Active Income

Pennsylvania Tax Exempt Income Fund (Class Y)  (PPTYX)

Seeking a high level of tax-free income

Pennsylvania Tax Exempt Income Fund received an  Overall Morningstar Rating  of  

Q1 2020 | Putnam Municipal Bond Funds Q&A

  • Heavy selling in March led to the worst month of performance for the municipal bond market in decades.
  • Given the sell-off, municipal bonds were yielding more than 100% of Treasury yields.
  • We continue to believe our higher-in-credit-quality approach can add both income and return opportunities for our shareholders.

How did municipal bonds perform during the first quarter of 2020?

Municipal bonds posted positive performance in January and February, supported by stabilizing U.S. economic fundamentals and positive supply/demand technicals. However, in late February, fears about the spread of the coronavirus and its potential impact on global economic growth sparked a steep sell-off in equities and other high risk assets. After experiencing the largest inflow year in 2019, municipal bond funds began to see outflows in March, particularly in the lowest tiers of the market. [Fund flows are a measure of investor demand for mutual funds.] The heavy selling led to the worst month of performance [-3.63%] for the asset class in decades. The Bloomberg Barclays Municipal Bond Index [the benchmark] closed the quarter with a decline of -0.63%. In comparison, the ICE BofA U.S. Treasury Bill Index and the Bloomberg Barclays U.S. Aggregate Bond Index rose 0.65% and 3.15%, respectively.

Credit spreads widened significantly, particularly among lower-quality, high-yield municipals led by airline/airport and tobacco bonds. In the rush to safety, even general obligation bonds of highly rated issuers such as the State of California sold off. The outflows depressed prices, and yields rose. In turn, the municipal bond market saw a dislocation in the municipal and U.S. Treasury yield relationship, referred to as the Municipal/Treasury [M/T] ratio. The M/T ratio measures the yield on AAA-rated municipal bonds relative to the yield on U.S. Treasury yields of similar maturities. The higher, or cheaper, the ratio, the more attractive municipal bonds are relative to U.S. Treasuries. Given the sell-off, municipal bonds were yielding more than 100% of Treasury yields. Historically, a ratio in excess of 100% is interpreted as a buy signal and suggests an attractive entry point for long-term investors.

With the health risks posed by the pandemic rising and economic and financial market conditions deteriorating, monetary and fiscal policy makers moved into action. The Federal Reserve lowered interest rates to near zero and increased asset purchases to help ease tight credit markets. In an especially noteworthy move, the Fed announce on March 23 that they will start buying corporate and municipal debt. This allows cash-strapped states and cities to get loans to tie them over until the U.S. economy bounces back. On March 27, Congress finalized a $2.2 trillion relief package, the largest in history, to help hard-hit industries and provide relief for families, small business, and hospitals and health-care systems.

What is your current assessment of the health of the municipal bond market?

We believe state and local governments can benefit from their unique flexibility during economic crises. The majority of state and local governments have ample reserves in preparation for potential revenue declines, and those without strong reserve levels will have some flexibility to balance their budgets using one-time measures. Governmental entity defaults remain extremely rare despite headlines suggesting otherwise. Our exposure to state and local governments is limited to credits with diverse tax bases and the ability to enact broad revenue enhancements or expense cuts.

In our view, state governments are among the safest credits in the municipal market, benefiting from broad sovereign powers over revenue generation and spending. While the temporary freeze in commerce and related job losses will result in a decline in income tax and sales tax revenues for most states, and measures to combat the pandemic will lead to additional one-time spending, we believe state governments will manage this period through the use of reserves, federal aid, short-term borrowing, and additional revenue measures as needed.

Local governments generate most of their revenues through property taxes, which tend to lag economic activity by one to two years and should continue to see solid revenue collections for the next several quarters as a result. As with states, the pandemic containment effort will result in some one-time spending. A decline in state revenues will result in fewer grants trickling down to the local level, though we expect this disruption to be temporary. In our view, most states and local governments would only see prolonged fiscal stress should economic activity fail to stabilize over the next 12–18 months.

Do you foresee a rise in defaults?

Municipal bonds are a very highly rated sector. Historically, defaults represented a very small portion of the overall municipal bond market and were typically found in the lowest rated or non-rated cohorts. According to Municipal Market Analytics, defaults represented 0.09% of the overall market in 2019.

That said, we are in uncharted waters and credit fundamentals are deteriorating. As such, defaults are likely to increase relative to 2019’s low base. However, we expect the absolute number and market value of municipal bond defaults to be very low relative to the broader fixed-income markets.

Due to their increased economic sensitivity, high-yield municipals underperformed the broader municipal bond market. What is your current view of this sub-sector?

High-yield municipals represent a small subset [5%–10%] of the overall municipal bond universe. At this point, while we don’t expect widespread defaults in the market, some sectors could be hit harder than others. Small colleges, dorm financing, and weaker names in health care and transportation come to mind. As such, we have become select sellers of lower-rated bonds in sectors that we believe could be more challenged and possibly see an uptick in defaults over the next 12 to 24 months. This includes certain colleges and universities, project finance, retirement communities, and land development sectors.

In Putnam Tax-Free High Yield Fund, approximately 60% of the portfolio’s investments are rated investment grade. We have been more cautious on the lowest quality tiers of the market as we believe slowing U.S. economic growth could manifest itself in more challenging credit conditions in some of the lower-rated cohorts. We continue to believe our higher-in-credit-quality approach can add both income and return opportunities for our shareholders.

In our broader municipal portfolios, we continue to favor bonds rated above high-yield tiers. This is due to spread compressions in the market prior to the sell-off and some degradation in credit quality. This resulted from some borrowers not meeting our credits standards, in part because of fewer security features and covenants, among other reasons.

What is your outlook for the municipal bond market as the second quarter begins?

With regard to the effects of the pandemic on the U.S. economy, it is too early to know the magnitude of the shock or how deep or long any recession will be. Given the uncertainty, we have become more cautious in our municipal fundamental outlook. In addition to selling lower-rated bonds facing challenges, we are carrying 3% to 5% of assets in cash versus a 2% level that is typical of more stable times.

In our view, safe-harbor sectors include school districts and utilities. School districts benefit from a constitutional mandate to receive adequate revenues from state governments and often have the ability to levy property taxes similar to local governments. Water, sewer, and public power utilities should also remain resilient during the crisis as they provide essential services and most borrowers benefit from the ability to raise rates if needed. While we may see a moderate increase in payment delinquencies, we do not expect any of these sectors to encounter a significant spike in defaults.

We’ll continue to work closely with our macroeconomic team and our taxable corporate credit analysts to monitor the direction of U.S. economic activity and its potential impact on municipal credit fundamentals. We believe that the majority of municipal bonds continue to offer a high-quality, low-default asset with an attractive after-tax yield.

Highlights

Objective

The fund seeks as high a level of current income exempt from federal income tax and Pennsylvania personal income tax as we believe is consistent with preservation of capital.

Strategy and process

  • Tax-advantaged income: The fund offers Pennsylvania residents the potential for high current income that is free from federal income tax and Pennsylvania State personal income taxes.
  • Focus on performance: The portfolio managers seek to provide a competitive yield through a combination of careful security selection and portfolio construction strategies.
  • A diversified portfolio: A broadly diversified portfolio enables the managers to pursue current tax-free income opportunities while managing risk and seeking to preserve capital.

Fund price

Net asset value
(yesterday’s close)
$9.34
0.00% | $0.00
52-week high $9.59 (03/09/20)
52-week low $8.54 (03/20/20)
(Optional)

Yield

Distribution rate before sales charge
as of 07/06/20
2.41%
Distribution rate after sales charge
as of 07/06/20
2.41%
30-day SEC yield as of 06/30/20 1.62%

Consistency of positive performance over five years

Performance represents 5-year returns in rolling quarter-end periods since inception.

Performance shown does not reflect the effects of any sales charges. Note that returns of 0.00% are counted as positive periods. For complete fund performance, please click on the performance tab.

9.10%

Best 5-year annualized return

(for period ending 12/31/95)


1.70%

Worst 5-year annualized return

(for period ending 12/31/08)


4.95%

Average 5-year annualized return


Fund facts as of 06/30/20

Total net assets
$151.02M
Turnover (fiscal year end)
12%
Dividend frequency (view rate)
Monthly
Number of holdings
155
Fiscal year-end
May
CUSIP / Fund code
746852508 / 1824
Inception date
01/02/08
Category
Tax-free Income
Open to new investors
Ticker
PPTYX

Management team

Portfolio Manager
Portfolio Manager


Literature


Tax-free muni strategies in a low-rate world
Tax-free muni strategies may provide a competitive yield, and preserve capital, whether economic growth accelerates or remains slow.

Performance

  • Total return (%) as of 06/30/20

  • Annual performance as of 06/30/20

Annualized Total return (%) as of 06/30/20

Annualized performance 1 yr. 3 yrs. 5 yrs. 10 yrs.
Before sales charge 3.95% 3.96% 3.56% 3.85%
After sales charge N/A N/A N/A N/A
Bloomberg Barclays Municipal Bond Index 4.45%4.22%3.93%4.22%

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns before sales charge do not reflect the current maximum sales charges as indicated below. Had the sales charge been reflected, returns would be lower. Returns at public offering price (after sales charge) for class A and class M shares reflect the current maximum initial sales charges of 5.75% and 3.50% for equity funds and 4.00% and 3.25% for income funds (2.25% for class A of Putnam Floating Rate Income Fund, Short-Term Municipal Income, Short Duration Bond Fund, and Fixed Income Absolute Return Fund), respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter (except for Putnam Floating Rate Income Fund, Putnam Short Duration Bond Fund, Putnam Fixed Income Absolute Return Fund, and Putnam Short-Term Municipal Income Fund, which is 1% in the first year, declining to 0.5% in the second year, and is eliminated thereafter). Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, M, N, R, and Y shares prior to their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares (with the exception of Putnam Tax-Free High Yield Fund and Putnam AMT-Free Municipal Fund, which are based on the historical performance of class B shares). Performance for class A, C, R6, and Y shares of Putnam Mortgage Opportunities Fund before their inception is derived from the historical performance of class I shares, which have been adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares. Returns at public offering price (after sales charge) for class N shares reflect the current maximum initial sales charge of 1.50%. Class R5/R6 shares, available to qualified employee-benefit plans only, are sold without an initial sales charge and have no CDSC. Class Y shares are generally only available for corporate and institutional clients and have no initial sales charge. Performance for class R5/R6 shares before their inception are derived from the historical performance of class Y shares, which have not been adjusted for the lower expenses; had they, returns would have been higher. Class A shares of Putnam money market funds have no initial sales charge. For a portion of the period, some funds had expenses limitations or had been sold on a limited basis with limited assets and expenses, without which returns would be lower.

Performance snapshot

  Before sales charge After sales charge
1 mt. as of 06/30/20 1.29% -
YTD as of 06/30/20 1.63% -

Yield

Distribution rate before sales charge
as of 07/06/20
2.41%
Distribution rate after sales charge
as of 07/06/20
2.41%
30-day SEC yield as of 06/30/20 1.62%

Risk-adjusted performance as of 05/31/20

Sharpe ratio (3 yrs.) 0.48
Information ratio (3 yrs.) -0.40

Volatility as of 05/31/20

Standard deviation (3 yrs.) 3.84%
Beta 0.97
R-squared 0.96

Lipper rankings as of 05/31/20

Time period Rank/Funds in category Percentile ranking
1 yr. 10/51 20%
3 yrs. 8/45 18%
5 yrs. 13/43 30%
10 yrs. 16/40 40%
Lipper category: Pennsylvania Municipal Debt Funds

Morningstar Ratings as of 05/31/20

Time period Funds in category Morningstar Rating
Overall 47
3 yrs. 47
5 yrs. 45
10 yrs. 42
Morningstar category: Muni Pennsylvania

Distributions

Accrual days 30
Accrual start date 06/01/20
Accrual end date 06/30/20
Payable date 06/30/20
Non-taxable income $0.019150804
Extra taxable income --

Lipper rankings are based on total return without sales charge relative to all share classes of funds with similar objectives as determined by Lipper. Past performance is not indicative of future results.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

The up-market capture ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has risen. The ratio is calculated by dividing the manager’s returns by the returns of the index during the up-market, and multiplying that factor by 100. The down-market capture ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has dropped. The ratio is calculated by dividing the manager’s returns by the returns of the index during the down-market and multiplying that factor by 100.


Tax-Equivalent Yield Calculator

When considering investing in municipal bonds, you should evaluate yields on a tax-equivalent basis, taking into account your tax liability on the interest earned from each.

  • Federally tax-exempt bonds typically yield less income than taxable bonds.
  • State and local income tax-exempt bonds may yield less than those whose interest is taxed in a particular jurisdiction.

What is your tax rate?

Incomes higher than $250,000 have NII taxes included

Federal Rate

0.00%

+

State Income

0.00%

=

Total Tax Rate

0.00%

Choose a fund

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You've selected an in-state municipal fund
which currently yields 2.47%.

There are other types of bond funds to consider...

To get the equivalent yield as the in-state municipal
fund, each fund would have to yield:
Yield
In-state
muni
2.47%
Out-of-state muni
2.47%
U.S. Treasuries
2.47%
Other taxable funds
2.47%
Taxes
0%
Tax
5.05%
MA income tax
2.47%
Federal income tax
2.47%
MA + Federal income tax
...because a portion of the yield would go toward taxes!

Yield

Taxes

Equivalent

Putnam Massachusetts Tax Exempt Income Fund

— or —

  See how this fund stacks up against its peers with FundVisualizer®


 Disclosures


Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class Y shares assumes reinvestment of distributions and does not account for taxes. Class Y shares, available to investors through an asset-based fee program or for institutional clients, are sold without an initial sales charge and have no CDSC. Performance for class Y shares prior to their inception is derived from the historical performance of class A shares, which have not been adjusted for the lower expenses; had they, returns would have been higher. For the most recent month-end performance, please visit putnam.com.

Putnam

The output of this calculator is for educational purposes only and should not be considered investment, legal or tax advice as is not intended to serve as the primary or sole basis for investment or tax-planning decisions. It is intended for U.S. individual taxpayers residing in the 50 states and the District of Columbia, and is not applicable to trusts, estates, corporations or persons subject to special rules under federal, state or local income tax laws. The taxes calculated on investment income does not apply to funds and accounts held outside qualified retirement plans and other tax-deferred or tax-exempt investments.

Laws of a particular state, or laws which may be applicable to a particular situation, may have an impact on the applicability, accuracy, or completeness of information provided. Putnam does not guarantee that the content is accurate, complete, or timely, or that the calculator produces accurate or complete results.

For more individualized information, consult your tax advisor or investment professional. You bear sole responsibility for any decisions made based on the output of this calculator. The calculator makes certain assumptions that may not apply to you. The calculator has many inherent limitations, and individual results may vary.

Calculator assumptions

The calculator displays the federal and state tax rates assumed in calculating tax equivalent yields based on a chosen income level and filing status. Indicated rates are those that apply to an incremental dollar of additional income, which may vary from your average tax rates. The 3.8% net investment income (NII) federal tax applies to individuals, estates and trusts with modified adjusted gross income (MAGI) above applicable threshold amounts ($200,000 for single and head of household; $250,000 for married filing jointly). While reasonable efforts are made to make timely updates to tax rates and income tax brackets used by this calculator, there may be a delay in when the tool reflects those changes.

The calculator does not take into account:

  • Reductions and limits on federal itemized deductions
  • State and local taxes are not deducted from your federal tax rate. Depending on your personal scenario, this may cause the resulting yield to be overstated
  • Federal alternative minimum tax (AMT)
  • State alternative minimum tax
  • Intangibles taxes levied by individual states
  • Local income tax rates imposed by cities, counties or other local jurisdictions on investment income and gains

You should review the assumed tax rates against your actual tax rates based on your individual tax situation when analyzing and interpreting this calculator's results.


Holdings

Pa Turnpike Comm -A-1 05.0000 12/01/2040 1.93%
Whiting In Envrnmntl 05.0000 12/01/2044 1.76%
Geisinger Auth-A-2 05.0000 02/15/2039 1.71%
Pa Turnpike Comm-Conv 00.0000 12/01/2034 1.64%
Wilkes-Barre Pa Area 05.0000 04/15/2059 1.63%
Capital Region Wtr 05.0000 07/15/2042 1.62%
Pa Tpk Commn-B-Ref 05.0000 06/01/2036 1.55%
Scranton Sch Dist-E 04.0000 12/01/2037 1.50%
Pa Hgr Edu Fac-Ref 04.0000 05/01/2034 1.44%
Pennsylvania-A-Cops 05.0000 07/01/2037 1.34%
Top 10 holdings, percent of portfolio 16.12%



Portfolio composition as of 05/31/20

Municipal bonds and notes 95.69%
Cash and net other assets 4.31%

Fixed income statistics as of 05/31/20

Average stated maturity 16.11 yrs.
Average effective maturity 7.00 yrs.
Option adjusted duration 7.98 yrs.
Duration to worst 5.58 yrs.
Average yield to maturity 3.79%
Average coupon 4.39%
AMT exposure 8.01%

Quality rating as of 05/31/20

AAA 0.63%
AA 27.72%
A 48.08%
BBB 12.26%
BB 4.36%
Not Rated 2.64%
Cash and net other assets 4.31%

Fund characteristics will vary over time.

Due to rounding, percentages may not equal 100%.

Consider these risks before investing: The value of investments in the 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, government actions, geopolitical events or changes, and factors related to a specific issuer, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund's portfolio holdings. The fund's performance will be closely tied to the economic and political conditions in Pennsylvania, and can be more volatile than the performance of a more geographically diversified fund. Capital gains, if any, are taxed at the federal and, in most cases, state levels. For some investors, investment income may be subject to the federal alternative minimum tax. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Unlike bonds, funds that invest in bonds have fees and expenses. Tax-exempt bonds may be issued under the Internal Revenue Code only by limited types of issuers for limited types of projects. As a result, the fund's investments may be focused in certain market segments and be more vulnerable to fluctuations in the values of the securities it holds than a more broadly invested fund. Interest the fund receives might be taxable. Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund’s other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.

Credit qualities are shown as a percentage of net assets. A bond rated BBB or higher (SP-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor's, Moody's, and Fitch. Ratings may vary over time. Cash and net other assets, if any, represent the market value weights of cash, derivatives, and short-term securities in the portfolio. The fund itself has not been rated by an independent rating agency.

Top industry sectors as of 05/31/20

Local Debt 22.79%
Health care 19.32%
Education 15.49%
Transportation 13.51%
Utilities 11.69%
State Debt 4.46%
Cash and net other assets 4.31%
Industrials 3.50%
Prerefunded 1.80%
 
Other
3.13%
Special Tax 1.60%
Housing 0.78%
Other 0.75%

Sectors will vary over time.


Expenses

Expense ratio

Class A Class B Class C Class R6 Class Y
Total expense ratio 0.83% 1.45% 1.60% 0.57% 0.60%
What you pay 0.83% 1.45% 1.60% 0.57% 0.60%

Sales charge

 Breakpoint Class A Class B Class C Class R6 Class Y
$0-$49,999 4.00% / 3.50% 0.00% / 4.00% 0.00% / 1.00% -- --
$50,000-$99,999 4.00% / 3.50% 0.00% / 4.00% 0.00% / 1.00% -- --
$100,000-$249,999 3.25% / 2.75% -- 0.00% / 1.00% -- --
$250,000-$499,999 2.50% / 2.00% -- 0.00% / 1.00% -- --
$500,000-$999,999 0.00% / 1.00% -- -- -- --
$1M-$4M 0.00% / 1.00% -- -- -- --
$4M-$50M 0.00% / 0.50% -- -- -- --
$50M+ 0.00% / 0.25% -- -- -- --

CDSC

  Class A (sales for $500,000+) Class B Class C Class R6 Class Y
0 to 9 mts. 1.00% 5.00% 1.00% -- --
9 to 12 mts. 1.00% 5.00% 1.00% -- --
2 yrs. 0.00% 4.00% 0.00% -- --
3 yrs. 0.00% 3.00% 0.00% -- --
4 yrs. 0.00% 3.00% 0.00% -- --
5 yrs. 0.00% 2.00% 0.00% -- --
6 yrs. 0.00% 1.00% 0.00% -- --
7+ yrs. 0.00% 0.00% 0.00% -- --

Trail commissions

  Class A Class B Class C Class R6 Class Y
  0.25% 0.20% 1.00% 0.00% 0.00%
  NA NA NA NA NA
  NA NA NA NA NA

For sales and trail commission information on purchases over $500,000 and participant-directed qualified retirement plans, see a Putnam fund prospectus and the statement of additional information.

The Bloomberg Barclays Municipal Bond Index is an unmanaged index of long-term fixed-rate investment-grade tax-exempt bonds. You cannot invest directly in an index.

Consider these risks before investing: The value of investments in the 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, government actions, geopolitical events or changes, and factors related to a specific issuer, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund's portfolio holdings. The fund's performance will be closely tied to the economic and political conditions in Pennsylvania, and can be more volatile than the performance of a more geographically diversified fund. Capital gains, if any, are taxed at the federal and, in most cases, state levels. For some investors, investment income may be subject to the federal alternative minimum tax. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Unlike bonds, funds that invest in bonds have fees and expenses. Tax-exempt bonds may be issued under the Internal Revenue Code only by limited types of issuers for limited types of projects. As a result, the fund's investments may be focused in certain market segments and be more vulnerable to fluctuations in the values of the securities it holds than a more broadly invested fund. Interest the fund receives might be taxable. Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund’s other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.

Credit qualities are shown as a percentage of net assets. A bond rated BBB or higher (SP-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor's, Moody's, and Fitch. Ratings may vary over time. Cash and net other assets, if any, represent the market value weights of cash, derivatives, and short-term securities in the portfolio. The fund itself has not been rated by an independent rating agency.