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Not FDIC Insured

May Lose Value

No Bank Guarantee

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What isa bond?A loan to a corporationor government.

• Investors lend the money

• Repaid in specified period of time (up to 30 years)

• Repaid with specified amount of interest income

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Risk versus return• Amount of income reflects creditworthiness of

issuerHighest-quality bonds(rated AAA or AA) = Lowest yields

• U.S. Treasury bonds• Municipal bonds• Bonds issued by corporations with a spotless track record of honoring their debt obligations

Medium-quality bonds(ratings from AA to BB)= Average yields

• Non-U.S. government bonds• Bonds issued by corporations in decent financial health

Lowest-quality bonds(rated BB or lower) = Highest yields

• Emerging-market bonds• Bonds issued by corporations in poor financial health

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Taxable or tax free?

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Consider thetax-equivalent yield

Mun

icip

al b

ond

yiel

d

Your tax bracket15% 25% 28% 33% 35%

3% 3.53 4.00 4.17 4.48 4.62

4% 4.71 5.33 5.56 5.97 6.15

5% 5.88 6.67 6.94 7.46 7.69

6% 7.06 8.00 8.33 8.96 9.23Equivalent yield of a taxable bond

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Mun

icip

al b

ond

yiel

d

Your tax bracket15% 25% 28% 33% 35%

3% 3.53 4.00 4.17 4.48 4.62

4% 4.71 5.33 5.56 5.97 6.15

5% 5.88 6.67 6.94 7.46 7.69

6% 7.06 8.00 8.33 8.96 9.23Equivalent yield of a taxable bond

Consider thetax-equivalent yield

An investor in the 33% tax bracket with a 5% tax-free yield will get the equivalent of a 7.46% after-tax yield.

For illustrative purposes only.

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Calculating tax-equivalent yield

= Tax-equivalent yield

Tax-free yield

100 – your tax rate

= 7.46%5

100 – 33

For illustrative purposes only.

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What benefits dobonds provide?

• Interest income during the life of the bond• Potential for capital appreciation if interest

rates decline• Potential to reduce overall volatility of an

equity portfolio

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One predictable thing about the market — it is unpredictable

Past performance does not indicate future results.Indexes are unmanaged and show broad market performance. It is not possible to invest directly in an index.

Highestreturn

Lowestreturn

1990

1995

2000

2005 2010

U.S. Small-Cap Growth Stocks | Russell 2000 Growth Index International stocks | MSCI EAFE IndexU.S. Large-Cap Growth Stocks | Russell 1000 Growth Index U.S. Bonds | Barclays Capital Aggregate Bond Index

U.S. Small-Cap Value Stocks | Russell 2000 Value Index Cash | BofA Merrill Lynch U.S. 3-month Treasury Bill Index

U.S. Large-Cap Value Stocks | Russell 1000 Value Index

Changes in market performance, 2000–2010

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When stocks get shaky,bonds can add stability

Data is as of 12/31/10 and is historical. Past performance does not guarantee future results. Stocks are represented by the S&P 500 Index, which is an unmanaged index of common stock performance. Bonds are represented by the Barclays Capital Aggregate Bond Index, an unmanaged index of U.S. investment-grade fixed-income securities. It is not possible to invest directly in an index.

Annual market results (%)

-40

-20

0

20

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

U.S. stocks

U.S.bonds

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Active rebalancing

StocksBonds

Balancedportfolio

Out ofbalanceportfolio

Stocks are represented by the S&P 500 Index and bonds by the Barclays Capital Aggregate Bond Index. Indexes are unmanaged and represent broad market performance. It is not possible to invest directly in an index. Data is historical. Past performance is not a guarantee of future results. Diversification and rebalancing will not necessarily prevent you from losing money; however, they may reduce volatility and potentially limit downside losses.

.

Without rebalancing: The market controls asset allocation

62%

38%

57%

43%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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67%

33%

55%

45%

67%

33%

67%

33%

Active rebalancing

StocksBonds

Balancedportfolio

Balancedportfolio

Stocks are represented by the S&P 500 Index and bonds by the Barclays Capital Aggregate Bond Index. Indexes are unmanaged and represent broad market performance. It is not possible to invest directly in an index. Data is historical. Past performance is not a guarantee of future results. Diversification and rebalancing will not necessarily prevent you from losing money; however, they may reduce volatility and potentially limit downside losses.

.

With rebalancing: Asset allocation remains consistent

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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A BALANCED APPROACH

A WORLD OF INVESTING

A COMMITMENT TO EXCELLENCE

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Why Putnam for fixed income?

• Over 70 years of fixed-income investing experience

• Manages nearly $46.66 billion in U.S. fixed-income securities and over $56.50 billion in U.S. and international fixed-income securities

• More than 70 investment professionals organized into specialist teams

As of 1/31/11.

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Putnam American Government Income FundPutnam Diversified Income TrustPutnam Floating Rate Income FundPutnam Global Income TrustPutnam High Yield TrustPutnam Income FundPutnam Tax Exempt Income FundPutnam Tax-Free High Yield Fund

Putnam fixed-income funds cover all bond sectors

U.S. governmentsecurities

Investment-gradecorporate bonds

International bonds High-yield bonds U.S. governmentincome trust

Tax-free investment- grade bonds

Tax-free high-yieldbonds

Floating rate loans Mortgage-backed securities

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Building a solid financialfoundation with bonds

• What is a bond?• Taxable or tax free: Which is right for you?• When stocks are shaky, bonds often are stable

– Adding bonds reduces volatility• Work with a trusted financial advisor

– To select the right investments– To ensure that accounts are set up with your future

in mind

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