ACTIVE INCOME

Putnam’s active fixed-income strategies diversify across four types of risk

We construct portfolios using a risk-based approach focused on four key areas in pursuit of alpha generation: rates, credit, prepayment, and liquidity.

Rates

Interest-rate risk (also called term structure risk) is a bond’s sensitivity to changes in the level, slope, and shape of interest rates.

Credit

Credit risk is the possibility a borrower may fail to make payments to investors.

Prepayment

Prepayment risk involves borrowers paying off debt early, typically in a falling-rate environment, which reduces the number of payments and amount of interest received by investors.

Liquidity

Liquidity risk refers to the relative difficulty of trading a security in a reasonable amount of time.

The Morningstar Rating™ 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 ten-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36 to 59 months of total returns, 60% five-year rating/40% three-year rating for 60 to 119 months of total returns, and 50% ten-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the ten-year overall star rating formula seems to give the most weight to the ten-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Ratings do not take into account the effects of sales charges and loads.