negatively impacted as a result of the relevant legal restriction. Sanctions imposed by the United States government on other countries or persons or issuers operating in such countries could restrict the fund’s ability to buy affected securities or to sell any affected securities it has previously purchased, which may subject the fund to greater risk of loss in those securities. Foreign countries may have reporting requirements with respect to the ownership of securities, and those reporting requirements may be subject to interpretation or change without prior notice to investors. No assurance can be given that the fund will satisfy applicable foreign reporting requirements at all times.

 

For purposes of some foreign holding limits or disclosure thresholds, all positions owned or controlled by the same person or entity, even if in different accounts, may be aggregated for purposes of determining whether the applicable limits or thresholds have been exceeded. Thus, even if the fund does not intend to exceed applicable limits, it is possible that different clients managed by Putnam Management and its affiliates (including separate affiliates owned by Power Corporation of Canada outside the Putnam Investments group) may be aggregated for this purpose. These limits may adversely affect the fund’s ability to invest in the applicable security.

 

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The risks described above, including the risks of nationalization or expropriation of assets, typically are increased in connection with investments in developing countries, also known as “emerging markets.” For example, political and economic structures in these countries may be in their infancy and developing rapidly, and such countries may lack the social, political and economic stability characteristic of more developed countries. In such a dynamic environment, there can be no assurance that any or all of these capital markets will present viable investment opportunities for the fund. Certain of these countries have in the past failed to recognize private property rights and have at times nationalized and expropriated the assets of private companies. In such an event, it is possible that the fund could lose the entire value of its investments in the affected market. High rates of inflation or currency devaluations may adversely affect the economies and securities markets of such countries. In addition, the economies of certain developing or emerging market countries may be dependent on a single industry or limited group of industries, which may increase the risks described above and make those countries particularly vulnerable to global economic and market changes. Investments in emerging markets may be considered speculative.

 

The currencies of certain emerging market countries have experienced devaluations relative to the U.S. dollar, and future devaluations may adversely affect the value of assets denominated in such currencies. Many emerging market countries have experienced substantial, and in some periods extremely high, rates of inflation for many years, and future inflation may adversely affect the economies and securities markets of such countries. When debt and similar obligations issued by foreign issuers are denominated in a currency (e.g., the U.S. dollar or the Euro) other than the local currency of the issuer, the subsequent strengthening of the non-local currency against the local currency will generally increase the burden of repayment on the issuer and may increase significantly the risk of default by the issuer.

 

In addition, unanticipated political or social developments may affect the value of investments in emerging markets and the availability of additional investments in these markets. The small size, limited trading volume and relative inexperience of the securities markets in these countries may make investments in securities traded in emerging markets illiquid and more volatile than investments in securities traded in more developed countries, and the fund may be required to establish special custodial or other arrangements before making investments in securities traded in emerging markets. There may be little financial or accounting information available with respect to issuers of emerging market securities, and it may be difficult as a result to assess the value or prospects of an investment in such securities. In certain countries with emerging capital markets, reporting standards vary widely. As a result, traditional investment measurements used in the United States, such as price/earnings ratios, may not be applicable.

 

Practices in relation to settlement of securities transactions in emerging markets involve higher risks than those in developed markets, in part because the fund may need to use brokers and counterparties that are less well capitalized, and custody and registration of assets in some countries may be unreliable. The possibility of fraud, negligence, undue influence being exerted by the issuer, or refusal to recognize ownership exists in some emerging markets, and, along with other factors, could result in ownership registration being completely lost. The fund would absorb any loss resulting from such registration problems and may have no successful claim for compensation.

 

American Depositary Receipts (“ADRs”) as well as other “hybrid” forms of ADRs, including European Depositary Receipts (“EDRs”) and Global Depositary Receipts (“GDRs”), are certificates evidencing ownership of shares of a foreign issuer. These certificates are issued by depository banks and generally trade on an established market in the United States or elsewhere. The underlying shares are held in trust by a custodian bank or similar financial institution in the issuer’s home country. The depository bank may not have physical custody of the underlying securities at all times and may charge fees for various services, including forwarding dividends and interest and corporate actions. ADRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies. However, ADRs continue to be subject to many of the risks associated with investing in foreign securities.

 

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Certain of the foregoing risks may also apply to some extent to securities of U.S. issuers that are denominated in foreign currencies or that are traded in foreign markets, or securities of U.S. issuers having significant foreign operations or other exposure to foreign markets. If the fund invests in securities issued by foreign issuers, the fund may be subject to the risks described above even if all of the fund’s investments are denominated in U.S. dollars, especially with respect to issuers whose revenues are principally earned in a foreign currency but whose debt obligations have been issued in U.S. dollars or other hard currencies.

 

Investing through Stock Connect. The fund may, directly or indirectly (through, for example, participation notes or other types of equity-linked notes), purchase shares in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange (“China A-Shares”) through the Shanghai-Hong Kong Stock Connect (“Stock Connect”), or that may be available in the future through additional stock connect programs, a mutual market access program designed to, among other things, enable foreign investment in the People’s Republic of China (“PRC”) via brokers in Hong Kong.

 

There are significant risks inherent in investing in China A-Shares through Stock Connect. The underdeveloped state of PRC’s investment and banking systems subjects the settlement, clearing, and registration of China A-Shares transactions to heightened risks. Stock Connect can only operate when both PRC and Hong Kong markets are open for trading and when banking services are available in both markets on the corresponding settlement days. As such, if either or both markets are closed on a U.S. trading day, the fund may not be able to dispose of its China A-Shares in a timely manner, which could adversely affect the fund’s performance. Because Stock Connect is relatively new, its effects on the market for trading China A-shares are uncertain. In addition, the trading, settlement and information technology (“IT”) systems required to operate Stock Connect are relatively new and continuing to evolve. In the event that the relevant systems do not function properly, trading through Stock Connect could be disrupted.

 

PRC regulations require that, in order to sell its China A-Shares, the fund must pre-deliver the China A-Shares to a broker. If the China A-Shares are not in the broker’s possession before the market opens on the day of sale, the sell order will be rejected. This requirement could also limit the fund’s ability to dispose of its China A-Shares purchased through Stock Connect in a timely manner. Additionally, Stock Connect is subject to daily quota limitations on purchases of China A Shares. Once the daily quota is reached, orders to purchase additional China A-Shares through Stock Connect will be rejected. The fund’s investment in China A-Shares may only be traded through Stock Connect and is not otherwise transferable. Stock Connect utilizes an omnibus clearing structure, and the fund’s shares will be registered in its custodian’s name on the Central Clearing and Settlement System. This may limit the ability of Putnam Management to effectively manage the fund, and may expose the fund to the credit risk of its custodian or to greater risk of expropriation. Investment in China A-Shares through Stock Connect may be available only through a single broker that is an affiliate of the fund’s custodian, which may affect the quality of execution provided by such broker. Stock Connect restrictions could also limit the ability of the fund to sell its China A-Shares in a timely manner, or to sell them at all. Further, different fees, costs and taxes are imposed on foreign investors acquiring China A-Shares acquired through Stock Connect, and these fees, costs and taxes may be higher than comparable fees, costs and taxes imposed on owners of other securities providing similar investment exposure.

 

Stock Connect trades are settled in Renminbi (“RMB”), the official currency of PRC, and investors must have timely access to a reliable supply of RMB in Hong Kong, which cannot be guaranteed.

 

Investing through Bond Connect: Chinese debt instruments trade on the China Interbank Bond Market (“CIBM”) and may be purchased through a market access program that is designed to, among other things, enable foreign investment in the PRC (“Bond Connect”). There are significant risks inherent in investing in Chinese debt instruments, similar to the risks of investing in other fixed-income securities in emerging markets. The prices of debt instruments traded on the CIBM may fluctuate significantly due to low trading volume and potential lack of liquidity. The rules to access debt instruments that trade on the CIBM through Bond Connect are relatively new and subject to change, which may adversely affect the fund’s ability to invest in these instruments and to enforce its rights as a beneficial owner of these instruments. Trading through Bond Connect is subject to a number of restrictions that may affect the fund’s investments and returns. In addition,

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securities offered through Bond Connect may lose their eligibility for trading through the program at any time. If Bond Connect securities lose their eligibility for trading through the program, they may be sold but can no longer be purchased through Bond Connect. There can be no assurance as to the program’s continued existence or whether future developments regarding the program may restrict or adversely affect the fund’s investments or returns.

 

Investments made through Bond Connect are subject to order, clearance and settlement procedures that are relatively untested in China, which could pose risks to the fund. CIBM does not support all trading strategies (such as short selling) and investments in Chinese debt instruments that trade on the CIBM are subject to the risks of suspension of trading without cause or notice, trade failure or trade rejection and default of securities depositories and counterparties. Furthermore, Chinese debt instruments purchased via Bond Connect will be held via a book entry omnibus account in the name of the Hong Kong Monetary Authority Central Money Markets Unit (“CMU”) maintained with a China-based depository (either the China Central Depository & Clearing Co. (“CDCC”) or the Shanghai Clearing House (“SCH”)). The fund’s ownership interest in these Chinese debt instruments will not be reflected directly in book entry with CSDCC or SCH and will instead only be reflected on the books of the fund’s Hong Kong sub-custodian. Therefore, the fund’s ability to enforce its rights as a bondholder may depend on CMU’s ability or willingness as record-holder of the bonds to enforce the fund’s rights as a bondholder. Additionally, the omnibus manner in which Chinese debt instruments are held could expose the fund to the credit risk of the relevant securities depositories and the fund’s Hong Kong sub-custodian. While the fund holds a beneficial interest in the instruments it acquires through Bond Connect, the mechanisms that beneficial owners may use to enforce their rights are untested. In addition, courts in China have limited experience in applying the concept of beneficial ownership. Moreover, Chinese debt instruments acquired through Bond Connect generally may not be sold, purchased or otherwise transferred other than through Bond Connect in accordance with applicable rules.

 

The fund’s investments in Chinese debt instruments acquired through Bond Connect are generally subject to a number of regulations and restrictions, including Chinese securities regulations and listing rules, loss recovery limitations and disclosure of interest reporting obligations. The fund will not benefit from access to Hong Kong investor compensation funds, which are set up to protect against defaults of trades, when investing through Bond Connect.

 

Bond Connect can only operate when both China and Hong Kong markets are open for trading and when banking services are available in both markets on the corresponding settlement days. In addition, the trading, settlement and IT systems required for non-Chinese investors in Bond Connect are relatively new. In the event of systems malfunctions or extreme market conditions, trading via Bond Connect could be disrupted. The rules applicable to taxation of Chinese debt instruments acquired through Bond Connect remain subject to further clarification. Uncertainties in the Chinese tax rules governing taxation of income and gains from investments via Bond Connect could result in unexpected tax liabilities for the fund, which may negatively affect investment returns for shareholder.

 

Bond Connect trades are settled in RMB, and investors must have timely access to a reliable supply of RMB in Hong Kong, which cannot be guaranteed.

 

Forward Commitments and Dollar Rolls

 

The fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time (“forward commitments”). In the case of to-be-announced (“TBA”) purchase commitments, the unit price and the estimated principal amount are established when the fund enters into a contract, with the actual principal amount being within a specified range of the estimate. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund’s other assets. Where such purchases are made through dealers, the fund relies on the dealer to consummate the sale. The dealer’s failure to do so may result in the loss to the fund of an advantageous yield or price. Although

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the fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. The fund may realize short-term profits or losses upon the sale of forward commitments.

 

The fund may enter into TBA sale commitments to hedge its portfolio positions, to sell securities it owns under delayed delivery arrangements, or to take a short position in mortgage-backed securities. Proceeds of TBA sale commitments are not received until the contractual settlement date. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss on the commitment without regard to any unrealized gain or loss on the underlying security. If the fund delivers securities under the commitment, the fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date the commitment was entered into.

 

The fund may enter into dollar roll transactions (generally using TBAs) in which it sells a fixed income security for delivery in the current month and simultaneously contracts to purchase similar securities (for example, same type, coupon and maturity) at an agreed upon future time. By engaging in a dollar roll transaction, the fund foregoes principal and interest paid on the security that is sold while the dollar roll is outstanding, but receives the difference between the current sales price and the forward price for the future purchase. In addition, the fund may reinvest the cash proceeds of the sale while the dollar roll is outstanding in an effort to enhance returns. The reinvestment of such proceeds may be considered a form of investment leverage and may increase the fund’s risk and volatility. If the income and capital gains from the investment of the cash from the initial sale do not exceed the income, capital appreciation and gain or loss that would have been realized on the securities sold as part of the dollar roll, the use of this technique will result in a lower return than would have been realized without the use of the dollar rolls. The fund accounts for dollar rolls as purchases and sales.

 

Purchases of securities on a forward commitment basis may involve more risk than other types of purchases. The obligation to purchase securities on a specified future date involves the risk that the market value of the securities that the fund is obligated to purchase may decline below the purchase price. In addition, when entering into a forward commitment transaction, the fund will rely on the other party to consummate the transaction. In the event that the other party files for bankruptcy, becomes insolvent or defaults on its obligation, the fund may be adversely affected. For example, the other party’s failure to complete the transaction may result in the loss to the fund of an advantageous yield or price. See also "Legal and Regulatory Risks Relating to Investment Strategy" below.

 

Futures Contracts and Related Options

 

Subject to applicable law, the fund may invest in futures contracts and related options for hedging and non-hedging purposes, such as to manage the effective duration of the fund’s portfolio or as a substitute for direct investment. A futures contract sale creates an obligation by the seller to sell the type of financial instrument or other asset called for in the contract in a specified month for a stated price. A futures contract purchase creates an obligation by the purchaser to buy the type of financial instrument or other asset called for in the contract in a specified month at a stated price. The specific assets bought or sold, respectively, at settlement date may not be determined until on or near that date. The determination is made in accordance with the rules of the exchange on which the futures contract sale or purchase was made. Futures contracts are traded in the United States only on commodity exchanges or boards of trade -- known as “contract markets” -- approved for such trading by the CFTC, and must be executed through a futures commission merchant (brokerage firm) which is a member of the relevant contract market. Examples of futures contracts that the fund may use include, without limitation, U.S. Treasury futures, index futures, corporate or municipal bond futures, U.S. Government agency futures, interest rate futures, commodities futures, futures contracts on sovereign debt, and Eurodollar futures. In addition, as described elsewhere in this SAI, the fund may use foreign currency futures.

 

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The value of a futures contract tends to increase and decrease in tandem with the value of its underlying asset. Therefore, purchasing futures contracts will tend to increase the fund’s exposure to positive and negative price fluctuations in the underlying asset, much as if it had purchased the underlying asset directly. When the fund sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the market for the underlying asset. Selling futures contracts, therefore, will tend to offset both positive and negative market price changes, much as if the underlying asset had been sold.

 

When the fund enters into a futures contract, the fund is required to deliver to the futures broker an amount of liquid assets known as “initial margin.” The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds to finance the transactions. Rather, initial margin is similar to a performance bond or good faith deposit in that it is returned to the fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Initial margin requirements are established by the exchanges on which futures contracts trade and by the fund’s broker and may, from time to time, change. Futures contracts also involve brokerage costs. Subsequent payments, called “variation margin” or “maintenance margin,” to and from the broker are made on a daily basis as the value of the futures contract fluctuates, a process known as “marking to the market.” For example, if the fund purchases a futures contract on an underlying security and the price of that security rises, the value of the futures contract will increase and the fund will receive from the broker a variation margin payment based on that increase in value. Conversely, if the price of the underlying security declines, the value of the futures contract will decrease and the fund will be required to make a variation margin payment to the broker based on that decrease in value. Upon the closing of a futures contract, the fund will receive or be required to pay additional cash based on a final determinations of variation margin.

 

Although futures contracts by their terms may call for actual delivery or acceptance of commodities or securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Many futures contracts, such as index futures and futures based on the volatility or variance experienced by an index do not call for actual delivery or acceptance of commodities or securities, but instead require cash settlement of the futures contract on the settlement date specified in the contract. Such contracts may also be closed out before the settlement date. The fund may close some or all of its futures positions at any time prior to their expiration. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same settlement date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. If the fund is unable to enter into a closing transaction, the amount of the fund’s theoretical loss is unlimited. The closing out of a futures contract purchase is effected by the purchaser’s entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, he realizes a loss. Such closing transactions involve additional commission costs.

 

A portion of any capital gains from futures contracts in which the fund invests directly will be treated for federal income tax purposes as short-term capital gains that, when distributed to taxable shareholders, will be taxable as ordinary income. The fund’s investments in futures may cause the fund to recognize income without receiving cash with which to make the distributions necessary to qualify and be eligible for treatment as a regulated investment company and avoid a fund-level tax. The fund may therefore need to liquidate other investments, including when it is not advantageous to do so, to meet its distribution requirement.

 

With respect to each Putnam Fund, Putnam Management has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act ( “CEA”) pursuant to Rule 4.5 under the CEA (the “exclusion”) promulgated by the CFTC. Accordingly, Putnam Management (with respect to these funds) is not subject to registration or regulation as a “commodity pool operator” under the CEA. To remain eligible for the exclusion, each of these funds will be limited in its ability to use certain financial instruments regulated under the CEA (“commodity interests”), including futures, options on futures and certain swaps. In the event that Putnam Management believes that a fund’s investments in commodity interests exceed the

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thresholds set forth in the exclusion, Putnam Management may be required to register as a “commodity pool operator” with the CFTC with respect to that fund. Putnam Management’s eligibility to claim the exclusion with respect to a fund will be based upon, among other things, the level and scope of the fund’s investment in commodity interests, the purposes of such investments and the manner in which the fund holds out its use of commodity interests. A fund’s ability to invest in commodity interests is limited by Putnam Management’s intention to operate the fund in a manner that would permit Putnam Management to continue to claim the exclusion under Rule 4.5, which may adversely affect the fund’s total return. In the event the fund’s investments in commodity interests require Putnam Management to register with the CFTC as a commodity pool operator with respect to a fund, the fund’s expenses may increase, adversely affecting that fund’s total return, and the commodity pool operators (“CPOs”) of any shareholders that are pooled investment vehicles may be unable to rely on certain CPO registration exemptions.

 

Index futures. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The fund may also purchase and sell options on index futures contracts.

 

For example, the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500”) is composed of 500 selected U.S. common stocks. The S&P 500 assigns relative weightings to the common stocks that comprise the index, and the value of the index fluctuates with changes in the market values of those common stocks. The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if the fund enters into a futures contract to buy 250 units of the S&P 500 at a specified future date at a contract price of $150 and the S&P 500 is at $154 on that future date, the fund will gain $1,000 (250 units x gain of $4). If the fund enters into a futures contract to sell 250 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 is at $152 on that future date, the fund will lose $500 (250 units x loss of $2).

 

Options on futures contracts. The fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. Options on futures contracts possess many of the same characteristics as options on securities and indices. An option on a futures contract gives the holder the right, in return for the premium paid to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option (in the case of an American-style option) or on the expiration date (in the case of European-style option). After selling a put or call option on a futures contract, the fund will be required to deposit initial margin and variation margin as described above for futures contracts.

 

When a call option on a futures contract is exercised, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. When a put option on a futures contract is exercised, the holder acquires a short position in the futures contract and the writer is assigned the opposite long position. When an option is exercised, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer’s futures margin account, which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the future. If an option is exercised on the last trading day prior to its expiration date, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the underlying asset on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. The holder or writer of an option on a futures contract may

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terminate its position by selling or purchasing an offsetting option on the same financial instrument (subject to the availability of a liquid market).

 

The fund may use options on futures contracts in lieu of purchasing or writing options directly on the underlying assets or purchasing and writing the underlying futures contracts. For example, to hedge against a possible decrease in the value of its portfolio securities, the fund may purchase put options or write call options on futures contracts rather than selling futures contracts. Similarly, the fund may purchase call options or write put options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities that the fund expects to purchase. Such options generally operate in the same manner, and involve the same risks, as options purchased or written directly on the underlying investments. As an alternative to purchasing or writing call and put options on index futures, the fund may purchase and write call and put options on the underlying indices themselves. Such options would be used in a manner identical to the use of options on index futures.

 

Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts generally involves less potential risk to the fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the fund when the purchase or sale of a futures contract would not (or would result in a smaller loss), such as when there is no movement in the prices of the hedged investments.

 

The writing of an option on a futures contract involves risks similar to those relating to the purchase or sale of futures contracts (which are described below). In addition, by writing a call option, the fund becomes obligated to sell a futures contract if the option is exercised, which may have a value higher than the exercise price. Similarly, by writing a put option, the fund becomes obligated to purchase a futures contract if the option is exercised, which may have a value lower than the exercise price. The writing of an option on a futures contract generates a premium, which may partially offset an increase (in the case of a written call option) or decrease (in the case of a written put option) in the value of the underlying futures contract. However, the loss incurred by the fund in writing options on futures contracts is potentially unlimited and may exceed the amount of the premium received. The fund will also incur transaction costs in connection with the writing of options on futures contracts.

 

Risks of transactions in futures contracts and related options. Successful use of futures contracts and options on futures contracts by the fund is subject to Putnam Management’s ability to predict movements in various factors affecting securities markets (or markets for other assets), including interest rates and market movements, and, in the case of index futures and futures based on the volatility or variance experienced by an index, Putnam Management’s ability to predict the future level of the index or the future volatility or variance experienced by an index. For example, it is possible that, where the fund has sold futures contracts to hedge its portfolio against a decline in the market, the index on which the futures contracts are written may advance and the value of securities held in the fund’s portfolio, which may differ from those that comprise the index, may decline. If this occurred, the fund would lose money on the futures contracts and experience a decline in value in its portfolio securities. It is also possible that, if the fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the fund will lose part or all of the benefit of the increased value of those securities it has hedged because it will have offsetting losses in its futures positions.

 

The use of futures and options strategies also involves the risk of imperfect correlation among movements in the prices of the securities or other assets underlying the futures contracts and options purchased and sold by the fund, of the options and futures contracts themselves, and, in the case of hedging transactions, of the securities which are the subject of a hedge. In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the futures contracts used by the fund and the portion of the portfolio being hedged, the prices of futures contracts may not correlate perfectly with movements in the underlying asset due to certain market distortions. First, all participants in the futures market

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are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the expected relationship between the underlying asset and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than the securities market does. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the underlying asset and movements in the prices of related futures, even a correct forecast of general market trends by Putnam Management may still not result in a profitable position. In addition, in the case of hedging transactions, an incorrect correlation could result in a loss on both the hedged securities in the fund and the hedging transactions, so that the portfolio return might have been greater had hedging not been attempted.

 

The risk of a position in a futures contract may be very large compared to the relatively low level of margin a fund is required to deposit. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the fund relative to the size of a required margin deposit. In addition, if the fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements at a time when it is disadvantageous to do so. The fund will be required to post margin with its futures commission merchant in connection with its transactions in futures contracts. In the event of an insolvency of the futures commission merchant, the fund may not be able to recover all (or any) of the margin it has posted with the futures commission merchant, or to realize the value of any increase in the price of its positions. The fund also may be delayed or prevented from recovering margin or other amounts deposited with a futures commission merchant or futures clearinghouse.

 

There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times result in the institution by exchanges of special procedures that may interfere with the timely execution of customer orders, for example, by rendering certain market clearing facilities inadequate. For example, futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of the trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses and the limit may work to prevent the liquidation of unfavorable positions. Futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. In addition, exchanges may cancel trades in limited circumstances, for example, if the exchange believes that allowing such trades to stand as executed could have an adverse impact on the stability or integrity of the market. Any such cancellation may adversely affect the performance of the fund. The fund’s futures broker may also limit the fund’s ability to invest in certain futures contracts. Such restrictions may adversely affect the fund’s performance and its ability to achieve its investment objective.

 

To reduce or eliminate a position held by the fund, the fund may seek to close out such position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid market. It is not certain that this market will develop or continue to exist for a particular futures contract or option. Reasons for the absence of a liquid market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the market on that exchange for such contracts or options (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation

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as a result of trades on that exchange would continue to be settled or exercisable in accordance with their terms. If the fund were unable to liquidate a futures contract or an option on a futures contract due to the absence of a liquid market, the imposition of price limits or otherwise, it could incur substantial losses. The fund would continue to be subject to market risk with respect to the position. Also, except in the case of purchased options, the fund would continue to be required to make daily variation margin payments and might be required to maintain a position being hedged by the futures contract or option.

 

Hybrid Instruments

 

Hybrid instruments are generally considered derivatives and include indexed or structured securities and combine the elements of futures contracts or options with those of debt, preferred equity, commodity or a depository instrument. A hybrid instrument may be a debt security, preferred stock, warrant, convertible security, certificate of deposit or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption or retirement is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles or commodities (collectively, “underlying assets”), or by another objective index, economic factor or other measure, including interest rates, currency exchange rates, or commodities or securities indices (collectively, “benchmarks”).

 

Hybrid instruments can be an efficient means of creating exposure to a particular market, or segment of a market, with the objective of enhancing total return. For example, a fund may wish to take advantage of expected declines in interest rates in several European countries but avoid the transaction costs associated with buying and currency-hedging the foreign bond positions. One solution would be to purchase a U.S. dollar-denominated hybrid instrument whose redemption price is linked to the average three-year interest rate in a designated group of countries. The redemption price formula would provide for payoffs of less than par if rates were above the specified level. Furthermore, a fund could limit the downside risk of the security by establishing a minimum redemption price so that the principal paid at maturity could not be below a predetermined minimum level if interest rates were to rise significantly. The purpose of this arrangement, known as a structured security with an embedded put option, would be to give the fund the desired European bond exposure while avoiding currency risk, limiting downside market risk, and lowering transaction costs. Of course, there is no guarantee that the strategy will be successful, and the fund could lose money if, for example, interest rates do not move as anticipated or credit problems develop with the issuer of the hybrid instrument.

 

The risks of investing in hybrid instruments reflect a combination of the risks of investing in securities, options, futures and currencies. An investment in a hybrid instrument may entail significant risks that are not associated with a similar investment in a traditional debt instrument that has a fixed principal amount, is denominated in U.S. dollars or pays interest either at a fixed rate or a floating rate determined by reference to a common, nationally published benchmark. The risks of a particular hybrid instrument will depend upon the terms of the instrument but may include the possibility of significant changes in the benchmark(s) or the prices of the underlying assets to which the instrument is linked. Such risks generally depend upon factors unrelated to the operations or credit quality of the issuer of the hybrid instrument, which may not be foreseen by the purchaser, such as economic and political events, the supply and demand of the underlying assets and interest rate movements. In addition, the various benchmarks and prices for underlying assets can be highly volatile.

Hybrid instruments are potentially more volatile and carry greater market risks than traditional debt instruments. Depending on the structure of the particular hybrid instrument, changes in a benchmark may be magnified by the terms of the hybrid instrument and have an even more dramatic and substantial effect upon the value of the hybrid instrument. Also, the prices of the hybrid instrument and the benchmark or underlying asset may not move in the same direction or at the same time.

 

Hybrid instruments may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Alternatively, hybrid instruments may bear interest at above market rates but bear an increased risk of principal loss (or gain). The latter scenario may result if “leverage” is used to structure the hybrid instrument.

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Leverage risk occurs when the hybrid instrument is structured so that a given change in a benchmark or underlying asset is multiplied to produce a greater value change in the hybrid instrument, thereby magnifying the risk of loss as well as the potential for gain.

 

If the fund attempts to use a hybrid instrument as a hedge against, or as a substitute for, a portfolio investment, the hybrid instrument may not correlate as expected with the portfolio investment, resulting in losses to the fund. While hedging strategies involving hybrid instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments.

 

Hybrid instruments may also carry liquidity risk since the instruments are often “customized” to meet the portfolio needs of a particular investor, and therefore, the number of investors that are willing and able to buy such instruments in the secondary market may be smaller than that for more traditional debt securities. Under certain conditions, the redemption value of such an investment could be zero. In addition, because the purchase and sale of hybrid investments could take place in an over-the-counter market without the guarantee of a central clearing organization, or in a transaction between the fund and the issuer of the hybrid instrument, the creditworthiness of the counterparty of the issuer of the hybrid instrument would be an additional risk factor the fund would have to consider and monitor, and the value of the hybrid instrument may decline substantially if the issuer’s creditworthiness deteriorates. In addition, uncertainty regarding the tax treatment of hybrid instruments may reduce demand for such instruments. Hybrid instruments also may not be subject to regulation by any governmental regulatory authority, including the regulators typically associated with the derivatives and securities markets such as the CFTC and the SEC.

 

Illiquid Investments

 

Each Putnam money market fund will not invest in (a) securities which are not readily marketable, (b) securities restricted as to resale (excluding securities determined by the Trustees of the fund (or the person designated by the Trustees of the fund to make such determinations) to be readily marketable), and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 10% of the fund’s net assets (taken at current value) would be invested in securities described in (a), (b) and (c). Rule 22e-4 under the 1940 Act provides that mutual funds (other than money market funds) may not acquire any illiquid investment if, immediately after the acquisition, the fund would have invested more than 15% of its net assets in illiquid investments that are assets. The term “illiquid investment” for this purpose means any investment that a fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment.

 

A fund’s illiquid investments may be considered speculative and may be difficult to sell. The sale of many of these investments may be prohibited or limited by law or contract. Illiquid investments may be difficult to value for purposes of calculating a fund’s net asset value. A fund may not be able to sell illiquid investments when Putnam Management considers it desirable to do so, or a fund may be able to sell them only at less than their value. The larger size of certain fund holdings and the lack of liquidity in securities markets may limit a fund’s ability to sell illiquid investments, or to sell them at appropriate prices, thereby negatively impacting the fund.

 

Inflation-Protected Securities

 

The fund may invest in U.S. Treasury Inflation Protected Securities (“U.S. TIPS”), which are fixed income securities issued by the U.S. Department of Treasury, the principal amounts of which are adjusted daily based upon changes in the rate of inflation or deflation. The fund may also invest in other inflation-protected securities issued by non-U.S. governments or by private issuers. Two structures are common. While the U.S. Treasury and some other issuers use a structure that accrues inflation/deflation into the principal value of the bond, many other issuers adjust the coupon accruals for inflation-related changes.

 

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U.S. TIPS pay interest on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted principal amount. The interest rate on these securities is fixed at issuance, but over the life of the security this interest may be paid on an increasing or decreasing principal value that has been adjusted for inflation. U.S. TIPS currently are issued with maturities of five, ten, or thirty years, although it is possible that securities with other maturities will be issued in the future.

 

Repayment of the original principal upon maturity (as adjusted for inflation) is guaranteed for U.S. TIPS, even during a period of deflation. However, because the principal amount of U.S. TIPS would be adjusted downward during a period of deflation, the fund will be subject to deflation risk with respect to its investments in these securities. In addition, the current market value of U.S. TIPS is not guaranteed, and will fluctuate. If the fund purchases U.S. TIPS in the secondary market whose principal values have been adjusted upward due to inflation since issuance, the fund may experience a loss if there is a subsequent period of deflation. The fund may also invest in other inflation-related securities which may or may not provide a guarantee of principal. If a guarantee of principal is not provided, the adjusted principal value of the security repaid at maturity may be less than the original principal amount.

 

In addition, inflation-indexed securities do not protect holders from increases in interest rates due to reasons other than inflation (such as changes in currency exchange rates). The periodic adjustment of U.S. TIPS is currently tied to the Consumer Price Index for Urban Consumers (“CPI-U”), which is calculated by the U.S. Department of Treasury. The CPI-U is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. Inflation-protected securities issued by a non-U.S. government are generally adjusted to reflect a comparable inflation index, calculated by that government. There can no assurance that the CPI-U or any non-U.S. inflation index will accurately measure the real rate of inflation in the prices of goods and services. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the security’s inflation measure, which could result in losses to the fund. In addition, there can be no assurance that the rate of inflation in a non-U.S. country will be correlated to the rate of inflation in the United States.

 

Although inflation-indexed bonds securities may protect their holders from long-term inflationary trends, short-term increases in inflation may result in a decline in value. In general, the value of inflation-protected securities is expected to fluctuate in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of inflation-protected securities. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation-protected securities. If inflation is lower than expected during the period the fund holds the security, the fund may earn less on the security than on a conventional bond.

 

Any increase in principal value is taxable in the year the increase occurs, even though holders do not receive cash representing the increase at that time. As a result, when the fund invests in inflation-protected securities, it could be required at times to liquidate other investments, including when it is not advantageous to do so, in order to satisfy its distribution requirements as a regulated investment company and to eliminate any fund-level income tax liability under the Code.

 

Initial Public Offerings

 

The fund may purchase debt or equity securities in initial public offerings (“IPOs”). These securities, which are often issued by unseasoned companies, may be subject to many of the same risks of investing in companies with smaller market capitalizations. Securities issued in an IPO frequently are very volatile in price (and may, therefore, involve greater risk) due to factors such as market psychology prevailing at the time of the IPO, the absence of a prior public market, unseasoned trading, the small number of shares available for trading, and limited availability of information about the issuer. Because of the price volatility of IPO securities, the fund

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may hold securities purchased in an IPO for a very short period of time. As a result, the fund’s investments in IPOs may increase portfolio turnover, which increases brokerage and administrative costs and may result in taxable distributions to shareholders.

 

There can be no assurance that investments in IPOs will be available to the funds or improve a fund’s performance. At any particular time or from time to time the fund may not be able to invest in securities issued in IPOs, or invest to the extent desired because, for example, only a small portion (if any) of the securities being offered in an IPO may be made available to the fund. In addition, under certain market conditions a relatively small number of companies may issue securities in IPOs. Similarly, to the extent that the number of Putnam Funds to which IPO securities are allocated increases, the number of securities issued to any one fund may decrease. The investment performance of the fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the fund is able to do so. When a fund’s asset base is small, a significant portion of the fund’s performance could be attributable to investments in IPOs because such investments would have a magnified impact on the fund. As the fund increases in size, the impact of IPOs on the fund’s performance will generally decrease.

 

Interfund Borrowing and Lending

 

To satisfy redemption requests or to cover unanticipated cash shortfalls, the fund has entered into an Amended and Restated Master Interfund Lending Agreement by and among each Putnam Fund and Putnam Management (the “Interfund Lending Agreement”) under which a Putnam Fund may lend or borrow money (Putnam money market funds may lend, but not borrow) for temporary purposes directly to or from another Putnam Fund (an “Interfund Loan”), subject to meeting the conditions of an SEC exemptive order dated April 10, 2002 (the “Putnam Exemptive Order”) granted to the fund permitting such Interfund Loans. All Interfund Loans would consist only of uninvested cash reserves that the lending fund otherwise would invest in short-term repurchase agreements or other short-term instruments. At this time, Putnam Short Term Investment Fund is the only Putnam fund expected to make its uninvested cash reserves available for Interfund Loans.

 

If the fund has outstanding borrowings, any Interfund Loans to the fund (a) would be at an interest rate equal to or lower than that of any outstanding bank loan, (b) would be secured at least on an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding bank loan that requires collateral, and (c) would have a maturity no longer than any outstanding bank loan (and in any event not over seven days). In addition, if an event of default were to occur under any agreement evidencing an outstanding bank loan to the fund, the event of default would automatically (without need for action or notice by the lending fund) constitute an immediate event of default under the Interfund Lending Agreement entitling the lending fund to call the Interfund Loan (and exercise all rights with respect to any collateral, if any). Such a call would be deemed made if a lending bank exercises its right to call its loan under its agreement with the borrowing fund.

 

The fund may make an unsecured borrowing under the Interfund Lending Agreement if its outstanding borrowings from all sources immediately after the interfund borrowing total 10% or less of its total assets; provided, that if the fund has a secured loan outstanding from any other lender, including but not limited to another Putnam Fund, the fund’s Interfund Loan would be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding loan secured by collateral. If (i) the fund’s total outstanding borrowings immediately after an interfund borrowing would be greater than 10% of its total assets,(ii) the fund’s total outstanding borrowings exceed 10% of its total assets for any reason (such as a decline in net asset value or because of shareholder redemptions), or (iii) the fund has outstanding secured Interfund Loans, the fund may borrow through the Interfund Lending Agreement on a secured basis only. All secured Interfund Loans would be secured by the pledge of segregated collateral with a market value equal to at least 102% of the outstanding principal value of the Interfund Loan. The fund may not borrow from any source if its total outstanding borrowings immediately after the borrowing would exceed the limits imposed by Section 18 of the 1940 Act or the fund’s fundamental investment restrictions.

 

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The fund may not lend to another Putnam Fund under the Interfund Lending Agreement if the Interfund Loan would cause its aggregate outstanding Interfund Loans to exceed 15% of the fund’s current net assets at the time of the Interfund Loan. The fund’s Interfund Loans to any one fund may not exceed 5% of the lending fund’s net assets. The duration of Interfund Loans would be limited to the time required to receive payment for securities sold, but in no event may the duration exceed seven days. Interfund Loans effected within seven days of each other would be treated as separate loan transactions for purposes of this condition. Each Interfund Loan may be called on one business day’s notice by a lending fund and may be repaid on any day by a borrowing fund.

 

The limitations detailed above and the other conditions of the SEC exemptive order permitting interfund lending are designed to minimize the risks associated with interfund lending for both the lending fund and the borrowing fund. However, no borrowing or lending activity is without risk. If the fund borrows money from another fund, there is a risk that the Interfund Loan could be called on one business day’s notice or not renewed, in which case the fund may have to borrow from a bank at higher rates if an Interfund Loan were not available from another fund. A delay in repayment to a lending fund could result in a lost opportunity or additional lending costs, and interfund loans are subject to the risk that the borrowing fund could be unable to repay the loan when due. In the case of a default by a borrowing fund and to the extent that the loan is collateralized, the lending fund could take possession of collateral that it is not permitted to hold and, therefore, would be required to dispose of such collateral as soon as possible, which could result in a loss to the lending fund. Because Putnam Management provides investment management services to both the lending fund and the borrowing fund, Putnam Management may have a potential conflict of interest in determining whether an Interfund Loan is appropriate for the lending fund and the borrowing fund. The funds and Putnam Management have adopted policies and procedures that are designed to manage potential conflicts of interest, but the administration of the Interfund Program may be subject to such conflicts.

 

Inverse Floaters

 

Inverse floating rate debt securities (or “inverse floaters”) are debt securities structured with variable interest rates that reset in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. As a result, inverse floaters may be more volatile and more sensitive to interest rate changes than other types of debt securities with comparable maturities. Inverse floaters may be subject to legal or contractual restrictions on resale and therefore may be less liquid than other types of securities. Certain inverse floaters may be illiquid.

 

Legal and Regulatory Risks Relating to Investment Strategy

 

The fund may be adversely affected by new (or revised) laws or regulations that may be imposed by the Internal Revenue System or Treasury Department, the CFTC, the SEC, the U.S. Federal Reserve or other banking regulators, or other governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. These agencies are empowered to promulgate a variety of rules pursuant to financial reform legislation in the United States. The fund may also be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by these governmental regulatory authorities or self-regulatory organizations. It is impossible to predict what, if any, changes in regulations may occur, but any regulation that restricts the ability of the fund to trade in securities or otherwise execute its investment strategy could have a material adverse impact on the fund’s performance.

 

The regulatory environment for funds is evolving, and changes in regulation may adversely affect the value of the investments held by the fund and the ability of the fund to execute its investment strategy. In addition, the securities and derivatives (including futures) markets are subject to comprehensive statutes, regulations and margin requirements. The CFTC, the SEC, the Federal Deposit Insurance Corporation, other regulators and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. The regulation of securitization and derivatives transactions and funds that engage in such

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transactions is an evolving area of law and is subject to modification by government, self-regulatory organization and judicial action.

 

In October 2016, the SEC adopted a liquidity risk management rule, Rule 22e-4 under the 1940 Act (the “Liquidity Rule”) that requires each fund (other than Putnam money market funds) to establish a liquidity risk management program. The funds have implemented a liquidity risk management program, and the fund’s Board of Trustees has appointed Putnam Management to administer the program. Under the liquidity risk management program, the liquidity risk of each fund is assessed, managed, and periodically reviewed and each portfolio investment held by each fund is classified as a “highly liquid investment,” “moderately liquid investment,” “less liquid investment” or “illiquid investment.” The Liquidity Rule defines “liquidity risk” as the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of the remaining investors’ interest in the fund. The liquidity of a fund’s portfolio investments is determined based on relevant market, trading and investment-specific considerations under the fund’s liquidity risk management program. The impact the Liquidity Rule will have on the funds, and on the open-end fund industry in general, is not yet fully known, but the rule could impact a fund’s performance and its ability to achieve its investment objective(s). Please see “Illiquid Investments” above for more information.

 

The U.S. government has enacted legislation that provides for new regulation of the derivatives market, including clearing, margin, reporting and registration requirements. The CFTC, SEC, and other federal regulators have adopted and continue to develop rules and regulations enacting the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The European Union (“EU”), the United Kingdom (“UK”), and some other countries have implemented and are in the process of implementing similar requirements that affect the fund when it enters into derivatives transactions with a counterparty organized in that country or otherwise subject to that country’s derivatives regulations. For example, the U.S. government, the EU, the UK and certain other jurisdictions have adopted mandatory minimum variation (and in some cases initial) margin requirements for bilateral derivatives. Such requirements could increase the amount of margin the fund needs to provide in connection with its derivatives transactions and, therefore, make derivatives transactions more expensive.

 

In addition, in October 2020, the SEC adopted Rule 18f-4 under the 1940 Act (the “Derivatives Rule”), regulating the use by registered investment companies of derivatives and many related instruments (e.g. reverse repurchase agreements). Compliance with the Derivatives Rule was required as of August 19, 2022. The Derivatives Rule requires, among other things, that certain entities adopt a derivatives risk management program, comply with limitations on leverage-related risk based on a “value-at-risk” test and update reporting and disclosure procedures. Funds that use derivative instruments in a limited amount are not subject to the full requirements of the Derivatives Rule. In connection with the adoption of the Derivatives Rule, the funds are no longer required to comply with the asset segregation framework arising from prior SEC guidance for covering certain derivative instruments and related transactions.

 

Regulatory changes also may affect counterparty risk. For example, new regulatory requirements may limit the ability of the fund to protect its interests in the event of an insolvency of a derivatives counterparty. In the event of a counterparty’s (or its affiliate’s) insolvency, the fund’s ability to exercise remedies, such as the termination of transactions, netting of obligations and realization on collateral, could be stayed or eliminated under new special resolution regimes adopted in the United States, the EU, the UK, and various other jurisdictions. Such regimes provide government authorities with broad authority to intervene when a financial institution is experiencing financial difficulty. In particular, with respect to counterparties who are subject to such proceedings in the EU and the UK, the liabilities of such counterparties to the fund could be reduced, eliminated, or converted to equity in such counterparties (sometimes referred to as a “bail in”).

The CFTC and domestic exchanges have established (and continue to evaluate and revise) speculative position limits, referred to as “position limits,” on the maximum speculative positions which any person, or group of persons acting in concert, may hold or control in particular futures and options on futures contracts. In

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addition, federal position limits apply to swaps that are economically equivalent to futures contracts that are subject to CFTC set speculative limits. All positions owned or controlled by the same person or entity, even if in different accounts, must be aggregated for purposes of determining whether the applicable position limits have been exceeded, unless an exemption applies. Thus, even if the fund does not intend to exceed applicable position limits, it is possible that positions of different clients managed by Putnam Management and its affiliates or by any sub-adviser and its affiliates may be aggregated for this purpose. Any modification of trading decisions or elimination of open positions that may be required to avoid exceeding such limits may adversely affect the profitability of the fund. Position limits may adversely affect the fund’s ability to hold positions in certain futures contracts and related options and swaps. A violation of position limits could also lead to regulatory action materially adverse to the fund’s investment strategy.

 

The SEC has in the past adopted interim rules requiring reporting of all short positions above a certain de minimis threshold and may adopt rules requiring monthly public disclosure in the future. In addition, other non-U.S. jurisdictions where the fund may trade have adopted reporting requirements. If the fund’s short positions or its strategy become generally known, the fund’s ability to implement its investment strategy could be adversely affected. In particular, other investors could cause a “short squeeze” in the securities held short by the fund forcing the fund to cover its positions at a loss. Such reporting requirements may also limit the fund’s ability to access management and other personnel at certain companies where the fund seeks to take a short position. In addition, if other investors engage in copycat behavior by taking positions in the same issuers as the fund, the cost of borrowing securities to sell short could increase drastically and the availability of such securities to the fund could decrease drastically. Such events could make a fund unable to execute its investment strategy. Short sales are also subject to certain SEC regulations. If the SEC were to adopt additional restrictions on short sales, they could restrict the fund’s ability to engage in short sales in certain circumstances. The SEC and regulatory authorities in other jurisdictions may adopt (and in certain cases, have adopted) bans on new or increases in short sales of certain securities, including short positions on such securities acquired through swaps, in response to market events. Bans on short selling and such short positions may make it impossible for the fund to execute certain investment strategies and may have a material adverse effect on the fund’s ability to generate returns.

 

In October 2020, the SEC adopted certain regulatory changes and took other actions related to the ability of an investment company to invest in another investment company. These changes include, among other things, amendments to Rule 12d1-1, the rescission of Rule 12d1-2, the adoption of Rule 12d1-4, and the rescission of certain exemptive relief issued by the SEC permitting such investments in excess of statutory limits. These regulatory changes may adversely impact each fund’s investment strategies and operations.

 

Rules implementing the credit risk retention requirements of the Dodd-Frank Act for asset-backed securities require the sponsor of certain securitization vehicles to retain, and to refrain from transferring, selling, conveying to a third party, or hedging 5% of the credit risk in assets transferred, sold, or conveyed through the issuance of such vehicle, subject to certain exceptions. These requirements may increase the costs to originators, securitizers, and, in certain cases, collateral managers of securitization vehicles in which the fund may invest, which costs could be passed along to the fund as an investor in such transactions.

 

Some EU-regulated institutions (banks, certain investment firms, and authorized managers of alternative investment funds) are currently restricted from investing in securitizations (including U.S.-related securitizations), unless, in summary: (i) the institution is able to demonstrate that it has undertaken certain due diligence in respect of various matters, including its investment position, the underlying assets, and (in the case of authorized managers of alternative investment funds) the sponsor and the originator of the securitization; and (ii) the originator, sponsor, or original lender of the securitization has explicitly disclosed to the institution that it will retain, on an ongoing basis, a net economic interest of not less than five percent of specified credit risk tranches or asset exposures related to the securitization. In the future, EU insurance and reinsurance undertakings and UCITS funds are expected to become subject to similar restrictions. Although the requirements do not apply to the fund directly, the costs of compliance, in the case of any securitization within

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the EU risk retention rules in which the fund has invested or is seeking to invest, could be indirectly borne by the fund and the other investors in the securitization.

 

The regulation of the derivatives markets has increased over the past several years, and additional future regulation of the derivatives markets may make derivatives more costly, may limit the availability or reduce the liquidity of derivatives, or may otherwise adversely affect the value or performance of derivatives. Because these requirements are relatively new and evolving, their ultimate impact on the fund and the financial system is not yet known. While the rules and regulations like those imposing requirements for margin and central clearing of some derivatives transactions are designed to reduce systemic risk (e.g., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that they will achieve that result, and, as noted, the requirements can expose the fund to new kinds of costs and risks.

 

London Interbank Offered Rate (LIBOR)

 

On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced its intention to cease compelling banks to provide the quotations needed to sustain LIBOR after 2021. ICE Benchmark Administration, the administrator of LIBOR, ceased publication of most LIBOR settings on a representative basis at the end of 2021 and is expected to cease publication of a majority of U.S. dollar LIBOR settings on a representative basis after June 30, 2023. In addition, global regulators have announced that, with limited exceptions, no new LIBOR-based contracts should be entered into after 2021. LIBOR has historically been a common benchmark interest rate index used to make adjustments to variable-rate loans. It is used throughout global banking and financial industries to determine interest rates for a variety of financial instruments and borrowing arrangements. Actions by regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies. Various financial industry groups have been planning for the transition away from LIBOR, but there are obstacles to converting certain longer-term securities and transactions to new reference rates. Markets are developing slowly and questions around liquidity in these rates and how to appropriately adjust these rates to mitigate any economic value transfer at the time of transition remain a significant concern. Neither the effect of the transition process nor its ultimate success can yet be known. The transition process might lead to increased volatility and illiquidity in markets that rely on LIBOR to determine interest rates. It could also lead to a reduction in the value of some LIBOR-based investments and reduce the effectiveness of related transactions, such as hedges. While some LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology, not all may have such provisions and there may be significant uncertainty regarding the effectiveness of any such alternative methodologies. Since the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur at any time.

 

Lower-rated Securities

 

The fund may invest in lower-rated fixed-income securities (commonly known as “junk bonds”) and may hold fixed-income securities that are downgraded to a lower rating after the time of purchase by the fund. Compared to higher-rated fixed-income securities, lower-rated securities generally offer the potential for higher investment returns but subject holders to greater credit, market and liquidity risk, including the possibility of default or bankruptcy. The lower ratings reflect a greater possibility that adverse changes in the financial condition of the issuer or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payment of interest and principal would likely make the values of securities held by the fund more volatile and could limit the fund’s ability to sell its securities at prices approximating the values the fund had placed on such securities. The market price of lower-rated securities also generally responds to short-term corporate and market developments to a greater extent than do the price and liquidity of higher-rated securities because such developments are perceived to have a more direct relationship to the ability of an issuer of lower-rated securities to meet its ongoing debt obligations. In

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addition, the market may be less liquid for lower-rated securities than for higher-rated securities. In the absence of a liquid trading market for securities held by it, the fund at times may be unable to establish the fair value of such securities.

 

Securities ratings are based largely on the issuer’s historical financial condition and the rating agencies’ analysis at the time of rating. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer’s current financial condition, which may be better or worse than the rating would indicate. In addition, the rating assigned to a security by Moody’s Investors Service, Inc. or Standard & Poor’s (or by any other nationally recognized securities rating agency) does not reflect an assessment of the volatility of the security’s market value or the liquidity of an investment in the security. See “SECURITIES RATINGS.”

 

Like those of other fixed-income securities, the values of lower-rated securities fluctuate in response to changes in interest rates. A decrease in interest rates will generally result in an increase in the value of the fund’s fixed-income assets. Conversely, during periods of rising interest rates, the value of the fund’s fixed-income assets will generally decline. The values of lower-rated securities may often be affected to a greater extent than higher-rated securities by changes in general economic conditions and business conditions affecting the issuers of such securities and their industries. Negative publicity or investor perceptions may also adversely affect the values of lower-rated securities, whether or not justified by fundamental factors. Changes by nationally recognized securities rating agencies in their ratings of any fixed-income security, changes in the ability of an issuer to make payments of interest and principal or regulation that limits the ability of certain categories of financial institutions to invest in lower-rated securities may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from these securities, but will affect the fund’s net asset value. The fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase. However, Putnam Management will monitor the investment to determine whether its retention will assist in meeting the fund’s goal(s).

 

Lower-rated securities may contain redemption, call or prepayment provisions which permit the issuer of such securities to, at its discretion, redeem the securities. During periods of falling interest rates, issuers of these securities are likely to redeem or prepay the securities and refinance them with debt securities with a lower interest rate. To the extent an issuer is able to refinance the securities, or otherwise redeem them, the fund may have to replace the securities with a lower yielding security, which would result in a lower return.

 

Issuers of lower-rated fixed-income securities may be (i) in poor financial condition, (ii) experiencing poor operating results, (iii) having substantial capital needs or negative net worth, or (iv) facing special competitive or product obsolescence problems, and may include companies involved in bankruptcy or other reorganizations or liquidation proceedings. Issuers of lower-rated securities are also often highly leveraged, and their relatively high debt-to-equity ratios increase the risk that their operations may not generate sufficient cash flow to service their debt obligations, especially during an economic downturn or during sustained periods of rising interest rates. Such issuers may not have more traditional methods of financing available to them and may be unable to repay outstanding obligations at maturity by refinancing. The risk of loss due to default in payment of interest or repayment of principal by issuers of lower-rated securities is significantly greater than for issuers of higher-rated securities because such securities frequently are unsecured and subordinated to the prior payment of senior indebtedness.

 

At times, a substantial portion of the fund’s assets may be invested in an issue of which the fund, by itself or together with other funds and accounts managed by Putnam Management or its affiliates, holds all or a major portion. Although Putnam Management generally considers such securities to be liquid because of the availability of an institutional market for such securities, it is possible that, under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the fund could find it more difficult to sell these securities when Putnam Management believes it advisable to do so or may be able to sell the securities only at prices lower than if they were more widely held. Under these circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing the fund’s net asset value. In order to enforce its rights in the event of a default, the fund may be required to participate in various legal proceedings or take possession of and manage assets securing the issuer’s obligations on such

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securities. This could increase the fund’s operating expenses and adversely affect the fund’s net asset value. In the case of tax-exempt funds, any income derived from the fund’s ownership or operation of such assets would not be tax-exempt. The ability of a holder of a tax-exempt security to enforce the terms of that security in a bankruptcy proceeding may be more limited than would be the case with respect to securities of private issuers. In addition, the fund’s intention to qualify as a “regulated investment company” under the Code may limit the extent to which the fund may exercise its rights by taking possession of such assets.

 

To the extent the fund invests in lower-rated securities, the achievement of the fund’s goals is more dependent on Putnam Management’s investment analysis than would be the case if the fund were investing in higher-rated securities

 

Market Risk

 

The value of securities in a fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political or financial market conditions, investor sentiment and market perceptions (including perceptions about monetary policy, interest rates or the risk of default), government actions (including protectionist measures, intervention in the financial markets or other regulation, and changes in fiscal, monetary or tax policies), geopolitical events or changes (including natural disasters, epidemics or pandemics, terrorism and war), and factors related to a specific issuer, geography, industry or sector. In addition, the increasing popularity of passive index-based investing may have the potential to increase security price correlations and volatility. (As passive strategies generally buy or sell securities based simply on inclusion and representation in an index, securities prices will have an increasing tendency to rise or fall based on whether money is flowing into or out of passive strategies rather than based on an analysis of the prospects and valuation of individual securities. This may result in increased market volatility as more money is invested through passive strategies). These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings, particularly for larger investments. During those periods, the fund may experience high levels of shareholder redemptions, and may have to sell securities at times when it would otherwise not do so, and at unfavorable price.

 

Legal, political, regulatory and tax changes may cause fluctuations in markets and securities prices. In the past, governmental and non-governmental issuers have defaulted on, or have been forced to restructure, their debts, and many other issuers have faced difficulties obtaining credit. Defaults or restructurings by governments or others of their debts could have substantial adverse effects on economies, financial markets, and asset valuations around the world. In addition, financial regulators, including the U.S. Federal Reserve and the European Central Bank, at times have taken steps to maintain historically low interest rates, such as by purchasing bonds. Some governmental authorities at times have taken steps to devalue their currencies substantially or have taken other steps to counter actual or anticipated market or other developments. Steps by those regulators and authorities to implement, or to curtail or taper, these activities could have substantial negative effects on financial markets. The withdrawal of support, failure of efforts in response to a financial crisis, or investor perception that these efforts are not succeeding could negatively affect financial markets generally as well as the values and liquidity of certain securities.

 

The fund is subject to the risk that geopolitical events will disrupt securities markets and adversely affect global economies and markets. War, terrorism, economic uncertainty, and other geopolitical events (including sanctions, tariffs, exchange controls or other cross-border trade barriers) have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on U.S. and world economies and markets generally. In addition, trade disputes (such as the “trade war” between the United States and China that intensified in 2018 and 2019) may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Events such as these and their impact on the fund are difficult to predict. For example, Russia’s military invasion of Ukraine in February 2022 resulted in the United States, other countries, and certain international organizations levying broad economic sanctions against Russia and Russian individuals. These sanctions and any additional sanctions or other intergovernmental actions that may be undertaken against Russia in the future may result in

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the devaluation of the ruble, a downgrade in the country’s credit rating, and a decline in the value and liquidity of Russian securities. Such actions could result in a freeze of Russian securities, impairing the ability of a fund to buy, sell, receive, or deliver those securities. Retaliatory action by the Russian government could involve the seizure of U.S. and/or European residents’ assets, and any such actions are likely to impair the value and liquidity of such assets. Any or all of these potential results could have an adverse/recessionary effect on Russia’s economy. All of these factors could have a negative effect on the performance of funds that have significant exposure to Russia.

 

In addition, the extent and duration of the military action associated with Russia’s invasion of Ukraine, resulting sanctions and resulting future market disruptions, including declines in Russian stock markets and the value of the ruble against the U.S. dollar, are impossible to predict, but could be significant. Any disruptions caused by such military action or other actions (including cyberattacks and espionage) or resulting actual and threatened responses to such activity, including purchasing and financing restrictions, boycotts or changes in consumer or purchaser preferences, sanctions, tariffs or cyberattacks on the Russian government, Russian companies, or Russian individuals, including politicians, may negatively impact Russia’s economy and Russian issuers of securities in which the fund invests. Actual and threatened responses to such military action may also impact the markets for certain Russian commodities, such as oil and natural gas, as well as other sectors of the Russian economy, and may likely have collateral impacts on such sectors globally. These and any related events could have a significant impact on fund performance and the value of an investment in the fund.

 

Likewise, natural and environmental disasters, epidemics or pandemics, and systemic market dislocations may be highly disruptive to economies and markets, and may result in significant market volatility, exchange trading suspensions or closures, or a substantial economic downturn or recession. Those events, as well as other changes in foreign and domestic economic and political conditions, also could disrupt the operations of the fund or its service providers or adversely affect individual issuers or related groups of issuers, interest rates, credit ratings, default rates, inflation, supply chains, consumer demand, investor sentiment, and other factors affecting the value or liquidity of the fund’s investments.

 

An outbreak of respiratory disease caused by a novel coronavirus designated as COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in, among other things, border closings and other significant travel restrictions and disruptions; significant disruptions to business operations, supply chains and customer activity; lower consumer demand for goods and services; higher levels of unemployment; event cancellations and restrictions; service cancellations, reductions and other changes; significant challenges in healthcare service preparation and delivery; prolonged quarantines; and general concern and uncertainty. These impacts have negatively affected, and may continue to negatively affect, the global economy, the economies of individual countries, and the financial performance of individual issuers, sectors, industries, asset classes, and markets in significant and unforeseen ways. The COVID-19 pandemic also has resulted in significant market volatility, exchange trading suspensions and closures, declines in global financial markets, higher default rates, and economic downturns and recessions, and may continue to have similar effects in the future. In addition, actions taken by government and quasi-governmental authorities and regulators throughout the world in response to the COVID-19 pandemic, including significant fiscal and monetary policies changes, may affect the value, volatility, and liquidity of some securities and other assets. Health crises caused by the COVID-19 pandemic may also exacerbate other pre-existing political, social, economic, market and financial risks. The effects of the outbreak in developing or emerging market countries may be greater due to less established health care systems. The foregoing could impair the fund’s ability to maintain operational standards (such as with respect to satisfying redemption requests), disrupt the operations of the fund’s service providers, adversely affect the value and liquidity of the fund’s investments, and negatively impact the fund’s performance and your investment in the fund. Given the significant uncertainty surrounding the magnitude, duration, reach, costs and effects of the COVID-19 pandemic, as well as actions that have been or could be taken by governmental authorities or other third parties, it is difficult to predict its potential impacts on a fund’s investments.

 

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Securities and financial markets may be susceptible to market manipulation or other fraudulent trade practices, which could disrupt the orderly functioning of these markets, contribute to overall market volatility and adversely affect the values of the fund’s investments.

 

Given the increasing interdependence among global economies and markets, conditions in one country, region or market might adversely affect financial conditions or issuers in other countries, regions or markets. For example, any partial or complete dissolution of the Economic and Monetary Union of the European Union, or any increased uncertainty as to its status, could have significant adverse effects on global currency and financial markets, and on the values of the fund’s investments. On January 31, 2020, the United Kingdom formally withdrew from the European Union (commonly known as “Brexit”). An agreement between the United Kingdom and the European Union governing their future trade relationship became effective January 1, 2021. While the full impact of Brexit is unknown, Brexit has already resulted in volatility in European and global markets. Potential negative long-term effects could include, among others, greater market volatility and illiquidity, disruptions to world securities markets, currency fluctuations, deterioration in economic activity, a decrease in business confidence, and an increased likelihood of a recession in the United Kingdom. To the extent the fund has focused its investments in a particular country, region or market, adverse geopolitical and other events impacting that country, region or market could have a disproportionate impact on the fund.

 

Master Limited Partnerships (MLPs)

 

A MLP generally is a publicly traded company organized as a limited partnership or limited liability company and treated as a partnership for U.S. federal income tax purposes. MLPs may derive income and gains from, among other things, the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resources. MLPs generally have two classes of owners, the general partner and limited partners. The general partner of an MLP is typically owned by one or more of the following: a major energy company, an investment fund, or the direct management of the MLP. The general partner may be structured as a private or publicly traded corporation or other entity. The general partner typically controls the operations and management of the MLP through an up to 2% equity interest in the MLP plus, in many cases, ownership of common units and subordinated units. Limited partners own the remainder of the partnership through ownership of common units and have a limited role in the partnership’s operations and management.

 

MLP securities in which certain funds may invest can include, but are not limited to: (i) equity securities of MLPs, including common units, preferred units or convertible subordinated units; (ii) debt securities of MLPs, including debt securities rated below investment grade; (iii) securities of MLP affiliates; (iv) securities of open-end funds, closed-end funds or exchange-traded funds (“ETFs”) that invest primarily in MLP securities; or (v) exchange-traded notes whose returns are linked to the returns of MLPs or MLP indices.

 

The risks of investing in an MLP are generally those inherent in investing in a partnership as opposed to a corporation. For example, MLP common units represent an equity ownership interest in a partnership, providing limited voting rights and entitling the holder to a share of the company’s success through distributions and/or capital appreciation. Unlike shareholders of a corporation, common unit holders do not elect directors annually and generally have the right to vote only on certain significant events, such as mergers, a sale of substantially all of the assets, removal of the general partner or material amendments to the partnership agreement. In addition, state law governing partnerships is often less restrictive than state law governing corporations. Accordingly, there may be fewer protections afforded investors in an MLP than investors in a corporation.

 

MLP common units and other equity securities can be affected by macro-economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs, changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). Prices of common units of

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individual MLPs and other equity securities can also be affected by fundamentals unique to the partnership or company, including earnings power and coverage ratios.

 

Additional risks involved with investing in an MLP are risks associated with the specific industry or industries in which the partnership invests. For example, companies operating in the energy MLP sector are subject to risks that are specific to the industry in which they operate. MLPs and other companies that provide crude oil, refined product and natural gas services are subject to supply and demand fluctuations in the markets they serve which may be impacted by a wide range of factors including fluctuating commodity prices, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, rising interest rates, declines in domestic or foreign production, accidents or catastrophic events, and economic conditions, among others. Energy MLP companies are subject to varying demand for oil, natural gas or refined products in the markets they serve, as well as changes in the supply of products requiring gathering, transport, processing, or storage due to natural declines in reserves and production in the supply areas serviced by the companies’ facilities. Declines in oil or natural gas prices, as well as adverse regulatory decisions, may cause producers to curtail production or reduce capital spending for production or exploration activities, which may in turn reduce the need for the services provided by energy MLP companies. Lower prices may also create lower processing margins. Energy MLPs may also be subject to regulation by the Federal Energy Regulatory Commission (“FERC”) with respect to tariff rates that these companies may charge for interstate pipeline transportation services. An adverse determination by FERC with respect to tariff rates of a pipeline MLP could have a material adverse effect on the business, financial conditions, result of operations, cash flows and prospects of that pipeline MLP and its ability to make cash distributions to its equity owners.

 

Money Market Instruments

 

Money market instruments, or short-term debt instruments, consist of obligations such as commercial paper, bank obligations (e.g., certificates of deposit and bankers’ acceptances), repurchase agreements, and various government obligations, such as Treasury bills. These instruments have a remaining maturity of one year or less and are generally of high credit quality. Money market instruments may be structured to be, or may employ a trust or other form so that they are, eligible investments for money market funds. For example, put features can be used to modify the maturity of a security or interest rate adjustment features can be used to enhance price stability. If a structure fails to function as intended, adverse tax or investment consequences may result. Neither the IRS nor any other regulatory authority has ruled definitively on certain legal issues presented by certain structured securities. Future tax or other regulatory determinations could adversely affect the value, liquidity, or tax treatment of the income received from these securities or the nature and timing of distributions made by the funds.

 

Commercial paper is a money market instrument issued by banks or companies to raise money for short-term purposes. Commercial paper is usually sold on a discounted basis rather than as an interest-bearing instrument. Unlike some other debt obligations, commercial paper is typically unsecured, which increases the credit risk associated with this type of investment. In some cases, commercial paper may be backed by some form of credit enhancement, typically in the form of a guarantee by a commercial bank. Commercial paper backed by guarantees of foreign banks may involve additional risk due to the difficulty of obtaining and enforcing judgments against such banks and the generally less restrictive regulations to which such banks are subject. Commercial paper also may be issued as an asset-backed security (that is, backed by a pool of assets representing the obligations of a number of different issuers), in which case certain of the risks discussed in “Mortgage-backed and Asset-backed securities” would apply. Commercial paper is traded primarily among institutions.

 

Certificates of deposit are receipts issued by a depository institution in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market prior to maturity. Certificates of deposit may include those issued by foreign banks outside the United States. Such certificates of deposit include Eurodollar and Yankee certificates of deposit. Eurodollar certificates of deposit are U.S. dollar-

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denominated certificates of deposit issued by branches of foreign and domestic banks located outside the United States. Yankee certificates of deposit are certificates of deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the United States.

 

Bankers’ acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Putnam Money Market Fund may invest in bankers’ acceptances issued by banks with deposits in excess of $2 billion (or the foreign currency equivalent) at the close of the last calendar year. If the Trustees change this minimum deposit requirement, shareholders would be notified. Other Putnam Funds may invest in bankers’ acceptances without regard to this requirement.

 

Time deposits are interest-bearing non-negotiable deposits at a bank or a savings and loan association that have a specific maturity date. A time deposit earns a specific rate of interest over a definite period of time. Time deposits cannot be traded on the secondary market and those exceeding seven days and with a withdrawal penalty are considered to be illiquid.

 

In accordance with rules issued by the SEC, the fund may from time to time invest all or a portion of its cash balances in money market and/or short-term bond funds advised by Putnam Management. In connection with such investments, Putnam Management may waive a portion of the advisory fees otherwise payable by the fund. See “Charges and expenses” in Part I of this SAI for the amount, if any, waived by Putnam Management in connection with such investments.

 

Mortgage-backed and Asset-backed Securities

 

Mortgage-backed securities, including collateralized mortgage obligations (“CMOs”), stripped mortgage-backed securities and securities that reflect an interest in reverse mortgages, represent a participation in, or are secured by, mortgage loans or otherwise are secured by real estate related collateral. Mortgage-backed securities may be issued by agencies or instrumentalities of the U.S. government (and may not be guaranteed or insured by the U.S. government, such as those issued by Freddie Mac, Fannie Mae, and FHLBs), foreign governments (or their agencies or instrumentalities), or non-governmental issuers. Interest and principal payments (including prepayments) on the mortgage loans underlying mortgage-backed securities typically pass through to the holders of the mortgage-backed securities or serve as the source for payments on the mortgage-backed securities. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, home equity loans, leases of various types of real, personal and other property and receivables from credit card agreements. Similar to mortgage-backed securities, other types of asset-backed securities may be issued by agencies or instrumentalities of the U.S. government (and may or may not be guaranteed or insured by the U.S. government), foreign governments (or their agencies or instrumentalities), or non-governmental issuers.

 

Mortgage-backed securities may have yield and maturity characteristics corresponding to the underlying assets. Unlike traditional debt securities, which may pay a fixed rate of interest until maturity, when the entire principal amount comes due, payments on certain mortgage-backed securities include both interest and a partial repayment of principal. Besides the scheduled repayment of principal, repayments of principal may result from the voluntary prepayment or refinancing of the underlying mortgage loans or the foreclosure of collateral securing the underlying mortgage loans. If property owners make unscheduled prepayments on their mortgage loans, these prepayments will result in early payment of the applicable mortgage-backed securities. In that event the fund may be unable to invest the proceeds from the early payment of the mortgage-backed

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securities in an investment that provides as high a yield as those mortgage-backed securities. Consequently, early payment associated with mortgage-backed securities may cause these securities to experience significantly greater price and yield volatility than that experienced by traditional fixed-income securities. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. During periods of falling interest rates, the rate of mortgage prepayments tends to increase, thereby tending to decrease the life of mortgage-backed securities. During periods of rising interest rates, the rate of mortgage prepayments usually decreases, thereby tending to increase the life of mortgage-backed securities. If the life of a mortgage-backed security is inaccurately predicted, the fund may not be able to realize the rate of return it expected.

 

The fund may invest in mortgage-backed securities that represent pools of mortgage loans with variable rates of interest (such loans, “ARMs”). Adjustable-rate mortgage-backed securities, like traditional mortgage-backed securities, are interests in pools of mortgage loans that provide investors with payments consisting of both principal and interest as mortgage loans in the underlying mortgage pool are paid off by the borrowers. Unlike fixed-rate mortgage-backed securities, adjustable-rate mortgage-backed securities are collateralized by or represent interests in ARMs. Interest rates for ARMs are reset at periodic intervals, usually by reference to an interest rate index or market interest rate. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of ARMs these securities are still subject to changes in value based on, among other things, changes in market interest rates or changes in the issuer’s creditworthiness. If rates increase due to a reset, the risk of default by underlying borrowers may increase. Because the interest rates are reset only periodically, changes in the interest rate on ARMs may lag changes in prevailing market interest rates. The market value of an adjustable-rate mortgage-backed security may be adversely affected if interest rates increase faster than the rates of interest payable on the ARMs underlying the security. Also, some ARMs are subject to caps or floors that limit the maximum change in the interest rate during a specified period or over the life of the ARM. As a result, changes in the interest rate on an ARM may not fully reflect changes in prevailing market interest rates during certain periods.

 

The fund may also invest in mortgage-backed securities that represent pools of “hybrid” ARMs, underlying mortgages that combine fixed-rate and adjustable rate features. A hybrid ARM is a type of mortgage in which the interest rate is fixed for a specified period and then resets periodically, or floats, for the remaining mortgage term. During the initial interest period, hybrid ARMs behave more like fixed-rate mortgage loans. All hybrid ARMs have a reset date, the date on which a hybrid ARM changes from a fixed interest rate to a floating interest rate. At the reset date, a hybrid ARM can adjust by a maximum specified amount based on a margin over an identified index. Like ARMs, hybrid ARMs have periodic and lifetime limitations on the increases that can be made to the interest rates that mortgagors pay. Therefore, if during a floating rate period interest rates rise above the interest rate limits of the hybrid ARM, a fund holding a security backed by that hybrid ARM does not benefit from further increases in interest rates.

 

Mortgage-backed and asset-backed securities are less effective than other types of securities as a means of “locking in” attractive long-term interest rates. One reason is the need to reinvest prepayments of principal; another is the possibility of significant unscheduled prepayments resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. The automatic interest rate adjustment feature of mortgages underlying ARMs likewise reduces the ability to lock-in attractive rates. As a result, mortgage-backed and asset-backed securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a similar risk of decline in market value during periods of rising interest rates. Prepayments may also significantly shorten the effective maturities of these securities, especially during periods of declining interest rates. Conversely, during periods of rising interest rates, a reduction in prepayments may increase the effective maturities of these securities, subjecting them to a greater risk of decline in market value in response to rising interest rates than traditional debt securities, and, therefore, potentially increasing the volatility of the fund.

 

August 30, 2023