Total return and lower volatility potential

The debt securities of leveraged companies include high-yield bonds and bank loan securities, investments that can provide attractive total return through a combination of current income and capital appreciation. In addition, the debt of leveraged companies tends to be less volatile than the equity securities, as measured by standard deviation over multi-year periods.

With these characteristics, debt securities can help to diversify a portfolio of leveraged company stocks. Adding high-yield bonds and bank loans to a portfolio of leveraged company stocks can significantly reduce its volatility, even during a bear market.

Diversification reduced volatility in the depths of the bear market (2/29/08 – 2/28/09)

Chart showing how Diversification through Leveraged Companies reduced volatility in the depths of the bear market 2/29/08-2/28/09

This chart is for informational purposes only. It does not reflect the performance of any Putnam fund, which will differ. Leveraged company stocks are represented by the Credit Suisse Leveraged Equity Index. The hypothetical portfolio is composed of a 50% allocation to the Credit Suisse Leveraged Equity Index, a 30% allocation to the JPMorgan Developed High Yield Index, and a 20% allocation to the Barclays Capital U.S. High Yield Loan Index, which is an unmanaged index that provides broad and comprehensive total return metrics of the universe of U.S. dollar denominated syndicated term loans. Indexes are unmanaged and do not reflect any fees or expenses, and you cannot invest directly in an index. Past performance is not indicative of future results, and results may differ over other performance periods. Standard deviation measures how widely a set of values varies from the mean. It is a historical measure of the variability of return earned by an investment portfolio over a 1-year period.



Spectrum Funds
Putnam Investments - A world of investing

Consider these risks before investing: The funds invest some or all of their assets in small and/or midsize companies with leveraged capital structures. Such investments increase the risk of greater price fluctuations.

The funds invest in relatively few issuers and involve more risk than funds that invest more broadly.

Funds that invest in securities of leveraged companies involve the risk that the securities of leveraged companies will be more sensitive to issuer, political, market, and economic developments than the market as a whole and the securities of other types of companies. Investments in securities of leveraged companies are likely to be more volatile than investments in companies that are not leveraged. The funds may focus investments in types of securities — equities, fixed income, or bank loans — that underperform relative to, or are more volatile than, other types of securities.

Funds that engage in short sales of securities may incur losses if the securities appreciate in value and may experience higher volatility due to leverage resulting from investing the proceeds of securities sold short. When short-selling, investors sell borrowed shares, hoping to repurchase them at a lower price before returning them to the lender.

Additional risks associated with Putnam Capital Spectrum Fund: Funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Mortgage-backed securities are subject to prepayment risk.

Putnam Retail Management