ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1: Valuations based on quoted prices for identical securities in active markets.
Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| | | |
| | Valuation inputs |
| Investments in securities: | Level 1 | Level 2 | Level 3 |
| Asset-backed securities | $— | $69,039,091 | $— |
| Collateralized loan obligations | — | 23,388,559 | — |
| Corporate bonds and notes | — | 831,341,461 | — |
| Mortgage-backed securities | — | 169,258,692 | — |
| U.S. government and agency mortgage obligations | — | 2,721,897 | — |
| U.S. treasury obligations | — | 97,950 | — |
| Short-term investments | 260,000 | 175,039,640 | — |
| Totals by level | $260,000 | $1,270,887,290 | $— |
|
| | | |
| | Valuation inputs |
| Other financial instruments: | Level 1 | Level 2 | Level 3 |
| Interest rate swap contracts | $— | $(2,489,490) | $— |
| Credit default contracts | — | — | — |
| Totals by level | $— | $(2,489,490) | $— |
The accompanying notes are an integral part of these financial statements.
| |
Short Duration Bond Fund 27 |
Statement of assets and liabilities 4/30/24 (Unaudited)
| |
| ASSETS | |
| Investment in securities, at value (Notes 1 and 8): | |
| Unaffiliated issuers (identified cost $1,279,274,415) | $1,231,810,078 |
| Affiliated issuers (identified cost $39,337,212) (Note 5) | 39,337,212 |
| Interest and other receivables | 9,982,929 |
| Receivable for shares of the fund sold | 3,100,807 |
| Receivable for investments sold | 125 |
| Receivable for variation margin on centrally cleared swap contracts (Note 1) | 719,544 |
| Unrealized appreciation on OTC swap contracts (Note 1) | 437,442 |
| Premium paid on OTC swap contracts (Note 1) | 454,404 |
| Deposits with broker (Note 1) | 2,837,221 |
| Receivable from broker (Note 1) | 1,854 |
| Total assets | 1,288,681,616 |
| |
| LIABILITIES | |
| Payable to custodian | 540 |
| Payable for investments purchased | 5,259,421 |
| Payable for shares of the fund repurchased | 2,819,675 |
| Payable for compensation of Manager (Note 2) | 612,407 |
| Payable for Trustee compensation and expenses (Note 2) | 45,930 |
| Payable for distribution fees (Note 2) | 120,022 |
| Payable for variation margin on centrally cleared swap contracts (Note 1) | 719,524 |
| Distributions payable to shareholders | 161,964 |
| Unrealized depreciation on OTC swap contracts (Note 1) | 123,079 |
| Premium received on OTC swap contracts (Note 1) | 768,767 |
| Collateral on certain derivative contracts, at value (Notes 1 and 8) | 357,950 |
| Other accrued expenses | 4,241 |
| Total liabilities | 10,993,520 |
| | |
| Net assets | $1,277,688,096 |
| |
| REPRESENTED BY | |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $1,403,335,280 |
| Total distributable earnings (Note 1) | (125,647,184) |
| Total — Representing net assets applicable to capital shares outstanding | $1,277,688,096 |
(Continued on next page)
|
| 28 Short Duration Bond Fund |
Statement of assets and liabilities cont.
| |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
| Net asset value and redemption price per class A share | |
| ($520,960,944 divided by 53,779,627 shares) | $9.69 |
| Offering price per class A share (100/97.75 of $9.69)* | $9.91 |
| Net asset value and offering price per class B share ($224,071 divided by 23,164 shares)** | $9.67 |
| Net asset value and offering price per class C share ($17,212,725 divided by 1,781,664 shares)** | $9.66 |
| Net asset value, offering price and redemption price per class R share | |
| ($366,940 divided by 37,682 shares) | $9.74 |
| Net asset value, offering price and redemption price per class R6 share | |
| ($8,018,039 divided by 824,271 shares) | $9.73 |
| Net asset value, offering price and redemption price per class Y share | |
| ($730,905,377 divided by 75,338,029 shares) | $9.70 |
*On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.
**Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
|
| Short Duration Bond Fund 29 |
Statement of operations Six months ended 4/30/24 (Unaudited)
| |
| INVESTMENT INCOME | |
| Interest (including interest income of $1,498,793 from investments in affiliated issuers) (Note 5) | $24,425,329 |
| Total investment income | 24,425,329 |
| |
| EXPENSES | |
| Compensation of Manager (Note 2) | 2,297,602 |
| Distribution fees (Note 2) | 715,711 |
| Other | 7,875 |
| Total expenses | 3,021,188 |
| Expense reduction (Note 2) | (8,222) |
| Net expenses | 3,012,966 |
| | |
| Net investment income | 21,412,363 |
| |
| REALIZED AND UNREALIZED GAIN (LOSS) | |
| Net realized loss on: | |
| Securities from unaffiliated issuers (Notes 1 and 3) | (9,777,242) |
| Swap contracts (Note 1) | (1,285,415) |
| Total net realized loss | (11,062,657) |
| Change in net unrealized appreciation (depreciation) on: | |
| Securities from unaffiliated issuers | 38,913,250 |
| Swap contracts | (2,381,831) |
| Total change in net unrealized appreciation | 36,531,419 |
| | |
| Net gain on investments | 25,468,762 |
| |
| Net increase in net assets resulting from operations | $46,881,125 |
The accompanying notes are an integral part of these financial statements.
|
| 30 Short Duration Bond Fund |
Statement of changes in net assets
| | |
| INCREASE (DECREASE) IN NET ASSETS | Six months ended 4/30/24* | Year ended 10/31/23 |
| Operations | | |
| Net investment income | $21,412,363 | $44,025,856 |
| Net realized loss on investments | (11,062,657) | (31,031,820) |
| Change in net unrealized appreciation of investments | 36,531,419 | 57,764,020 |
| Net increase in net assets resulting from operations | 46,881,125 | 70,758,056 |
| Distributions to shareholders (Note 1): | | |
| From ordinary income | | |
| Net investment income | | |
| Class A | (11,567,472) | (18,048,607) |
| Class B | (5,152) | (9,004) |
| Class C | (345,161) | (445,750) |
| Class R | (7,257) | (17,800) |
| Class R6 | (205,582) | (232,765) |
| Class Y | (17,638,062) | (28,887,852) |
| Increase (decrease) from capital share transactions (Note 4) | 38,385,277 | (557,820,414) |
| Total increase (decrease) in net assets | 55,497,716 | (534,704,136) |
| |
| NET ASSETS | | |
| Beginning of period | 1,222,190,380 | 1,756,894,516 |
| End of period | $1,277,688,096 | $1,222,190,380 |
* Unaudited.
The accompanying notes are an integral part of these financial statements.
|
| Short Duration Bond Fund 31 |
Financial highlights
(For a common share outstanding throughout the period)
| | | | | | | | | | | | | | |
| | INVESTMENT OPERATIONS | | | LESS DISTRIBUTIONS | | | | | RATIOS AND SUPPLEMENTAL DATA | |
| | | | | | | | | | | | | Ratio of | Ratio of net | |
| | Net asset | | Net realized | | | From net | | | | | | expenses | investment | |
| | value, | | and unrealized | Total from | From net | realized | From | | Net asset | Total return | Net assets, | to average | income (loss) | Portfolio |
| | beginning | Net investment | gain (loss) on | investment | investment | gain on | return of | Total | value, end | at net asset | end of period | net assets | to average | turnover |
| Period ended | of period | income (loss) | investments | operations | income | investments | capital | distributions | of period | value (%)a | (in thousands) | (%)b | net assets (%) | (%) |
| Class A | | | | | | | | | | | | | | |
| April 30, 2024** | $9.55 | .16 | .21 | .37 | (.23) | — | — | (.23) | $9.69 | 3.85* | $520,961 | .31* | 1.65* | 23* |
| October 31, 2023 | 9.42 | .28 | .16 | .44 | (.31) | — | — | (.31) | 9.55 | 4.66 | 485,453 | .62 | 2.90 | 20 |
| October 31, 2022 | 10.18 | .17 | (.76) | (.59) | (.16) | (.01) | — | (.17) | 9.42 | (5.79) | 729,336 | .62 | 1.70 | 26 |
| October 31, 2021 | 10.21 | .16 | (.03) | .13 | (.16) | — | — | (.16) | 10.18 | 1.27 | 1,383,392 | .62 | 1.52 | 24 |
| October 31, 2020 | 10.15 | .20 | .06 | .26 | (.20) | — | — | (.20) | 10.21 | 2.61 | 1,208,656 | .62 | 1.89 | 19 |
| October 31, 2019 | 10.01 | .28c | .19 | .47 | (.32) | — | (.01) | (.33) | 10.15 | 4.78 | 612,829 | .62 | 2.75 | 18 |
| Class B | | | | | | | | | | | | | | |
| April 30, 2024** | $9.54 | .15 | .20 | .35 | (.22) | — | — | (.22) | $9.67 | 3.64* | $224 | .41* | 1.55* | 23* |
| October 31, 2023 | 9.41 | .26 | .16 | .42 | (.29) | — | — | (.29) | 9.54 | 4.46 | 253 | .82 | 2.68 | 20 |
| October 31, 2022 | 10.17 | .15 | (.76) | (.61) | (.14) | (.01) | — | (.15) | 9.41 | (5.98) | 389 | .82 | 1.50 | 26 |
| October 31, 2021 | 10.20 | .14 | (.03) | .11 | (.14) | — | — | (.14) | 10.17 | 1.07 | 717 | .82 | 1.34 | 24 |
| October 31, 2020 | 10.14 | .18 | .06 | .24 | (.18) | — | — | (.18) | 10.20 | 2.41 | 1,327 | .82 | 1.70 | 19 |
| October 31, 2019 | 10.00 | .26c | .19 | .45 | (.30) | — | (.01) | (.31) | 10.14 | 4.55 | 909 | .82 | 2.62 | 18 |
| Class C | | | | | | | | | | | | | | |
| April 30, 2024** | $9.52 | .13 | .20 | .33 | (.19) | — | — | (.19) | $9.66 | 3.47* | $17,213 | .68* | 1.27* | 23* |
| October 31, 2023 | 9.40 | .21 | .14 | .35 | (.23) | — | — | (.23) | 9.52 | 3.78 | 17,469 | 1.37 | 2.16 | 20 |
| October 31, 2022 | 10.16 | .10 | (.76) | (.66) | (.09) | (.01) | — | (.10) | 9.40 | (6.51) | 20,267 | 1.37 | .97 | 26 |
| October 31, 2021 | 10.18 | .08 | (.02) | .06 | (.08) | — | — | (.08) | 10.16 | .61 | 29,701 | 1.37 | .77 | 24 |
| October 31, 2020 | 10.12 | .12 | .06 | .18 | (.12) | — | — | (.12) | 10.18 | 1.85 | 30,751 | 1.37 | 1.17 | 19 |
| October 31, 2019 | 9.98 | .21c | .18 | .39 | (.24) | — | (.01) | (.25) | 10.12 | 4.00 | 20,930 | 1.37 | 2.08 | 18 |
| Class R | | | | | | | | | | | | | | |
| April 30, 2024** | $9.60 | .15 | .20 | .35 | (.21) | — | — | (.21) | $9.74 | 3.71* | $367 | .43* | 1.53* | 23* |
| October 31, 2023 | 9.47 | .26 | .15 | .41 | (.28) | — | — | (.28) | 9.60 | 4.39 | 301 | .87 | 2.62 | 20 |
| October 31, 2022 | 10.24 | .15 | (.77) | (.62) | (.14) | (.01) | — | (.15) | 9.47 | (6.08) | 864 | .87 | 1.47 | 26 |
| October 31, 2021 | 10.26 | .13 | (.02) | .11 | (.13) | — | — | (.13) | 10.24 | 1.12 | 1,265 | .87 | 1.26 | 24 |
| October 31, 2020 | 10.20 | .17 | .07 | .24 | (.18) | — | — | (.18) | 10.26 | 2.35 | 1,167 | .87 | 1.63 | 19 |
| October 31, 2019 | 10.06 | .27c | .17 | .44 | (.29) | — | (.01) | (.30) | 10.20 | 4.49 | 426 | .87 | 2.64 | 18 |
| Class R6 | | | | | | | | | | | | | | |
| April 30, 2024** | $9.59 | .17 | .21 | .38 | (.24) | — | — | (.24) | $9.73 | 3.97* | $8,018 | .18* | 1.77* | 23* |
| October 31, 2023 | 9.46 | .31 | .15 | .46 | (.33) | — | — | (.33) | 9.59 | 4.91 | 7,702 | .37 | 3.20 | 20 |
| October 31, 2022 | 10.22 | .20 | (.76) | (.56) | (.19) | (.01) | — | (.20) | 9.46 | (5.52) | 5,403 | .37 | 2.00 | 26 |
| October 31, 2021 | 10.25 | .18 | (.02) | .16 | (.19) | — | — | (.19) | 10.22 | 1.52 | 6,941 | .37 | 1.78 | 24 |
| October 31, 2020 | 10.19 | .22 | .07 | .29 | (.23) | — | — | (.23) | 10.25 | 2.86 | 8,496 | .37 | 2.14 | 19 |
| October 31, 2019 | 10.05 | .29c | .20 | .49 | (.34) | — | (.01) | (.35) | 10.19 | 5.01 | 4,326 | .37 | 2.87 | 18 |
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
| |
| 32 Short Duration Bond Fund | Short Duration Bond Fund 33 |
Financial highlights cont.
| | | | | | | | | | | | | | |
| | INVESTMENT OPERATIONS | | | LESS DISTRIBUTIONS | | | | | RATIOS AND SUPPLEMENTAL DATA | |
| | | | | | | | | | | | | Ratio of | Ratio of net | |
| | Net asset | | Net realized | | | From net | | | | | | expenses | investment | |
| | value, | | and unrealized | Total from | From net | realized | From | | Net asset | Total return | Net assets, | to average | income (loss) | Portfolio |
| | beginning | Net investment | gain (loss) on | investment | investment | gain on | return of | Total | value, end | at net asset | end of period | net assets | to average | turnover |
| Period ended | of period | income (loss) | investments | operations | income | investments | capital | distributions | of period | value (%)a | (in thousands) | (%)b | net assets (%) | (%) |
| Class Y | | | | | | | | | | | | | | |
| April 30, 2024** | $9.56 | .17 | .21 | .38 | (.24) | — | — | (.24) | $9.70 | 3.98* | $730,905 | .18* | 1.77* | 23* |
| October 31, 2023 | 9.44 | .31 | .14 | .45 | (.33) | — | — | (.33) | 9.56 | 4.81 | 711,012 | .37 | 3.16 | 20 |
| October 31, 2022 | 10.20 | .20 | (.76) | (.56) | (.19) | (.01) | — | (.20) | 9.44 | (5.53) | 1,000,635 | .37 | 2.01 | 26 |
| October 31, 2021 | 10.23 | .18 | (.02) | .16 | (.19) | — | — | (.19) | 10.20 | 1.52 | 1,077,719 | .37 | 1.76 | 24 |
| October 31, 2020 | 10.16 | .22 | .08 | .30 | (.23) | — | — | (.23) | 10.23 | 2.97 | 768,824 | .37 | 2.11 | 19 |
| October 31, 2019 | 10.02 | .30c | .19 | .49 | (.34) | — | (.01) | (.35) | 10.16 | 5.03 | 365,277 | .37 | 3.01 | 18 |
* Not annualized.
** Unaudited.
a Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
b Includes amounts paid through expense offset arrangements, if any (Note 2). Also excludes acquired fund fees, if any.
c Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
The accompanying notes are an integral part of these financial statements.
| |
| 34 Short Duration Bond Fund | Short Duration Bond Fund 35 |
Notes to financial statements 4/30/24 (Unaudited)
Unless otherwise noted, the “reporting period” represents the period from November 1, 2023 through April 30, 2024. The following table defines commonly used references within the Notes to financial statements:
| |
| References to | Represent |
| Franklin Templeton | Franklin Resources, Inc. |
| JPMorgan | JPMorgan Chase Bank, N.A. |
| OTC | Over-the-counter |
| PAC | The Putnam Advisory Company, LLC, an affiliate of Putnam Management |
| PIL | Putnam Investments Limited, an affiliate of Putnam Management |
| Putnam Management | Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned |
| | subsidiary of Franklin Templeton |
| SEC | Securities and Exchange Commission |
| State Street | State Street Bank and Trust Company |
Putnam Short Duration Bond Fund (the fund) is a diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The goal of the fund is to seek as high a rate of current income as Putnam Management believes is consistent with preservation of capital. The fund invests in a diversified portfolio of fixed income securities. The fund’s investments may include corporate credit, including investment-grade debt, below-investment-grade debt (sometimes referred to as “junk bonds”), bank loans and structured credit; sovereign debt, including obligations of governments in developed and emerging markets; and securitized assets, including asset-backed securities, residential mortgage-backed securities (which may be backed by non-qualified or “sub-prime” mortgages), commercial mortgage-backed securities and collateralized mortgage obligations. Under normal circumstances, the fund will invest at least 80% of its net assets in bonds (bonds include any debt instrument, and may be represented by other investment instruments, including derivatives). This policy may be changed only after 60 days’ notice to shareholders. The fund normally maintains an effective duration of three years or less. Effective duration provides a measure of a fund’s interest-rate sensitivity. The longer a fund’s duration, the more sensitive the fund is to shifts in interest rates. The fund may consider, among other factors, credit, interest rate and prepayment risks, as well as general market conditions, when deciding whether to buy or sell investments. The fund may also use derivatives, such as futures, options, certain foreign currency transactions and credit default, total return and interest rate swap contracts, for both hedging and non-hedging purposes. The fund may invest in securities that are purchased in private placements, which may be illiquid because they are subject to restrictions on resale.
The fund offers the following share classes. The expenses for each class of shares may differ based on the distribution and investor servicing fees of each class, which are identified in Note 2.
| | | |
| Share class | Sales charge | Contingent deferred sales charge | Conversion feature |
| | | 0.75% on certain redemptions of shares | |
| Class A | Up to 2.25% | bought with no initial sales charge | None |
| | | | Converts to class A shares |
| Class B* | None | 1.00% phased out over two years | after 8 years |
| | | | Converts to class A shares |
| Class C | None | 1.00% eliminated after one year | after 8 years |
| Class R† | None | None | None |
| Class R6† | None | None | None |
| Class Y† | None | None | None |
* Purchases of class B shares are closed to new and existing investors except by exchange from class B shares of another Putnam fund or through dividend and/or capital gains reinvestment.
† Not available to all investors.
|
| 36 Short Duration Bond Fund |
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent and custodian, who each provide services to the fund. 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 fund.
Under the Trust’s Agreement and Declaration of Trust, any claims asserted by a shareholder against or on behalf of the Trust (or its series), including claims against Trustees and Officers, must be brought in courts located within the Commonwealth of Massachusetts.
Note 1: Significant accounting policies
The fund follows the accounting and reporting guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services – Investment Companies (ASC 946) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP), including, but not limited to, ASC 946. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
Security valuation Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.
Market quotations are not considered to be readily available for certain debt obligations (including short-term investments with remaining maturities of 60 days or less) and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which consider such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
Investments in open-end investment companies (excluding exchange-traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management, which has been designated as valuation designee pursuant to Rule 2a–5 under the Investment Company Act of 1940, in accordance with policies and procedures approved by the Trustees. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events
|
| Short Duration Bond Fund 37 |
such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures, recovery rates, sales and other multiples and resale restrictions. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
To assess the continuing appropriateness of fair valuations, the Valuation Committee reviews and affirms the reasonableness of such valuations on a regular basis after considering all relevant information that is reasonably available. Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income, net of any applicable withholding taxes, if any, is recorded on the accrual basis. Amortization and accretion of premiums and discounts on debt securities, if any, is recorded on the accrual basis.
Stripped securities The fund may invest in stripped securities which represent a participation in securities that may be structured in classes with rights to receive different portions of the interest and principal. Interest-only securities receive all of the interest and principal-only securities receive all of the principal. If the interest-only securities experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, principal-only securities increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The fair value of these securities is highly sensitive to changes in interest rates.
Interest rate swap contracts The fund entered into OTC and/or centrally cleared interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, for hedging term structure risk, for yield curve positioning and for gaining exposure to rates in various countries.
An OTC and centrally cleared interest rate swap can be purchased or sold with an upfront premium. For OTC interest rate swap contracts, an upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. OTC and centrally cleared interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers. Any change is recorded as an unrealized gain or loss on OTC interest rate swaps. Daily fluctuations in the value of centrally cleared interest rate swaps are settled through a central clearing agent and are recorded in variation margin on the Statement of assets and liabilities and recorded as unrealized gain or loss. Payments, including upfront premiums, received or made are recorded as realized gains or losses at the reset date or the closing of the contract. Certain OTC and centrally cleared interest rate swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract.
The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults, in the case of OTC interest rate contracts, or the central clearing agency or a clearing member defaults, in the case of centrally cleared interest rate swap contracts, on its respective obligation to perform under the contract. The fund’s maximum risk of loss from counterparty risk or central clearing risk is the fair value of the contract. This risk may be mitigated for OTC interest rate swap contracts by having a master netting arrangement between the fund and the counterparty and for centrally cleared interest rate swap contracts through the daily exchange of variation margin. There is minimal counterparty risk with respect to centrally cleared interest rate swap contracts due to the clearinghouse guarantee fund and other resources that are available in the event of a clearing member default. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
OTC and centrally cleared interest rate swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
At the close of the reporting period, the fund has deposited cash valued at $2,837,221 in a segregated account to cover margin requirements on open centrally cleared interest rate swap contracts.
|
| 38 Short Duration Bond Fund |
Credit default contracts The fund entered into OTC and/or centrally cleared credit default contracts for hedging credit risk, for gaining liquid exposure to individual names, for hedging market risk and for gaining exposure to specific sectors.
In OTC and centrally cleared credit default contracts, the protection buyer typically makes a periodic stream of payments to a counterparty, the protection seller, in exchange for the right to receive a contingent payment upon the occurrence of a credit event on the reference obligation or all other equally ranked obligations of the reference entity. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring and obligation acceleration. For OTC credit default contracts, an upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. Centrally cleared credit default contracts provide the same rights to the protection buyer and seller except the payments between parties, including upfront premiums, are settled through a central clearing agent through variation margin payments. Upfront and periodic payments received or paid by the fund for OTC and centrally cleared credit default contracts are recorded as realized gains or losses at the reset date or close of the contract. The OTC and centrally cleared credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers. Any change in value of OTC credit default contracts is recorded as an unrealized gain or loss. Daily fluctuations in the value of centrally cleared credit default contracts are recorded in variation margin on the Statement of assets and liabilities and recorded as unrealized gain or loss. Upon the occurrence of a credit event, the difference between the par value and fair value of the reference obligation, net of any proportional amount of the upfront payment, is recorded as a realized gain or loss.
In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index or the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased the underlying reference obligations. In certain circumstances, the fund may enter into offsetting OTC and centrally cleared credit default contracts which would mitigate its risk of loss. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk may be mitigated for OTC credit default contracts by having a master netting arrangement between the fund and the counterparty and for centrally cleared credit default contracts through the daily exchange of variation margin. Counterparty risk is further mitigated with respect to centrally cleared credit default swap contracts due to the clearinghouse guarantee fund and other resources that are available in the event of a clearing member default. Where the fund is a seller of protection, the maximum potential amount of future payments the fund may be required to make is equal to the notional amount.
OTC and centrally cleared credit default contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
Master agreements The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements that govern OTC derivative and foreign exchange contracts and Master Securities Forward Transaction Agreements that govern transactions involving mortgage-backed and other asset-backed securities that may result in delayed delivery (Master Agreements) with certain counterparties entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral pledged to the fund is held in a segregated account by the fund’s custodian and, with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio.
Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty.
With respect to ISDA Master Agreements, termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term or short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs
|
| Short Duration Bond Fund 39 |
resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $312,802 on open derivative contracts subject to the Master Agreements. Collateral pledged by the fund at period end for these agreements totaled $325,888 and may include amounts related to unsettled agreements.
Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
Lines of credit The fund participates, along with other Putnam funds, in a $320 million syndicated unsecured committed line of credit, provided by State Street ($160 million) and JPMorgan ($160 million), and a $235.5 million unsecured uncommitted line of credit, provided by State Street. Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to 1.25% plus the higher of (1) the Federal Funds rate and (2) the Overnight Bank Funding Rate for the committed line of credit and 1.30% plus the higher of (1) the Federal Funds rate and (2) the Overnight Bank Funding Rate for the uncommitted line of credit. A closing fee equal to 0.04% of the committed line of credit and 0.04% of the uncommitted line of credit has been paid by the participating funds and a $75,000 fee has been paid by the participating funds to State Street as agent of the syndicated committed line of credit. In addition, a commitment fee of 0.21% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
The fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
Under the Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred for an unlimited period and the carry forwards will retain their character as either short-term or long-term capital losses. At October 31, 2023, the fund had the following capital loss carryovers available, to the extent allowed by the Code, to offset future net capital gain, if any:
| | |
| | Loss carryover | |
| Short-term | Long-term | Total |
| $20,408,231 | $38,008,845 | $58,417,076 |
Tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but closely approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. The aggregate identified cost on a tax basis is $1,323,035,239, resulting in gross unrealized appreciation and depreciation of $2,075,573 and $56,453,012, respectively, or net unrealized depreciation of $54,377,439.
Distributions to shareholders Income dividends are recorded daily by the fund and are paid monthly. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Dividend sources are estimated at the time
|
| 40 Short Duration Bond Fund |
of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations.
Expenses of the Trust Expenses directly charged or attributable to any fund will be paid from the assets of that fund. Generally, expenses of the Trust will be allocated among and charged to the assets of each fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each fund or the nature of the services performed and relative applicability to each fund.
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a monthly base fee equal to 0.37% of the monthly average of the fund’s net asset value. In return for this fee, Putnam Management provides investment management and investor servicing and bears the fund’s organizational and operating expenses, excluding performance fee adjustments, payments under the fund’s distribution plan, brokerage, interest, taxes, investment related expenses, extraordinary expenses and acquired fund fees and expenses.
For the reporting period, the management fee represented an effective rate (excluding the impact of any expense waiver in effect) of 0.184% of the fund’s average net assets.
PIL is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. PIL did not manage any portion of the assets of the fund during the reporting period. If Putnam Management were to engage the services of PIL, Putnam Management would pay a quarterly sub-management fee to PIL for its services at an annual rate of 0.20% of the average net assets of the portion of the fund managed by PIL.
PAC is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. PAC did not manage any portion of the assets of the fund during the reporting period. If Putnam Management or PIL were to engage the services of PAC, Putnam Management or PIL, as applicable, would pay a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.20% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.
On January 1, 2024, a subsidiary of Franklin Templeton acquired Putnam U.S. Holdings I, LLC (“Putnam Holdings”), the parent company of Putnam Management, PIL and PAC, in a stock and cash transaction (the “Transaction”). As a result of the Transaction, Putnam Management, PIL and PAC became indirect, wholly-owned subsidiaries of Franklin Templeton. The Transaction also resulted in the automatic termination of the investment management contract between the fund and Putnam Management, the sub-management contract for the fund between Putnam Management and PIL, and the sub-advisory contract for the fund among Putnam Management, PIL and PAC that were in place for the fund before the Transaction (together, the “Previous Advisory Contracts”). However, for the period from January 1, 2024 until February 21, 2024, Putnam Management, PIL and PAC continued to provide uninterrupted services with respect to the fund pursuant to interim investment management, sub-management and sub-advisory contracts (together, the “Interim Advisory Contracts”) that were approved by the Board of Trustees. The terms of the Interim Advisory Contracts were identical to those of the Previous Advisory Contracts, except for the term of the contracts and those provisions required by regulation. On February 21, 2024, new investment management, sub-management and sub-advisory contracts were approved by fund shareholders at a shareholder meeting held in connection with the Transaction (together, the “New Advisory Contracts”). The New Advisory Contracts took effect on February 21, 2024 and replaced the Interim Advisory Contracts. The terms of the New Advisory Contracts are substantially similar to those of the Previous Advisory Contracts, and the fee rates payable under the New Advisory Contracts are the same as the fee rates under the Previous Advisory Contracts.
Effective June 1, 2024, under an agreement with Putnam Management, Franklin Templeton Services, LLC, a wholly-owned subsidiary of Franklin Templeton and an affiliate of Putnam Management, will provide certain administrative services to the fund. The fee for those services will be paid by Putnam Management based on the fund’s average daily net assets, and is not an additional expense of the fund.
The aggregate amount of all reimbursements for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund is determined annually by the Trustees. These fees are being paid by Putnam Management as part of the management contract.
|
| Short Duration Bond Fund 41 |
Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes. These fees are being paid by Putnam Management as part of the management contract.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing for class A, class B, class C, class R and class Y shares that included (1) a per account fee for each direct and underlying non-defined contribution account (retail account) of the fund; (2) a specified rate of the fund’s assets attributable to defined contribution plan accounts; and (3) a specified rate based on the average net assets in retail accounts. Putnam Investor Services, Inc. has agreed that the aggregate investor servicing fees for each fund’s retail and defined contribution accounts for these share classes will not exceed an annual rate of 0.25% of the fund’s average assets attributable to such accounts. Class R6 shares paid a monthly fee based on the average net assets of class R6 shares at an annual rate of 0.05%. These fees are being paid by Putnam Management as part of the management contract.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $8,222 under the expense offset arrangements.
Each Independent Trustee of the fund receives an annual Trustee fee, of which $986, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees. These fees are being paid by Putnam Management as part of the management contract.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable from July 1, 1995 through December 31, 2023. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The 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. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003. These fees are being paid by Putnam Management as part of the management contract.
The fund has adopted distribution plans (the Plans) with respect to the following share classes pursuant to Rule 12b–1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, an indirect wholly-owned subsidiary of Franklin Templeton, for services provided and expenses incurred in distributing shares of the fund. The Plans provide payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to the following amounts (Maximum %) of the average net assets attributable to each class. The Trustees have approved payment by the fund at the following annual rate (Approved %) of the average net assets attributable to each class. During the reporting period, the class-specific expenses related to distribution fees were as follows:
| | | |
| | Maximum % | Approved % | Amount |
| Class A | 0.35% | 0.25% | $626,140 |
| Class B | 1.00% | 0.45% | 517 |
| Class C | 1.00% | 1.00% | 88,214 |
| Class R | 1.00% | 0.50% | 840 |
| Total | | | $715,711 |
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $6,797 from the sale of class A shares and received no monies and $567 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $11,477 on class A redemptions.
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| 42 Short Duration Bond Fund |
Note 3: Purchases and sales of securities
During the reporting period, the cost of purchases and the proceeds from sales, excluding short-term investments, were as follows:
| | |
| | Cost of purchases | Proceeds from sales |
| Investments in securities (Long-term) | $264,400,250 | $246,524,252 |
| U.S. government securities (Long-term) | — | — |
| Total | $264,400,250 | $246,524,252 |
The fund may purchase or sell investments from or to other Putnam funds in the ordinary course of business, which can reduce the fund’s transaction costs, at prices determined in accordance with SEC requirements and policies approved by the Trustees. During the reporting period, purchases or sales of long-term securities from or to other Putnam funds, if any, did not represent more than 5% of the fund’s total cost of purchases and/or total proceeds from sales.
Note 4: Capital shares
At the close of the reporting period, there were an unlimited number of shares of beneficial interest authorized. Transactions, including, if applicable, direct exchanges pursuant to share conversions, in capital shares were as follows:
| | | | |
| | SIX MONTHS ENDED 4/30/24 | YEAR ENDED 10/31/23 |
| Class A | Shares | Amount | Shares | Amount |
| Shares sold | 14,612,271 | $141,915,263 | 10,422,606 | $99,576,518 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 1,169,973 | 11,372,410 | 1,857,139 | 17,773,486 |
| | 15,782,244 | 153,287,673 | 12,279,745 | 117,350,004 |
| Shares repurchased | (12,834,628) | (124,559,020) | (38,850,352) | (370,939,664) |
| Net increase (decrease) | 2,947,616 | $28,728,653 | (26,570,607) | $(253,589,660) |
| |
| | SIX MONTHS ENDED 4/30/24 | YEAR ENDED 10/31/23 |
| Class B | Shares | Amount | Shares | Amount |
| Shares sold | — | $— | 153 | $1,466 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 531 | 5,152 | 942 | 8,997 |
| | 531 | 5,152 | 1,095 | 10,463 |
| Shares repurchased | (3,901) | (37,621) | (15,900) | (151,856) |
| Net decrease | (3,370) | $(32,469) | (14,805) | $(141,393) |
| |
| | SIX MONTHS ENDED 4/30/24 | YEAR ENDED 10/31/23 |
| Class C | Shares | Amount | Shares | Amount |
| Shares sold | 262,019 | $2,533,575 | 412,173 | $3,935,900 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 35,511 | 344,263 | 46,621 | 444,936 |
| | 297,530 | 2,877,838 | 458,794 | 4,380,836 |
| Shares repurchased | (349,956) | (3,389,184) | (781,316) | (7,444,087) |
| Net decrease | (52,426) | $(511,346) | (322,522) | $(3,063,251) |
|
| Short Duration Bond Fund 43 |
| | | | |
| | SIX MONTHS ENDED 4/30/24 | YEAR ENDED 10/31/23 |
| Class R | Shares | Amount | Shares | Amount |
| Shares sold | 12,467 | $121,919 | 27,335 | $263,265 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 738 | 7,210 | 1,822 | 17,519 |
| | 13,205 | 129,129 | 29,157 | 280,784 |
| Shares repurchased | (6,842) | (66,770) | (89,115) | (856,954) |
| Net increase (decrease) | 6,363 | $62,359 | (59,958) | $(576,170) |
| |
| | SIX MONTHS ENDED 4/30/24 | YEAR ENDED 10/31/23 |
| Class R6 | Shares | Amount | Shares | Amount |
| Shares sold | 169,537 | $1,650,041 | 330,920 | $3,177,008 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 19,728 | 192,595 | 22,941 | 220,516 |
| | 189,265 | 1,842,636 | 353,861 | 3,397,524 |
| Shares repurchased | (168,122) | (1,640,722) | (121,785) | (1,169,287) |
| Net increase | 21,143 | $201,914 | 232,076 | $2,228,237 |
| |
| | SIX MONTHS ENDED 4/30/24 | YEAR ENDED 10/31/23 |
| Class Y | Shares | Amount | Shares | Amount |
| Shares sold | 15,992,111 | $155,655,180 | 31,692,159 | $303,614,003 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 1,790,201 | 17,426,488 | 3,007,362 | 28,823,283 |
| | 17,782,312 | 173,081,668 | 34,699,521 | 332,437,286 |
| Shares repurchased | (16,780,535) | (163,145,502) | (66,391,703) | (635,115,463) |
| Net increase (decrease) | 1,001,777 | $9,936,166 | (31,692,182) | $(302,678,177) |
Note 5: Affiliated transactions
Transactions during the reporting period with any company which is under common ownership or control were as follows:
| | | | | |
| | | | | | Shares |
| | | | | | outstanding |
| | | | | | and fair |
| | Fair value as | Purchase | Sale | Investment | value as |
| Name of affiliate | of 10/31/23 | cost | proceeds | income | of 4/30/24 |
| Short-term investments | | | | | |
| Putnam Short Term | | | | | |
| Investment Fund | | | | | |
| Class P‡ | $28,397,200 | $471,247,052 | $460,307,040 | $1,498,793 | $39,337,212 |
| Total Short-term | | | | | |
| investments | $28,397,200 | $471,247,052 | $460,307,040 | $1,498,793 | $39,337,212 |
‡ Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management. There were no realized or unrealized gains or losses during the period.
Note 6: Market, credit and other risks
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default. Investments in foreign securities
|
| 44 Short Duration Bond Fund |
involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations. The fund may invest in higher-yielding, lower-rated bonds that may have a higher rate of default. The fund may invest a significant portion of its assets in securitized debt instruments, including mortgage-backed and asset-backed investments. The yields and values of these investments are sensitive to changes in interest rates, the rate of principal payments on the underlying assets and the market’s perception of the issuers. The market for these investments may be volatile and limited, which may make them difficult to buy or sell.
Note 7: Summary of derivative activity
The volume of activity for the reporting period for any derivative type that was held during the period is listed below and was based on an average of the holdings at the end of each fiscal quarter:
| |
| Centrally cleared interest rate swap contracts (notional) | $707,900,000 |
| OTC credit default contracts (notional) | $3,500,000 |
The following is a summary of the fair value of derivative instruments as of the close of the reporting period:
| | | | |
| Fair value of derivative instruments as of the close of the reporting period | |
| | ASSET DERIVATIVES | LIABILITY DERIVATIVES |
| Derivatives not | | | | |
| accounted for as | Statement of | | Statement of | |
| hedging instruments | assets and | | assets and | |
| under ASC 815 | liabilities location | Fair value | liabilities location | Fair value |
| Credit contracts | Receivables | $415,119 | Payables | $415,119 |
| | Receivables, Net | | | |
| | assets — Unrealized | | Payables, Net assets — | |
| Interest rate contracts | appreciation | 3,831,742* | Unrealized depreciation | 6,321,232* |
| Total | | $4,246,861 | | $6,736,351 |
* Includes cumulative appreciation/depreciation of centrally cleared swaps as reported in the fund’s portfolio. Only current day’s variation margin is reported within the Statement of assets and liabilities.
The following is a summary of realized and change in unrealized gains or losses of derivative instruments in the Statement of operations for the reporting period (Note 1):
| | |
| Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments | |
| Derivatives not accounted for as | | |
| hedging instruments under ASC 815 | Swaps | Total |
| Credit contracts | $52,222 | $52,222 |
| Interest rate contracts | (1,337,637) | $(1,337,637) |
| Total | $(1,285,415) | $(1,285,415) |
| | |
| Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) |
| on investments | | |
| Derivatives not accounted for as | | |
| hedging instruments under ASC 815 | Swaps | Total |
| Credit contracts | $(52,222) | $(52,222) |
| Interest rate contracts | (2,329,609) | $(2,329,609) |
| Total | $(2,381,831) | $(2,381,831) |
|
| Short Duration Bond Fund 45 |
Note 8: Offsetting of financial and derivative assets and liabilities
The following table summarizes any derivatives, repurchase agreements and reverse repurchase agreements, at the end of the reporting period, that are subject to an enforceable master netting agreement or similar agreement. For securities lending transactions or borrowing transactions associated with securities sold short, if any, see Note 1. For financial reporting purposes, the fund does not offset financial assets and financial liabilities that are subject to the master netting agreements in the Statement of assets and liabilities.
| | | | | | | | | |
| | Bank of America N.A. | Barclays Capital, Inc. (clearing broker) | Citigroup Global Markets, Inc. | Credit Suisse International | Goldman Sachs International | JPMorgan Securities LLC | Merrill Lynch International | Morgan Stanley & Co. International PLC | Total |
| Assets: | | | | | | | | | |
| Centrally cleared interest rate swap contracts§ | $— | $719,544 | $— | $— | $— | $— | $— | $— | $719,544 |
| OTC Credit default contracts - protection sold*# | — | — | — | — | — | — | — | — | — |
| OTC Credit default contracts - protection purchased*# | — | — | 10,572 | 176,823 | 49,994 | 33,094 | 79,293 | 65,343 | 415,119 |
| Total Assets | $— | $719,544 | $10,572 | $176,823 | $49,994 | $33,094 | $79,293 | $65,343 | $1,134,663 |
| Liabilities: | | | | | | | | | |
| Centrally cleared interest rate swap contracts§ | — | 719,524 | — | — | — | — | — | — | 719,524 |
| OTC Credit default contracts - protection sold*# | 29,151 | — | 20,466 | 41,871 | 1,659 | 306,851 | 56 | 15,065 | 415,119 |
| OTC Credit default contracts - protection purchased*# | — | — | — | — | — | — | — | — | — |
| Total Liabilities | $29,151 | $719,524 | $20,466 | $41,871 | $1,659 | $306,851 | $56 | $15,065 | $1,134,643 |
| Total Financial and Derivative Net Assets | $(29,151) | $20 | $(9,894) | $134,952 | $48,335 | $(273,757) | $79,237 | $50,278 | $20 |
| Total collateral received (pledged)†## | $(29,151) | $— | $— | $134,952 | $48,335 | $(273,757) | $79,237 | $— | |
| Net amount | $— | $20 | $(9,894) | $— | $— | $— | $— | $50,278 | |
| Controlled collateral received (including TBA commitments)** | $— | $— | $— | $150,000 | $110,000 | $— | $97,950 | $— | $357,950 |
| Uncontrolled collateral received | $— | $— | $— | $— | $— | $— | $— | $— | $— |
| Collateral (pledged) (including TBA commitments)** | $(32,888) | $— | $— | $— | $— | $(293,000) | $— | $— | $(325,888) |
* Excludes premiums, if any. Included in unrealized appreciation and depreciation on OTC swap contracts on the Statement of assets and liabilities.
** Included with Investments in securities on the Statement of assets and liabilities.
† Additional collateral may be required from certain brokers based on individual agreements.
# Covered by master netting agreement (Note 1).
## Any over-collateralization of total financial and derivative net assets is not shown. Collateral may include amounts related to unsettled agreements.
§ Includes current day’s variation margin only as reported on the Statement of assets and liabilities, which is not collateralized. Cumulative appreciation/(depreciation) for centrally cleared swap contracts is represented in the tables listed after the fund’s portfolio. Collateral pledged for initial margin on centrally cleared swap contracts, which is not included in the table above, amounted to $2,837,221.
| |
| 46 Short Duration Bond Fund | Short Duration Bond Fund 47 |
Shareholder meeting results (Unaudited)
February 21, 2024 special meeting
At the meeting, a new Management Contract for your fund with Putnam Investment Management, LLC was approved, as follows:
| | |
| Votes for | Votes against | Abstentions/Votes withheld |
| 56,972,538 | 1,248,876 | 10,818,151 |
At the meeting, a new Sub-Management Contract for your fund between Putnam Investment Management, LLC and Putnam Investments Limited was approved, as follows:
| | |
| Votes for | Votes against | Abstentions/Votes withheld |
| 56,833,608 | 1,435,832 | 10,770,126 |
At the meeting, a new Sub-Advisory Contract for your fund between Putnam Investment Management, LLC, Putnam Investments Limited and The Putnam Advisory Company, LLC was approved, as follows:
| | |
| Votes for | Votes against | Abstentions/Votes withheld |
| 56,678,929 | 1,358,850 | 11,001,787 |
All tabulations are rounded to the nearest whole number.
|
| 48 Short Duration Bond Fund |
Fund information
| | |
| Investment Manager | Trustees | Michael J. Higgins |
| Putnam Investment | Kenneth R. Leibler, Chair | Vice President, Treasurer, |
| Management, LLC | Barbara M. Baumann, Vice Chair | and Clerk |
| 100 Federal Street | Liaquat Ahamed | |
| Boston, MA 02110 | Katinka Domotorffy | Jonathan S. Horwitz |
| | Catharine Bond Hill | Executive Vice President, |
| Investment Sub-Advisors | Gregory G. McGreevey | Principal Executive Officer, |
| Putnam Investments Limited | Jennifer Williams Murphy | and Compliance Liaison |
| Cannon Place, 78 Cannon Street | Marie Pillai | |
| London, England EC4N 6HL | George Putnam III | Kelley Hunt |
| | Robert L. Reynolds | AML Compliance Officer |
| The Putnam Advisory Company, LLC | Manoj P. Singh | |
| 100 Federal Street | Mona K. Sutphen | Martin Lemaire |
| Boston, MA 02110 | Jane E. Trust | Vice President and |
| | | Derivatives Risk Manager |
| Marketing Services | Officers | |
| Putnam Retail Management | Robert L. Reynolds | Denere P. Poulack |
| Limited Partnership | President, The Putnam Funds | Assistant Vice President, |
| 100 Federal Street | | Assistant Clerk, and |
| Boston, MA 02110 | Kevin R. Blatchford | Assistant Treasurer |
| | Vice President and | |
| Custodian | Assistant Treasurer | Janet C. Smith |
| State Street Bank | | Vice President, |
| and Trust Company | James F. Clark | Principal Financial Officer, |
| | Vice President and | Principal Accounting Officer, |
| Legal Counsel | Chief Compliance Officer | and Assistant Treasurer |
| Ropes & Gray LLP | | |
| | | Stephen J. Tate |
| | | Vice President and |
| | | Chief Legal Officer |
This report is for the information of shareholders of Putnam Short Duration Bond Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of the fund’s Quarterly Performance Summary, and the fund’s Quarterly Ranking Summary. For more recent performance, please visit putnam.com or franklintempleton.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.
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| Item 3. Audit Committee Financial Expert: |
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| Item 4. Principal Accountant Fees and Services: |
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| Item 5. Audit Committee of Listed Registrants |
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| Item 6. Schedule of Investments: |
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| The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above. |
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| Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies: |
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| Item 8. Portfolio Managers of Closed-End Investment Companies |
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| Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers: |
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| Item 10. Submission of Matters to a Vote of Security Holders: |
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| Item 11. Controls and Procedures: |
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| (a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. |
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| (b) Changes in internal control over financial reporting: Not applicable |
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| Item 12. Disclosures of Securities Lending Activities for Closed-End Investment Companies: |
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| Item 13. Recovery of Erroneously Awarded Compensation. |
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| Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
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| By (Signature and Title): |
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| /s/ Janet C. Smith
Janet C. Smith
Principal Accounting Officer
|
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| Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
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| By (Signature and Title): |
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| /s/ Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer
|
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| By (Signature and Title): |
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| /s/ Janet C. Smith
Janet C. Smith
Principal Financial Officer
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