UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
FORM N-CSR |
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES |
Investment Company Act file number: | (811–07237) |
Exact name of registrant as specified in charter: | Putnam Investment Funds |
Address of principal executive offices: | 100 Federal Street, Boston, Massachusetts 02110 |
Name and address of agent for service: | Robert T. Burns, Vice President 100 Federal Street Boston, Massachusetts 02110 |
Copy to: | Bryan Chegwidden, Esq. Ropes & Gray LLP 1211 Avenue of the Americas New York, New York 10036 |
Registrant's telephone number, including area code: | (617) 292–1000 |
Date of fiscal year end: | August 31, 2020 |
Date of reporting period: | September 1, 2019 — August 31, 2020 |
Item 1. Report to Stockholders: |
The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940: |
Putnam PanAgora
Risk Parity
Fund
Annual report
8 | 31 | 20
IMPORTANT NOTICE: Delivery of paper fund reports
In accordance with regulations adopted by the Securities and Exchange Commission, beginning on January 1, 2021, reports like this one will no longer be sent by mail unless you specifically request it. Instead, they will be on Putnam’s website, and you will be notified by mail whenever a new one is available, and provided with a website link to access the report.
If you wish to stop receiving paper reports sooner, or if you wish to continue to receive paper reports free of charge after January 1, 2021, please see the back cover or insert for instructions. If you invest through a bank or broker, your choice will apply to all funds held in your account. If you invest directly with Putnam, your choice will apply to all Putnam funds in your account.
If you already receive these reports electronically, no action is required.
Message from the Trustees
October 9, 2020
Dear Fellow Shareholder:
As the world continues to confront the challenges of the COVID-19 pandemic, financial markets, it seems, are enjoying a respite from fear. U.S. markets rallied this summer despite many challenges that weighed down economic activity, including the public health impact of the pandemic, high unemployment, and tensions related to calls for racial equity. In this context, Putnam continues to pursue superior investment performance for you and your fellow shareholders while also working toward its goals of improving diversity and inclusion within its organization.
We would like to take this opportunity to thank Robert E. Patterson, who retired as a Trustee on June 30, 2020, for his 36 years of service. We will miss Bob’s experienced judgment and insights, and we wish him well. We are also pleased to welcome Mona K. Sutphen to the Board. Ms. Sutphen brings extensive professional and directorship experience to her role as a Trustee.
As always, thank you for investing with Putnam.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See below and pages 79 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.
* The Putnam PanAgora Risk Parity Blended Benchmark is an unmanaged index administered by Putnam Management, 35% of which is the MSCI ACWI, 50% of which is the Bloomberg Barclays U.S. Long Treasury Index, and 15% of which is the S&P GSCI.
† Source: Lipper, a Refinitiv company.
This comparison shows your funds performance in the context of broad market indexes for the 12-months ended 8/31/20. See above and pages 79 for additional fund performance information. Index descriptions can be found on pages 1314.
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Edward Qian, Ph.D.
Portfolio Manager
Edward is Chief Investment Officer and Head of Multi-Asset Research at PanAgora Asset Management. He has a Ph.D. from Florida State University, an M.S. from The Chinese Science Academy, and a B.S. from Peking University. Edward joined PanAgora in 2005 and has been in the investment industry since 1996.
Bryan D. Belton, CFA
Portfolio Manager
Bryan is a Director in the Multi-Asset group at PanAgora Asset Management. He has an M.S.F. from Northeastern University and an A.B. from Boston College. Bryan joined PanAgora in 2005 and has been in the investment industry since 1997.
Can you describe the global investing environment for the reporting period?
Global equities finished calendar-year 2019 on a strong note. Returns were robust across different regions, with the United States leading the way. A “phase one” trade agreement between the United States and China, an accommodative U.S. Federal Reserve [the Fed], and improving global economic conditions helped drive major stock indices to all-time highs in the fourth quarter of calendar 2019.
After a relatively calm start to 2020, developed and emerging equity markets fell sharply in late February and early March. The impact of the COVID-19 pandemic, including fears of a prolonged global economic slowdown, sent equity markets into a tailspin. The CBOE Volatility Index, which measures future equity volatility using options of the S&P 500 Index, surpassed levels last seen during the 2008 global financial crisis. Investors grew more risk averse, focusing on higher quality names and safe-haven assets. Central banks worldwide intervened to provide fiscal and monetary stimulus. The Fed responded with a historic $2 billion in emergency relief and moved interest rates to near zero.
PanAgora Risk Parity Fund 3 |
The table shows the fund’s total exposures as a percentage of the fund’s net assets as of 8/31/20. Allocations will not total 100% because the table reflects the notional value of derivatives (the economic value for purposes of calculating periodic payment obligations), in addition to the market value of securities. Holdings and allocations may vary over time.
Equities rallied considerably in April and sustained their gains through the end of the period. Investor confidence rose as countries around the world started to cautiously reopen their economies. The Consumer Price Index [CPI], which represents consumption expenditures, increased by 0.59% in July 2020. This was CPI’s strongest monthly increase since 1991, and signaled signs of a U.S. economic recovery. The S&P 500 Index, a broad measure of stocks, rallied to a record level in the month of August, recouping its losses from earlier in the year. For the 12-month reporting period, the S&P 500 Index posted a return of 21.94%.
For the 12-month reporting period, international developed equity markets posted a more modest increase of 5.96%, as measured by the MSCI World ex-U.S. Index [ND]. Increased fiscal support across Europe helped boost equity performance following pandemic-related selloffs.
Emerging markets, as measured by the MSCI Emerging Markets Index [ND], advanced 14.49% for the reporting period. Promising economic data from China helped lift emerging-market stocks. China’s GDP [gross domestic product] expanded 3.2% in the second quarter of calendar 2020 from the same period one year ago, which exceeded an anticipated expansion of 2.5%.
Bonds ended 2019 on the decline as investors’ appetite for risk accelerated. In March 2020, the pandemic triggered the fastest onset of a bear market [a decline of 20% or more from a recent high] in history. The resulting flight to safety was a boon for U.S. and non-U.S. government debt. Record-high unemployment, weaker corporate earnings, and a drop in U.S. quarterly GDP contributed to a decline in Treasury yields and higher bond prices. The Bloomberg Barclays U.S. Treasury Index rose 6.98%, while the FTSE World Government Bond Index ex-U.S. [Hedged] gained a more modest 0.28%, for the 12-month reporting period.
Following historic volatility in the first calendar quarter of 2020, credit spreads narrowed toward the end of the reporting period. Demand persisted for investment-grade credit, pushing the Bloomberg Barclays U.S. Credit Index up 7.26% for the 12-month reporting period. Inflation-linked bonds were supported by improved inflation expectations [following fiscal and monetary stimulus] and a decline in longer-term yields. The Bloomberg Barclays World Government Inflation-Linked Bond Index [Hedged] increased 3.41% for the reporting period.
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Commodity prices rallied in the fourth quarter of calendar 2019 to finish the year strong. By the first quarter of calendar 2020, prices began to plunge as the pandemic caused disruptions to global demand. The more heavily energy-weighted S&P GSCI posted a loss of 23.81% for the reporting period. The more balanced Bloomberg Commodity Index declined 3.90% for the period. The U.S. dollar weakened against other major currencies in the final months of the period. This helped support commodity prices toward the end of the period.
How did the fund perform? Could you discuss some detractors and contributors to results?
On an absolute performance basis, Putnam PanAgora Risk Parity Fund generated a return of 7.19%, net of fees. At the main asset class level, nominal fixed income was the largest contributor to positive fund performance, followed by equities. Exposure to inflation-protected assets modestly detracted for the period. Within nominal fixed income, the fund benefited from its risk-balanced exposure to U.S. government debt. This allocation was a top contributing sub-asset class as demand for safe-haven assets increased. Exposure to international government debt slightly detracted. Within equities, the fund’s positive contribution from emerging markets and U.S. large- and small-cap equities largely offset the negative return contribution from international developed markets. Lastly, in terms of inflation-protected assets, the fund’s exposure to commodities modestly detracted from absolute performance for the 12-month reporting period.
On a relative performance basis, the fund underperformed its blended benchmark, which returned 10.06% for the period. The blended benchmark comprises 35% the
ABOUT DERIVATIVES
Derivatives are an increasingly common type of investment instrument, the performance of which is derived from an underlying security, index, currency, or other area of the capital markets. Derivatives employed by the fund’s managers generally serve one of two main purposes: to gain exposure to different asset classes, or to gain exposure to different areas of risk.
For example, the fund’s managers might use futures contracts to gain exposure to equity securities, fixed-income securities, or commodities. These asset classes offer different return potential and exposure to different investment risks.
Like any other investment, derivatives may not appreciate in value and may lose money. Derivatives may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities. And because derivatives typically represent contractual agreements between two financial institutions, derivatives entail “counterparty risk,” which is the risk that the other party is unable or unwilling to pay. PanAgora monitors the counterparty risks we assume. For example, PanAgora often enters into collateral agreements that require the counterparties to post collateral on a regular basis to cover their obligations to the fund. Counterparty risk for exchange-traded futures and centrally cleared swaps is mitigated by the daily exchange of margin and other safeguards against default through their respective clearinghouses.
PanAgora Risk Parity Fund 5 |
MSCI ACWI, 50% the Bloomberg Barclays U.S. Long Treasury Index, and 15% the S&P GSCI. While the fund’s risk-balanced allocation to nominal fixed income contributed positively, this allocation underperformed that of the blended benchmark. International government debt detracted from the fund’s performance. This sub-asset class is not represented in the benchmark. Similarly, the fund achieves equity exposure by using a risk-balanced approach. This contributed to underperformance relative to the capitalization-weighted equity exposure of the blended benchmark. Lastly, the fund’s risk-balanced exposure to commodities outperformed relative to the production-weighted commodity component of the blended benchmark.
How did the fund use derivatives in the period?
We used futures in an effort to gain our exposure to equities, fixed-income securities, and commodities.
What is your outlook and portfolio strategy for the coming months?
The fund seeks total return, which is composed of capital appreciation and income. We use a systematic multi-asset investing approach that combines strategic asset allocation and tactical portfolio management. As always, the fund is systematically rebalanced by the investment team at the beginning of each month. As of the beginning of September 2020, the portfolio increased its overweight position to inflation-protected assets at the expense of equities, while nominal fixed income remained nearly in line with the strategic [long-term] risk targets. The fund is currently overweight inflation-protected assets, underweight equities, and close to neutral to nominal fixed income. As markets recover from extreme volatility related to the pandemic, our investment team will continue to monitor and manage the fund using proprietary risk-budgeting techniques. These include dynamic risk allocation, systematic portfolio rebalancing, targeting constant volatility, and risk diversification.
Thank you, Edward and Bryan, for your time and insights today.
Past performance is not a guarantee of future results.
The opinions expressed in this article represent the current, good faith views of the author(s) at the time of publication, are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented in this article has been developed internally and/or obtained from sources believed to be reliable; however, PanAgora Asset Management, Inc. (PanAgora) does not guarantee the accuracy, adequacy, or completeness of such information. Predictions, opinions, and other information contained in this article are subject to change continually and without notice of any kind and may no longer be true after the date indicated. As with any investment there is a potential for profit as well as the possibility of loss.
Any forward-looking statements speak only as of the date they are made, and PanAgora assumes no duty to and does not undertake to update forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Actual results could differ materially from those anticipated in forward-looking statements. This material is directed exclusively at investment professionals. Any investments to which this material relates are available only to or will be engaged in only with investment professionals.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2020, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance information as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R, R6, and Y shares are not available to all investors. See the Terms and definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/20
Life of fund | Annual average | 1 year | |
Class A (9/20/17) | |||
Before sales charge | 22.48% | 7.12% | 7.19% |
After sales charge | 15.44 | 4.99 | 1.03 |
Class B (9/20/17) | |||
Before CDSC | 19.80 | 6.32 | 6.39 |
After CDSC | 16.80 | 5.41 | 1.74 |
Class C (9/20/17) | |||
Before CDSC | 19.82 | 6.32 | 6.40 |
After CDSC | 19.82 | 6.32 | 5.47 |
Class R (9/20/17) | |||
Net asset value | 21.64 | 6.87 | 7.02 |
Class R6 (9/20/17) | |||
Net asset value | 23.29 | 7.36 | 7.43 |
Class Y (9/20/17) | |||
Net asset value | 23.30 | 7.36 | 7.44 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A shares reflect the deduction of the maximum 5.75% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R, R6, and Y shares have no initial sales charge or CDSC.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
PanAgora Risk Parity Fund 7 |
Comparative index returns For periods ended 8/31/20 | |||
Life of fund | Annual average | 1 year | |
Putnam | |||
PanAgora Risk | |||
Parity Blended | 27.55% | 8.60% | 10.06% |
Benchmark* | |||
Lipper Alternative | |||
Global Macro | |||
Funds category | 10.07 | 3.08 | 4.81 |
average† |
Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* The Putnam PanAgora Risk Parity Blended Benchmark is an unmanaged index administered by Putnam Management, 35% of which is the MSCI ACWI, 50% of which is the Bloomberg Barclays U.S. Long Treasury Index, and 15% of which is the S&P GSCI.
† Over the 1-year, and life-of-fund periods ended 8/31/20, there were 210 and 202 funds, respectively, in this Lipper category.
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B shares would have been valued at $11,980 ($11,680 after contingent deferred sales charge). A $10,000 investment in the fund’s class C shares would be valued at $11,982, and no contingent deferred sales charge would apply. A $10,000 investment in the fund’s class R, R6, and Y shares would have been valued at $12,164, $12,329 and $12,330, respectively.
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Fund price and distribution information For the 12-month period ended 8/31/20
Distributions | Class A | Class B | Class C | Class R | Class R6 | Class Y | |
Number | 1 | 1 | 1 | 1 | 1 | 1 | |
Income | $0.483383 | $0.402383 | $0.402383 | $0.456383 | $0.508383 | $0.509383 | |
Capital gains | |||||||
Long-term gains | 0.490000 | 0.490000 | 0.490000 | 0.490000 | 0.490000 | 0.490000 | |
Short-term gains | 0.502617 | 0.502617 | 0.502617 | 0.502617 | 0.502617 | 0.502617 | |
Total | $1.476000 | $1.395000 | $1.395000 | $1.449000 | $1.501000 | $1.502000 | |
Before | After | Net | Net | Net | Net | Net | |
sales | sales | asset | asset | asset | asset | asset | |
Share value | charge | charge | value | value | value | value | value |
8/31/19 | $11.26 | $11.95 | $11.18 | $11.17 | $11.23 | $11.28 | $11.28 |
8/31/20 | 10.49 | 11.13 | 10.41 | 10.40 | 10.47 | 10.51 | 10.51 |
The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
Fund performance as of most recent calendar quarter Total return for periods ended 9/30/20
Life of fund | Annual average | 3 year | Annual average | 1 year | |
Class A (9/20/17) | |||||
Before sales charge | 20.96% | 6.48% | 21.69% | 6.76% | 6.15% |
After sales charge | 14.01 | 4.42 | 14.70 | 4.68 | 0.04 |
Class B (9/20/17) | |||||
Before CDSC | 18.30 | 5.70 | 19.14 | 6.01 | 5.44 |
After CDSC | 15.30 | 4.81 | 16.14 | 5.11 | 0.83 |
Class C (9/20/17) | |||||
Before CDSC | 18.32 | 5.71 | 19.15 | 6.01 | 5.35 |
After CDSC | 18.32 | 5.71 | 19.15 | 6.01 | 4.43 |
Class R (9/20/17) | |||||
Net asset value | 20.13 | 6.24 | 20.86 | 6.52 | 5.97 |
Class R6 (9/20/17) | |||||
Net asset value | 21.76 | 6.71 | 22.50 | 7.00 | 6.38 |
Class Y (9/20/17) | |||||
Net asset value | 21.89 | 6.75 | 22.62 | 7.03 | 6.50 |
See the discussion following the fund performance table on page 7 for information about the calculation of fund performance.
PanAgora Risk Parity Fund 9 |
Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.
Expense ratios
Class A | Class B | Class C | Class R | Class R6 | Class Y | |
Net expenses for the fiscal year | ||||||
ended 8/31/19*‡§ | 1.29% | 2.04% | 2.04% | 1.54% | 1.05% | 1.04% |
Total annual operating expenses for the | ||||||
fiscal year ended 8/31/19‡§ | 1.71% | 2.46% | 2.46% | 1.96% | 1.47% | 1.46% |
Annualized expense ratio for the | ||||||
six-month period ended 8/31/20† | 1.23% | 1.98% | 1.98% | 1.48% | 1.00% | 0.98% |
Fiscal year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the consolidated financial highlights of this report.
Prospectus expense information also includes the impact of acquired fund fees and expenses of 0.05%, which is not included in the consolidated financial highlights or annualized expense ratios. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s contractual obligation to limit certain fund expenses through 12/30/20.
† Expense ratios for each class are for the fund’s most recent fiscal half year. As a result of this, ratios may differ from expense ratios based on one-year data in the consolidated financial highlights.
‡ Includes management fee payable to Putnam Investment Management, LLC (“Putnam Management”) by the fund’s wholly-owned subsidiary. The management fee paid by the fund to Putnam Management is reduced by an amount equal to the management fee Putnam Management receives from the subsidiary under the management contract between Putnam Management and the subsidiary.
§ Restated to reflect current fees.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in each class of the fund from 3/1/20 to 8/31/20. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Class A | Class B | Class C | Class R | Class R6 | Class Y | |
Expenses paid per $1,000*† | $6.41 | $10.30 | $10.30 | $7.71 | $5.21 | $5.11 |
Ending value (after expenses) | $1,073.70 | $1,068.80 | $1,068.90 | $1,072.70 | $1,074.60 | $1,074.60 |
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 8/31/20. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
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Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended 8/31/20, use the following calculation method. To find the value of your investment on 3/1/20, call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Class A | Class B | Class C | Class R | Class R6 | Class Y | |
Expenses paid per $1,000*† | $6.24 | $10.03 | $10.03 | $7.51 | $5.08 | $4.98 |
Ending value (after expenses) | $1,018.95 | $1,015.18 | $1,015.18 | $1,017.70 | $1,020.11 | $1,020.21 |
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 8/31/20. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the six-month period; then multiplying the result by the number of days in the six-month period; and then dividing that result by the number of days in the year.
PanAgora Risk Parity Fund 11 |
Consider these risks before investing
There can be no assurance that a “risk parity” approach will achieve any particular level of return or will, in fact, reduce volatility or potential loss. The fund’s allocation of assets may hurt performance, and efforts to diversify risk through the use of leverage may be unsuccessful. Quantitative models or data may be incorrect or incomplete, and reliance on those models or data may not produce the desired results. 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, asset class, geography, industry, or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Bond investments in which the fund invests (or has exposure to) are subject to interest-rate risk and credit risk. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. The value of inflation-protected securities generally declines during periods of rising real interest rates, and, when real interest rates rise faster than nominal interest rates, inflation-indexed bonds to which the fund is exposed may experience greater losses than other fixed income securities with similar durations. Exposure to the commodities markets may subject the fund to greater volatility than investments in traditional securities. Risks associated with derivatives (including “short” derivatives) include losses caused by unexpected market movements (which are potentially unlimited), imperfect correlation between the price of the derivative and the price of the underlying asset, increased investment exposure (which may be considered leverage), the potential inability to terminate or sell derivatives positions, the potential need to sell securities at disadvantageous times to meet margin or segregation requirements, the potential inability to recover margin or other amounts deposited from a counterparty, and the potential failure of the other party to the instrument to meet its obligations. Leveraging can result in volatility in the fund’s performance and losses in excess of the amounts invested. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. The fund invests in (or provides exposure to) fewer issuers or makes large investments in (or provides large amounts of exposure to) a small number of issuers and involves more risk than a fund that invests more broadly. By investing in open-end or closed-end investment companies and ETFs, the fund is indirectly exposed to the risks associated with direct ownership of the securities held by those investment companies or ETFs. By investing in a subsidiary, the fund is indirectly exposed to the risks associated with the subsidiary’s investments. You can lose money by investing in the fund.
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Terms and definitions
Important terms
Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are closed to new investments and are only available by exchange from another Putnam fund or through dividend and/or capital gains reinvestment. They are not subject to an initial sales charge and may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class R shares are not subject to an initial sales charge or CDSC and are only available to employer-sponsored retirement plans.
Class R6 shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to employer-sponsored retirement plans, corporate and institutional clients, and clients in other approved programs.
Class Y shares are not subject to an initial sales charge or CDSC and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
Bloomberg Barclays U.S. Credit Index is an unmanaged index of U.S. dollar-denominated, investment-grade, fixed-rate, taxable corporate and government-related bonds.
Bloomberg Barclays U.S. Long Treasury Index is an unmanaged index of all publicly issued, U.S. Treasury securities that have a remaining maturity of 10 or more years, are investment-grade rated, and have $250 million or more of outstanding face value.
Bloomberg Barclays U.S. Treasury Index is an unmanaged index of U.S.-dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury.
Bloomberg Barclays World Government Inflation-Linked Bond Index (Hedged) is an unmanaged index that tracks the performance of government inflation-protected securities.
Bloomberg Commodity Index is a broadly diversified index that measures the prices of commodities.
PanAgora Risk Parity Fund 13 |
CBOE (Chicago Board Options Exchange) Volatility Index is a measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
FTSE World Government Bond Index (WGBI) ex-U.S. (Hedged) is an unmanaged index that represents the world bond market, excluding the United States.
ICE BofA (Intercontinental Exchange Bank of America) U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
MSCI ACWI (All Country World Index) (ND) is a free float-adjusted market capitalization index that is designed measure equity market performance in the global developed and emerging markets. Calculated with net dividends (ND), this total return index reflects the reinvestment of dividends after the deduction of withholding taxes, using a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.
MSCI Emerging Markets Index (ND) is a free float-adjusted market capitalization index that is designed to measure equity market performance in global emerging markets. Calculated with net dividends (ND), this total return index reflects the reinvestment of dividends after the deduction of withholding taxes, using a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.
MSCI World ex-U.S. Index [ND] is an unmanaged index of equity securities from developed countries, excluding the United States. Calculated with net dividends (ND), this total return index reflects the reinvestment of dividends after the deduction of withholding taxes, using a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.
Putnam PanAgora Risk Parity Blended Benchmark is an unmanaged index administered by Putnam Management, 35% of which is the MSCI ACWI [ND], 50% of which is the Bloomberg Barclays U.S. Long Treasury Index, and 15% of which is the S&P GSCI.
S&P 500 Index is an unmanaged index of common stock performance.
S&P GSCI is a composite of commodity sector returns that represents a broadly diversified, unleveraged, long-only position in commodity futures.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
ICE Data Indices, LLC (“ICE BofA”), used with permission. ICE BofA permits use of the ICE BofA indices and related data on an “as is” basis; makes no warranties regarding same; does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the ICE BofA indices or any data included in, related to, or derived therefrom; assumes no liability in connection with the use of the foregoing; and does not sponsor, endorse, or recommend Putnam Investments, or any of its products or services.
Lipper, a Refinitiv company, is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.
14 PanAgora Risk Parity Fund |
Other information for shareholders
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2020, are available in the Individual Investors section of putnam.com and on the Securities and Exchange Commission (SEC) website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT within 60 days of the end of such fiscal quarter. Shareholders may obtain the fund’s Form N-PORT on the SEC’s website at www.sec.gov.
Prior to its use of Form N-PORT, the fund filed its complete schedule of its portfolio holdings with the SEC on Form N-Q, which is available online at www.sec.gov.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2020, Putnam employees had approximately $505,000,000 and the Trustees had approximately $78,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
Liquidity risk management program
Putnam, as the administrator of the fund’s liquidity risk management program (appointed by the Board of Trustees), presented the first annual report on the program to the Trustees in April 2020. The report covered the structure of the program, including the program documents and related policies and procedures adopted to comply with Rule 22e-4 under the Investment Company Act of 1940, and reviewed the operation of the program from December 2018 through March 2020. The report included a description of the annual liquidity assessment of the fund that Putnam performed in November 2019. The report noted that there were no material compliance exceptions identified under Rule 22e-4 during the period. The report included a review of the governance of the program and the methodology for classification of the fund’s investments. The report also included a discussion of liquidity monitoring during the period, including during the market liquidity challenges caused by the COVID-19 pandemic, and the impact those challenges had on the liquidity of the fund’s investments. Putnam concluded that the program has been operating effectively and adequately to ensure compliance with Rule 22e-4.
PanAgora Risk Parity Fund 15 |
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
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Trustee approval of management contract
General conclusions
The Board of Trustees of The Putnam Funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management, LLC (“Putnam Management”) and the sub-advisory contract with respect to your fund between Putnam Management and its affiliate, PanAgora Asset Management, Inc. (“PanAgora”). The Board, with the assistance of its Contract Committee, requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. The Contract Committee consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of The Putnam Funds (“Independent Trustees”).
At the outset of the review process, members of the Board’s independent staff and independent legal counsel considered any possible changes to the annual contract review materials furnished to the Contract Committee during the course of the previous year’s review and, as applicable, identified those changes to Putnam Management. Following these discussions and in consultation with the Contract Committee, the Independent Trustees’ independent legal counsel requested that Putnam Management and its affiliates, including PanAgora, furnish specified information, together with any additional information that Putnam Management and PanAgora considered relevant, to the Contract Committee. Over the course of several months ending in June 2020, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management and PanAgora provided. Throughout this process, the Contract Committee was assisted by the members of the Board’s independent staff and by independent legal counsel for The Putnam Funds and the Independent Trustees.
In May 2020, the Contract Committee met in executive session to discuss and consider its recommendations with respect to the continuance of the contracts. At the Trustees’ June 2020 meeting, the Contract Committee met in executive session with the other Independent Trustees to review a summary of the key financial, performance and other data that the Contract Committee considered in the course of its review. The Contract Committee then presented its written report, which summarized the key factors that the Committee had considered and set forth its recommendations. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract (as well as the management and sub-advisory contracts of its wholly-owned subsidiary) and sub-advisory contract with respect to your fund between Putnam Management and PanAgora, effective July 1, 2020.
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds, the costs incurred by Putnam Management and PanAgora in providing services to the fund, and the application of certain reductions and waivers noted below; and
• That the fee schedule in effect for your fund represented an appropriate sharing between fund shareholders and Putnam Management and PanAgora of such economies of scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors.
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. The Trustees also reviewed the total expenses of each Putnam fund, recognizing that in most cases management fees represented the major, but not the sole, determinant of total costs to fund shareholders. (Two funds have implemented so-called “all-in”
PanAgora Risk Parity Fund 17 |
management fees covering substantially all routine fund operating costs.)
In reviewing fees and expenses, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management, changes in a fund’s investment strategy, changes in Putnam Management’s operating costs or profitability, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not indicate that changes to the management fee schedule for your fund would be appropriate at this time.
Under its management contract, your fund has the benefit of breakpoints in its management fee schedule that provide shareholders with economies of scale in the form of reduced fee levels as assets under management of all open-end funds sponsored by Putnam Management for which PanAgora acts as sub-adviser increase. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale between fund shareholders, Putnam Management and PanAgora.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to support the effort to have fund expenses meet competitive standards, the Trustees and Putnam Management and the funds’ investor servicing agent, Putnam Investor Services, Inc. (“PSERV”), have implemented expense limitations that were in effect during your fund’s fiscal year ending in 2019. These expense limitations were: (i) a contractual expense limitation applicable to specified open-end funds, including your fund, of 25 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to specified open-end funds, including your fund, of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, distribution fees, investor servicing fees, investment-related expenses, interest, taxes, brokerage commissions, acquired fund fees and expenses and extraordinary expenses). These expense limitations attempt to maintain competitive expense levels for the funds. Most funds had sufficiently low expenses that these expense limitations were not operative during their fiscal years ending in 2019. However, in the case of your fund, the second expense limitation applied during its fiscal year ending in 2019. Putnam Management and PSERV have agreed to maintain these expense limitations until at least December 30, 2021. The support of Putnam Management and PSERV for these expense limitation arrangements was an important factor in the Trustees’ decision to approve the continuance of your fund’s management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Broadridge Financial Solutions, Inc. (“Broadridge”). This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fees), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the second quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the first quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2019. The first quintile represents the least expensive funds and the fifth quintile the most expensive funds. The fee and expense data reported by Broadridge as of December 31, 2019 reflected the most recent fiscal year-end data available in Broadridge’s database at that time.
In connection with their review of fund management fees and total expenses, the Trustees also reviewed the costs of the services provided and the profits realized by Putnam Management and its affiliates, including PanAgora, from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of the revenues, expenses and profitability of Putnam Management and its affiliates, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees also reviewed the costs incurred by PanAgora in providing its services under the sub-advisory contract and the resulting profitability to it in respect of your fund. The
18 PanAgora Risk Parity Fund |
Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing between fund shareholders, Putnam Management and PanAgora of such economies of scale as may exist in the management of the fund at that time.
The information examined by the Trustees in connection with their annual contract review for the Putnam funds included information regarding services provided and fees charged by Putnam Management and its affiliates (including PanAgora) to other clients, including defined benefit pension and profit-sharing plans, sub-advised mutual funds, private funds sponsored by affiliates of Putnam Management, and model-only separately managed accounts. This information included, in cases where a product’s investment strategy corresponds with a fund’s strategy, comparisons of those fees with fees charged to the Putnam funds, as well as an assessment of the differences in the services provided to these clients as compared to the services provided to the Putnam funds. The Trustees observed that the differences in fee rates between these clients and the Putnam funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients may reflect, among other things, historical competitive forces operating in separate marketplaces. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for other clients, and the Trustees also considered differences between the services that Putnam Management and PanAgora provide to the Putnam funds and those that they provide to their other clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
Investment performance
The quality of the investment process provided by Putnam Management and PanAgora, and the quality of services provided by Putnam Management and PanAgora with respect to your fund, represented major factors in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract and by PanAgora under your fund’s sub-advisory contract. The Trustees were assisted in their review of Putnam Management’s and PanAgora’s investment processes and performance by the work of the investment oversight committees of the Trustees and the full Board of Trustees, which meet on a regular basis with individual portfolio managers and with senior management of Putnam Management’s Investment Division throughout the year. The Trustees also met with senior personnel of PanAgora during the year. The Trustees concluded that Putnam Management and PanAgora generally provide a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s and PanAgora’s ability to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period. With respect to its review of your fund’s investment performance, the Contract Committee, along with other members of the Board, discussed with representatives of Putnam Management your fund’s investment performance and outlook.
The Trustees considered that, in the aggregate, 2019 was a strong year of performance for The Putnam Funds, with the Putnam funds, on an asset-weighted basis, ranking in the top quartile of their Lipper Inc. (“Lipper”) peers for the year ended December 31, 2019. For those funds that are evaluated based on their total returns versus selected investment benchmarks, the Trustees observed that the funds, on an asset-weighted-basis, delivered a gross return that was 2.3% ahead of their benchmarks in 2019. In addition to the performance of the individual Putnam funds, the Trustees considered, as they had in prior years, the performance of The Putnam Fund complex versus competitor fund complexes. In this regard, the Trustees observed that The Putnam Funds’ relative performance, as reported in the Barron’s/Lipper Fund Families survey, was exceptionally strong over both the short and long term, with The Putnam Funds ranking as the 8th best performing mutual fund complex out of 55 complexes for the one-year period ended December 31, 2019 and the 8th best performing mutual fund complex out of 45 complexes for the ten-year period, with 2019 marking the third consecutive year that The Putnam Funds have ranked in the top ten fund complexes for the ten-year period. The Trustees also noted that The Putnam Funds ranked 26th out of 52 complexes for the five-year period ended December 31, 2019. In addition to the Barron’s/Lipper Fund Families
PanAgora Risk Parity Fund 19 |
Survey, the Trustees also considered the funds’ ratings assigned by Morningstar Inc., noting that 22 of the funds were four- or five-star rated at the end of 2019 and that this included five funds that had achieved a five-star rating. They also noted, however, the disappointing investment performance of some funds for periods ended December 31, 2019 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor closely the performance of those funds, including the effectiveness of any efforts Putnam Management has undertaken to address underperformance and whether additional actions to address areas of underperformance are warranted.
For purposes of the Trustees’ evaluation of the Putnam funds’ investment performance, the Trustees generally focus on a competitive industry ranking of each fund’s total net return over a one-year, three-year and five-year period. For a number of Putnam funds with relatively unique investment mandates for which Putnam Management informed the Trustees that meaningful competitive performance rankings are not considered to be available, the Trustees evaluated performance based on their total gross and net returns and comparisons of those returns with the returns of selected investment benchmarks. In the case of your fund, the Trustees considered information about your fund’s total return and its performance relative to its benchmark over the one-year and since-inception periods ended December 31, 2019. Your fund’s class A shares’ return, net of fees and expenses, was positive and trailed the return of its benchmark over the one-year and since-inception periods ended December 31, 2019. The Trustees considered that your fund was launched in September 2017 and that its performance track record was somewhat limited. The Trustees will continue to closely monitor your fund and its investment performance. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.)
The Trustees considered Putnam Management’s continued efforts to support fund performance through initiatives including structuring compensation for portfolio managers and research analysts to enhance accountability for fund performance, emphasizing accountability in the portfolio management process, and affirming its commitment to a fundamental-driven approach to investing. The Trustees noted further that Putnam Management had made selective hires and internal promotions in 2019 to strengthen its investment team.
Brokerage and soft-dollar allocations; investor servicing
The Trustees considered various potential benefits that Putnam Management and PanAgora may receive in connection with the services they provide under the management and sub-advisory contracts with your fund. These include benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to PanAgora in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft dollars generated by these means are used predominantly to acquire brokerage and research services (including third-party research and market data) that enhance PanAgora’s investment capabilities and supplement PanAgora’s internal research efforts. The Trustees noted that, in 2019, they had approved the elimination of a fund expense recapture program, whereby a portion of available soft dollars were used to pay fund expenses, and that the amount of commissions allocated to that program were instead used to increase, by a corresponding amount, the budget allocated for execution services. The Trustees indicated their continued intent to monitor regulatory and industry developments in this area with the assistance of their Brokerage Committee. In addition, with the assistance of their Brokerage Committee, the Trustees indicated their continued intent to monitor the allocation of the Putnam funds’ brokerage in order to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management and sub-advisory contracts, the Trustees reviewed your fund’s investor servicing agreement with PSERV and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the
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fees payable by the funds to PSERV and PRM, as applicable, for such services are fair and reasonable in relation to the nature and quality of such services, the fees paid by competitive funds, and the costs incurred by PSERV and PRM, as applicable, in providing such services. Furthermore, the Trustees were of the view that the services provided were required for the operation of the funds, and that they were of a quality at least equal to those provided by other providers.
PanAgora Risk Parity Fund 21 |
Audited consolidated financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, constitute the fund’s audited consolidated financial statements.
The fund’s consolidated portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.
Consolidated statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)
Consolidated statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings —as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.
Consolidated statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Consolidated statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned.
Consolidated financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlights table also includes the current reporting period.
22 PanAgora Risk Parity Fund |
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Putnam Investment Funds and Shareholders
of Putnam PanAgora Risk Parity Fund:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities, including the fund’s consolidated portfolio, of Putnam PanAgora Risk Parity Fund and its subsidiary (one of the funds constituting Putnam Investment Funds, referred to hereafter as the “Fund”) as of August 31, 2020, the related consolidated statement of operations for the year ended August 31, 2020, the consolidated statement of changes in net assets for each of the two years in the period ended August 31, 2020, including the related notes, and the consolidated financial highlights for each of the periods indicated therein (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of August 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended August 31, 2020 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of August 31, 2020 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 9, 2020
We have served as the auditor of one or more investment companies in the Putnam Investments family of mutual funds since at least 1957. We have not been able to determine the specific year we began serving as auditor.
PanAgora Risk Parity Fund 23 |
The fund’s consolidated portfolio 8/31/20
Principal amount/ | ||
SHORT-TERM INVESTMENTS (96.7%)* | shares | Value |
State Street Institutional Treasury Plus Money Market Fund, | ||
Investor Class zero % P | 14,313,122 | $14,313,122 |
State Street Institutional U.S. Government Money Market Fund, | ||
Investor Class zero % ΩΩ P | 2,445,483 | 2,445,483 |
U.S. Treasury Cash Management Bills 0.16%, 9/2 2/20 # ΩΩ | $22,850,000 | 22,848,767 |
Total short-term investments (cost $39,606,472) | $39,607,372 | |
TOTAL INVESTMENTS | ||
Total investments (cost $39,606,472) | $39,607,372 |
Notes to the fund’s consolidated portfolio
Unless noted otherwise, the notes to the fund’s consolidated portfolio are for the close of the fund’s reporting period, which ran from September 1, 2019 through August 31, 2020 (the reporting period). Within the following notes to the consolidated portfolio, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “ASC 820” represent Accounting Standards Codification 820 Fair Value Measurements and Disclosures.
* Percentages indicated are based on net assets of $40,974,117.
# This security, in part or in entirety, was pledged and segregated with the broker to cover margin requirements for futures contracts at the close of the reporting period. Collateral at period end totaled $2,849,858 and is included in Investments in securities on the Consolidated statement of assets and liabilities (Notes 1 and 8).
P A portion of these securities were purchased with cash that was pledged to the fund for collateral on certain futures contracts. Collateral at period end totaled $1,663,515.
ΩΩ A portion of this holding is held by Putnam PanAgora Risk Parity Ltd., a wholly-owned and controlled subsidiary, valued at $2,795,464.
Unless otherwise noted, the rates quoted in Short-term investments security descriptions represent the weighted average yield to maturity.
The dates shown on debt obligations are the original maturity dates.
FUTURES CONTRACTS OUTSTANDING at 8/31/20 | |||||
Unrealized | |||||
Number of | Notional | Expiration | appreciation/ | ||
contracts | amount | Value | date | (depreciation) | |
Amsterdam Exchange index (Long) | 2 | $262,155 | $261,988 | Sep-20 | $(3,885) |
Australian Government Treasury | |||||
Bond 10 yr (Long) | 59 | 6,417,160 | 6,417,160 | Sep-20 | 22,792 |
Bloomberg Comm25odity | |||||
Index (Long) ## | 1,294 | 9,486,961 | 9,472,080 | Sep-20 | 1,061,514 |
Canadian Government Bond | |||||
10 yr (Long) | 52 | 6,017,465 | 6,017,465 | Dec-20 | (38,376) |
DAX Index (Long) | 1 | 386,209 | 385,631 | Sep-20 | 17,267 |
Euro-Bobl 5 yr (Long) | 33 | 5,301,803 | 5,301,804 | Sep-20 | 4,709 |
Euro-BTP Italian Government | |||||
Bond (Long) | 12 | 2,093,756 | 2,093,757 | Sep-20 | 82,332 |
Euro-Bund 10 yr (Long) | 13 | 2,723,559 | 2,723,559 | Sep-20 | 4,184 |
Euro-Buxl 30 yr (Long) | 5 | 1,294,307 | 1,294,308 | Sep-20 | 4,287 |
FTSE 100 Index (Long) | 6 | 478,308 | 478,142 | Sep-20 | (22,558) |
24 PanAgora Risk Parity Fund |
FUTURES CONTRACTS OUTSTANDING at 8/31/20 cont. | |||||
Unrealized | |||||
Number of | Notional | Expiration | appreciation/ | ||
contracts | amount | Value | date | (depreciation) | |
Hang Seng Index (Long) | 3 | $487,285 | $485,310 | Sep-20 | $(7,869) |
IBEX 35 Index (Long) | 3 | 249,512 | 249,007 | Sep-20 | (3,611) |
Japanese Government Bond | |||||
10 yr (Long) | 12 | 17,174,904 | 17,174,904 | Sep-20 | (45,072) |
MSCI Emerging Markets Index (Long) | 72 | 3,965,395 | 3,961,440 | Sep-20 | 472,410 |
OMXS 30 Index (Long) | 12 | 245,046 | 244,861 | Sep-20 | (997) |
Russell 2000 Index E-Mini (Long) | 40 | 3,123,752 | 3,122,600 | Sep-20 | 357,709 |
S&P 500 Index E-Mini (Long) | 38 | 6,650,589 | 6,647,910 | Sep-20 | 877,256 |
S&P/TSX 60 Index (Long) | 4 | 607,515 | 606,586 | Sep-20 | 46,959 |
SPI 200 Index (Long) | 4 | 446,989 | 444,743 | Sep-20 | 18,164 |
Tokyo Price Index (Long) | 3 | 458,343 | 457,726 | Sep-20 | (1,532) |
U.K. Gilt 10 yr (Long) | 32 | 5,775,188 | 5,775,188 | Dec-20 | (58,870) |
U.S. Treasury Bond 30 yr (Long) | 32 | 5,623,000 | 5,623,000 | Dec-20 | (18,084) |
U.S. Treasury Note 2 yr (Long) | 164 | 36,235,031 | 36,235,031 | Dec-20 | 16,292 |
U.S. Treasury Note 5 yr (Long) | 144 | 18,148,500 | 18,148,500 | Dec-20 | 34,550 |
U.S. Treasury Note 10 yr (Long) | 78 | 10,861,500 | 10,861,500 | Dec-20 | 14,600 |
Unrealized appreciation | 3,035,025 | ||||
Unrealized (depreciation) | (200,854) | ||||
Total | $2,834,171 |
## Held by Putnam PanAgora Risk Parity Ltd., a wholly-owned and controlled subsidiary.
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 | ||
Short-term investments | $16,758,605 | $22,848,767 | $— | ||
Totals by level | $16,758,605 | $22,848,767 | $— | ||
Valuation inputs | |||||
Other financial instruments: | Level 1 | Level 2 | Level 3 | ||
Futures contracts | $2,834,171 | $— | $— | ||
Totals by level | $2,834,171 | $— | $— |
The accompanying notes are an integral part of these consolidated financial statements.
PanAgora Risk Parity Fund 25 |
Consolidated statement of assets and liabilities 8/31/20
ASSETS | |
Investments in securities, at value, (Notes 1 and 8): | |
Unaffiliated issuers (identified cost $39,606,472) | $39,607,372 |
Cash | 188,900 |
Interest and other receivable | 530 |
Receivable for shares of the fund sold | 38,059 |
Receivable for variation margin on futures contracts (Note 1) | 3,013,417 |
Receivable from Manager (Note 2) | 7,253 |
Prepaid assets | 53,083 |
Total assets | 42,908,614 |
LIABILITIES | |
Payable for custodian fees (Note 2) | 8,310 |
Payable for investor servicing fees (Note 2) | 2,507 |
Payable for Trustee compensation and expenses (Note 2) | 602 |
Payable for administrative services (Note 2) | 65 |
Payable for distribution fees (Note 2) | 6,780 |
Payable for variation margin on futures contracts (Note 1) | 174,894 |
Deposits due to Broker | 1,663,515 |
Other accrued expenses | 77,824 |
Total liabilities | 1,934,497 |
Net assets | $40,974,117 |
REPRESENTED BY | |
Paid-in-capital (Unlimited shares authorized (Notes 1 and 4) | $38,402,599 |
Total distributable earnings (Note 1) | 2,571,518 |
Total — Representing net assets applicable to capital shares outstanding | $40,974,117 |
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
Net asset value and redemption price per class A share ($16,226,288 divided by 1,546,989 shares) | $10.49 |
Offering price per class A share (100/94.25 of $10.49)* | $11.13 |
Net asset value and offering price per class B share ($11,982 divided by 1,151 shares)** | $10.41 |
Net asset value and offering price per class C share ($18,086 divided by 1,738 shares)** † | $10.40 |
Net asset value, offering price and redemption price per class R share | |
($12,162 divided by 1,162 shares) | $10.47 |
Net asset value, offering price and redemption price per class R6 share | |
($9,107,709 divided by 866,241 shares) | $10.51 |
Net asset value, offering price and redemption price per class Y share | |
($15,597,890 divided by 1,483,462 shares) | $10.51 |
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
† Net asset value may not recalculate due to rounding of fractional shares.
The accompanying notes are an integral part of these consolidated financial statements.
26 PanAgora Risk Parity Fund |
Consolidated statement of operations Year ended 8/31/20
INVESTMENT INCOME | |
Interest | $370,710 |
Total investment income | 370,710 |
EXPENSES | |
Compensation of Manager (Note 2) | 279,839 |
Investor servicing fees (Note 2) | 14,867 |
Custodian fees (Note 2) | 7,604 |
Trustee compensation and expenses (Note 2) | 1,670 |
Distribution fees (Note 2) | 32,404 |
Administrative services (Note 2) | 998 |
Blue sky expense | 91,451 |
Reports to shareholders | 14,016 |
Auditing and tax fees | 65,697 |
Other | 14,042 |
Fees waived and reimbursed by Manager (Note 2) | (120,446) |
Total expenses | 402,142 |
Expense reduction (Note 2) | (1,074) |
Net expenses | 401,068 |
Net investment loss | (30,358) |
REALIZED AND UNREALIZED GAIN (LOSS) | |
Net realized gain (loss) on: | |
Securities from unaffiliated issuers (Note 1) | 7,976 |
Foreign currency transactions (Note 1) | (47,355) |
Futures contracts (Note 1) | 857,771 |
Total net realized gain | 818,392 |
Change in net unrealized appreciation (depreciation) on: | |
Securities from unaffiliated issuers | (11,887) |
Assets and liabilities in foreign currencies | 207,914 |
Futures contracts | 1,800,822 |
Total change in net unrealized appreciation | 1,996,849 |
Net gain on investments | 2,815,241 |
Net increase in net assets resulting from operations | $2,784,883 |
The accompanying notes are an integral part of these consolidated financial statements.
PanAgora Risk Parity Fund 27 |
Consolidated statement of changes in net assets
INCREASE IN NET ASSETS | Year ended 8/31/20 | Year ended 8/31/19 |
Operations | ||
Net investment income (loss) | $(30,358) | $375,184 |
Net realized gain on investments | ||
and foreign currency transactions | 818,392 | 2,822,382 |
Change in net unrealized appreciation of investments | ||
and assets and liabilities in foreign currencies | 1,996,849 | 1,046,762 |
Net increase in net assets resulting from operations | 2,784,883 | 4,244,328 |
Distributions to shareholders (Note 1): | ||
From ordinary income | ||
Net investment income | ||
Class A | (352,876) | (49,377) |
Class B | (406) | — |
Class C | (539) | (12) |
Class M | — | (20) |
Class R | (462) | (46) |
Class R6 | (289,698) | (46,213) |
Class Y | (1,003,581) | (178,761) |
Net realized short-term gain on investments | ||
Class A | (366,914) | — |
Class B | (506) | — |
Class C | (674) | — |
Class M | — | — |
Class R | (509) | — |
Class R6 | (285,827) | — |
Class Y | (990,253) | — |
From net realized long-term gain on investments | ||
Class A | (357,705) | — |
Class B | (493) | — |
Class C | (657) | — |
Class M | — | — |
Class R | (496) | — |
Class R6 | (278,939) | — |
Class Y | (965,395) | — |
Increase from capital share transactions (Note 4) | 6,840,441 | 1,341,253 |
Total increase in net assets | 4,729,394 | 5,311,152 |
NET ASSETS | ||
Beginning of year | 36,244,723 | 30,933,571 |
End of year | $40,974,117 | $36,244,723 |
The accompanying notes are an integral part of these consolidated financial statements.
28 PanAgora Risk Parity Fund |
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PanAgora Risk Parity Fund 29 |
Consolidated financial highlights (For a common share outstanding throughout the period)
INVESTMENT OPERATIONS | LESS DISTRIBUTIONS | RATIOS AND SUPPLEMENTAL DATA | |||||||||||
Ratio | Ratio of net | ||||||||||||
Net asset | Net realized | From | of expenses | investment | |||||||||
value, | and unrealized | Total from | net | From | Net asset | Total return | Net assets, | to average | income (loss) | Portfolio | |||
beginning | Net investment | gain (loss) | investment | investment | net realized gain | Total | value, end | at net asset | end of period | net assets | to average | turnover | |
Period ended | of period | income (loss)a | on investments | operations | income | on investments | distributions | of period | value (%)b | (in thousands) | (%)c,d | net assets (%)d | (%) |
Class A | |||||||||||||
August 31, 2020 | $11.26 | (.03) | .73 | .70 | (.48) | (.99) | (1.47) | $10.49 | 7.19 | $16,226 | 1.24 | (.31) | — |
August 31, 2019 | 10.00 | .10 | 1.23 | 1.33 | (.07) | — | (.07) | 11.26 | 13.45 | 8,010 | 1.24 | .99 | — |
August 31, 2018† | 10.00 | .01 | .06 | .07 | — | (.07) | (.07) | 10.00 | .71* | 7,053 | 1.18* | .08* | — |
Class B | |||||||||||||
August 31, 2020 | $11.18 | (.10) | .72 | .62 | (.40) | (.99) | (1.39) | $10.41 | 6.39 | $12 | 1.99 | (.98) | — |
August 31, 2019 | 9.93 | .02 | 1.23 | 1.25 | — | — | — | 11.18 | 12.59 | 11 | 1.99 | .24 | — |
August 31, 2018† | 10.00 | (.06) | .06 | —e | — | (.07) | (.07) | 9.93 | .01* | 10 | 1.89* | (.63)* | — |
Class C | |||||||||||||
August 31, 2020 | $11.17 | (.10) | .72 | .62 | (.40) | (.99) | (1.39) | $10.40 | 6.40 | $18 | 1.99 | (1.00) | — |
August 31, 2019 | 9.93 | .03 | 1.22 | 1.25 | (.01) | — | (.01) | 11.17 | 12.60 | 15 | 1.99 | .24 | — |
August 31, 2018† | 10.00 | (.06) | .06 | —e | — | (.07) | (.07) | 9.93 | .01* | 13 | 1.89* | (.60)* | — |
Class R | |||||||||||||
August 31, 2020 | $11.23 | (.05) | .74 | .69 | (.46) | (.99) | (1.45) | $10.47 | 7.02 | $12 | 1.49 | (.49) | — |
August 31, 2019 | 9.98 | .08 | 1.22 | 1.30 | (.05) | — | (.05) | 11.23 | 13.09 | 11 | 1.49 | .74 | — |
August 31, 2018† | 10.00 | (.01) | .06 | .05 | — | (.07) | (.07) | 9.98 | .51* | 10 | 1.42* | (.15)* | — |
Class R6 | |||||||||||||
August 31, 2020 | $11.28 | —e | .73 | .73 | (.51) | (.99) | (1.50) | $10.51 | 7.43 | $9,108 | 1.00 | (.05) | — |
August 31, 2019 | 10.03 | .12 | 1.22 | 1.34 | (.09) | — | (.09) | 11.28 | 13.61 | 6,197 | 1.00 | 1.22 | — |
August 31, 2018† | 10.00 | .04 | .06 | .10 | — | (.07) | (.07) | 10.03 | 1.01* | 4,817 | .95* | .43* | — |
Class Y | |||||||||||||
August 31, 2020 | $11.28 | .01 | .72 | .73 | (.51) | (.99) | (1.50) | $10.51 | 7.44 | $15,598 | .99 | .08 | — |
August 31, 2019 | 10.03 | .13 | 1.21 | 1.34 | (.09) | — | (.09) | 11.28 | 13.61 | 21,989 | .99 | 1.24 | — |
August 31, 2018† | 10.00 | .03 | .07 | .10 | — | (.07) | (.07) | 10.03 | 1.01* | 19,020 | .94* | .32* | — |
* Not annualized.
† For the period September 20, 2017 (commencement of operations) to August 31, 2018.
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c Includes amounts paid through expense offset and/or brokerage/service arrangements, if any (Note 2). Also excludes acquired fund fees and expenses, if any.
d Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
Percentage of average net assets | |
August 31, 2020 | 0.32% |
August 31, 2019 | 0.47 |
August 31, 2018 | 1.27 |
e Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these consolidated financial statements.
30 PanAgora Risk Parity Fund | PanAgora Risk Parity Fund 31 |
Notes to consolidated financial statements 8/31/20
Within the following Notes to consolidated financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from September 1, 2019 through August 31, 2020.
Putnam PanAgora Risk Parity Fund (the fund) is a non-diversified series of Putnam Investment Funds (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 total return, which is composed of capital appreciation and income. The fund pursues an investment strategy designed to generate returns from investing in a combination of asset classes with diversified risk characteristics. The fund strategically allocates its investments among equities, fixed-income instruments and commodities in an effort to participate in periods of economic growth, preserve capital during periods of economic contraction, and preserve real rates of return during periods of heightened inflation.
In allocating the fund’s assets among the different asset classes, PanAgora Asset Management, Inc. (“PanAgora”), the subadviser to the fund, employs a proprietary “risk parity” approach, which relies on quantitative models and information and data inputs to those models to seek to diversify the fund’s portfolio risks across and within asset classes. When allocating investments across asset classes, the fund generally allocates a greater portion of its assets to asset classes PanAgora views as having lower risk, such as developed market bonds, than to asset classes PanAgora views as having higher risk, such as global equities. In its “neutral” position, the fund’s assets are generally strategically allocated among the different asset classes so that the anticipated contribution of each asset class to the overall risk of the fund will be approximately as follows: 40% from equity risk; 40% from fixed income risk; and 20% from inflation risk. However, PanAgora may seek different risk contributions from time to time, including in response to market conditions. When allocating investments within each asset class, PanAgora’s risk parity approach seeks to diversify the fund’s risk exposures across a variety of factors, including industry sectors, geographies, companies and commodity types.
The fund will gain exposure to different areas of risk either through direct investment or through derivative instruments, primarily including forwards, futures, and swaps, but which may also include, but are not limited to, options. The fund may invest without limit in equity securities, including, but not limited to, global developed markets large-cap equities, emerging markets equities, and U.S. small and mid-cap equities. The fund may additionally invest in fixed-income securities of any credit quality, duration or maturity (including, but not limited to, U.S. and non-U.S. sovereign bonds, global inflation-linked government bonds (including Treasury Inflation Protected Securities), and investment-grade corporate bonds), commodities (including through, but not limited to, commodity-linked notes and commodity-related derivative instruments (primarily commodity futures and swaps on commodity futures)), exchange-traded funds (“ETFs”), exchange-traded notes, and emerging markets and other currencies (including through cash bonds and currency forwards). These asset classes offer different return potential and exposure to different investment risks.
While the fund normally does not engage in borrowing, the fund typically uses derivatives to a significant extent and may take “short” derivatives positions.
A significant portion of the assets of the fund will be invested in short-term instruments, including cash and cash equivalents generally with one year or less term to maturity. These investments serve as collateral for the derivative positions the fund takes and also may earn income for the fund.
The fund is “non-diversified,” which means that it may invest a greater percentage of its assets in fewer issuers than a “diversified” fund.
The fund may invest directly or indirectly through its wholly-owned and controlled subsidiary Putnam PanAgora Risk Parity, Ltd. (the “subsidiary”), which like the fund, is sub-advised by PanAgora. The fund may invest no more than 25% of its assets in the subsidiary. Generally, the subsidiary will invest primarily in commodity futures and swaps on commodity futures but it may also invest in other commodity-related instruments (such as financial futures, option and swap contracts) or other asset classes (including through derivatives). Unlike the fund, the subsidiary may invest without limitation in commodity-related instruments. Unless indicated otherwise, references to the fund’s investments, investment exposures or risks include its indirect investments, investment exposures and risks through the subsidiary.
32 PanAgora Risk Parity Fund |
The fund offers class A, class B, class C, class R, class R6 and class Y shares. Effective November 25, 2019, all class M shares were converted to class A shares and are no longer available for purchase. 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. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class A shares generally are not subject to a contingent deferred sales charge, and class R, class R6 and class Y shares are not subject to a contingent deferred sales charge. Prior to November 25, 2019, class M shares were sold with a maximum front-end sales charge of 3.50% and were not subject to a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, are not subject to a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares are subject to a one-year 1.00% contingent deferred sales charge and generally convert to class A shares after approximately ten years. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class R6 and class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class R shares, but do not bear a distribution fee, and in the case of class R6 shares, bear a lower investor servicing fee, which is identified in Note 2. Class R6 and class Y shares are not available to all investors.
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 fund’s Amended and Restated Agreement and Declaration of Trust, any claims asserted against or on behalf of the Putnam Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Note 1: Significant accounting policies
The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its consolidated financial statements. The preparation of consolidated 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 consolidated 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 Consolidated statement of assets and liabilities date through the date that the consolidated financial statements were issued have been evaluated in the preparation of the consolidated 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.
Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities under Accounting Standards Codification 820 Fair Value Measurements and Disclosures (ASC 820). If no sales are reported, as in the case of some securities that are traded OTC, a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
PanAgora Risk Parity Fund 33 |
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.
Many securities markets and exchanges outside the U.S. close prior to the scheduled close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the scheduled close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value certain foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. The foreign equity securities, which would generally be classified as Level 1 securities, will be transferred to Level 2 of the fair value hierarchy when they are valued at fair value. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. Short-term securities with remaining maturities of 60 days or less are valued using an independent pricing service approved by the Trustees, and are classified as Level 2 securities.
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 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 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. 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, and including amortization and accretion of premiums and discounts on debt securities, is recorded on the accrual basis.
Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The fair value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of assets and liabilities other than investments at the period end, resulting from changes in the exchange rate.
Futures contracts The fund uses futures contracts to provide exposure to equity securities, fixed-income securities and commodities.
The potential risk to the fund is that the change in value of futures contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying
34 PanAgora Risk Parity Fund |
instruments, if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. With futures, there is minimal counterparty credit risk to the fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized on the Consolidated statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract and any initial margin requirements. Such receipts or payments are known as “variation margin.” Futures contracts outstanding at period end, if any, are listed after the fund’s consolidated portfolio. 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 $317.5 million unsecured committed line of credit and a $235.5 million unsecured uncommitted line of credit, both 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 LIBOR for the committed line of credit and the Federal Funds rate plus 1.30% 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. 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 consolidated 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 consolidated 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. The fund’s federal tax return for the prior periods remains subject to examination by the Internal Revenue Service.
The fund’s investment in the subsidiary is expected to provide the fund with exposure to the commodities markets within the limitations of the federal tax requirements of Subchapter M of the Code. The rules regarding the extent to which annual net income, if any, realized by the subsidiary and included in the fund’s annual income for U.S. federal income purposes will constitute “qualifying income” for purposes of the fund’s qualification as a regulated investment company under the Code are unclear and currently under consideration.
The fund may also be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. 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. These differences include temporary and/or permanent differences from foreign currency gains and losses, from
PanAgora Risk Parity Fund 35 |
unrealized gains and losses on certain futures contracts, from a redesignation of taxable distributions and from controlled foreign subsidiary income and gains. 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. At the close of the reporting period, the fund reclassified $172,272 to decrease distributions in excess of net investment income and $172,272 to increase accumulated net realized loss.
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 tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
Unrealized appreciation | $188,327 |
Unrealized depreciation | (200,833) |
Net unrealized depreciation | (12,506) |
Undistributed long-term gain | 1,756,826 |
Undistributed short-term gain | 657,384 |
Cost for federal income tax purposes | $42,454,049 |
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 management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the monthly average of the aggregate net assets of all open-end funds sponsored by Putnam Management for which PanAgora is acting as sub-adviser launched on or after the date of the fund’s management contract, as determined at the close of each business day during the month. Such annual rates may vary as follows:
0.750% | of the first $1 billion, | 0.730% | of the next $2 billion and | |
0.740% | of the next $2 billion, | 0.720% | of any excess thereafter |
The subsidiary pays a monthly management fee to Putnam Management at the same rate as the Fund. For so long as the fund invests in the subsidiary, the management fee paid by the fund to Putnam Management is reduced by an amount equal to the management fee Putnam Management receives from the subsidiary under the management contract between Putnam Management and the subsidiary.
For the reporting period, the fee represented an effective rate (excluding the impact from any expense waivers in effect) of 0.750% of the fund’s average net assets.
Putnam Management has contractually agreed, through December 30, 2021, to waive fees and/or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses, acquired fund fees and expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were reduced by $120,446 as a result of this limit.
PanAgora, an affiliate of Putnam Management, is authorized by the Trustees to make investment decisions for the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PanAgora for its services at the following annual rates of the average net assets of the portion of the fund managed by PanAgora:
0.350% | of the first $250 million, | 0.330% | of the next $250 million and | |
0.340% | of the next $500 million, | 0.300% | of any excess thereafter |
36 PanAgora Risk Parity Fund |
The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.
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.
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 M, 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. Effective November 25, 2019, the fund converted all of its class M shares to class A shares and class M shares were no longer able to be purchased.
Class R6 shares paid a monthly fee based on the average net assets of class R6 shares at an annual rate of 0.05%.
During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:
Class A | $4,751 | Class R | 4 | |
Class B | 4 | Class R6 | 3,626 | |
Class C | 6 | Class Y | 6,475 | |
Class M | 1 | Total | $14,867 |
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 $1,074 under the expense offset arrangements.
Each Independent Trustee of the fund receives an annual Trustee fee, of which $28, 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.
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 on or after July 1, 1995. 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. Pension expense for the fund is included in Trustee compensation and expenses in the Consolidated statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Consolidated statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
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 Putnam Investments, LLC, 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:
PanAgora Risk Parity Fund 37 |
Maximum % | Approved % | Amount | |
Class A | 0.35% | 0.25% | $32,052 |
Class B | 1.00% | 1.00% | 112 |
Class C | 1.00% | 1.00% | 163 |
ClassM* | 1.00% | 0.75% | 20 |
Class R | 1.00% | 0.50% | 57 |
Total | $32,404 |
* Effective November 25, 2019, the fund converted all of its class M shares to class A shares and class M shares were no longer able to be purchased.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $139 and no monies from the sale of class A and class M shares, respectively, and received no monies in contingent deferred sales charges from redemptions of class B and class C shares.
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 no monies on class A redemptions.
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) | $— | $— |
U.S. government securities (Long-term) | — | — |
Total | $— | $— |
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:
YEAR ENDED 8/31/20 | YEAR ENDED 8/31/19 | |||
Class A | Shares | Amount | Shares | Amount |
Shares sold | 740,276 | $7,282,442 | 5,090 | $55,720 |
Shares issued in connection with | ||||
reinvestment of distributions | 109,948 | 1,077,495 | 5,344 | 49,377 |
850,224 | 8,359,937 | 10,434 | 105,097 | |
Shares repurchased | (14,834) | (143,787) | (4,074) | (42,982) |
Net increase | 835,390 | $8,216,150 | 6,360 | $62,115 |
YEAR ENDED 8/31/20 | YEAR ENDED 8/31/19 | |||
Class B | Shares | Amount | Shares | Amount |
Shares sold | — | $— | — | $— |
Shares issued in connection with | ||||
reinvestment of distributions | 144 | 1,405 | — | — |
144 | 1,405 | — | — | |
Shares repurchased | — | — | — | — |
Net increase | 144 | $1,405 | — | $— |
38 PanAgora Risk Parity Fund |
YEAR ENDED 8/31/20 | YEAR ENDED 8/31/19 | |||
Class C | Shares | Amount | Shares | Amount |
Shares sold | 254 | $2,500 | — | $— |
Shares issued in connection with | ||||
reinvestment of distributions | 191 | 1,870 | 1 | 12 |
445 | 4,370 | 1 | 12 | |
Shares repurchased | (47) | (463) | —* | (3) |
Net increase | 398 | $3,907 | 1 | $9 |
YEAR ENDED 8/31/20** | YEAR ENDED 8/31/19 | |||
Class M | Shares | Amount | Shares | Amount |
Shares sold | — | $— | — | $— |
Shares issued in connection with | ||||
reinvestment of distributions | — | — | 2 | 20 |
— | — | 2 | 20 | |
Shares repurchased | (1,009) | (11,314) | — | — |
Net increase (decrease) | (1,009) | $(11,314) | 2 | $20 |
YEAR ENDED 8/31/20 | YEAR ENDED 8/31/19 | |||
Class R | Shares | Amount | Shares | Amount |
Shares sold | — | $— | — | $— |
Shares issued in connection with | ||||
reinvestment of distributions | 150 | 1,467 | 5 | 46 |
150 | 1,467 | 5 | 46 | |
Shares repurchased | — | — | — | — |
Net increase | 150 | $1,467 | 5 | $46 |
YEAR ENDED 8/31/20 | YEAR ENDED 8/31/19 | |||
Class R6 | Shares | Amount | Shares | Amount |
Shares sold | 328,940 | $3,316,224 | 115,672 | $1,218,198 |
Shares issued in connection with | ||||
reinvestment of distributions | 87,101 | 854,463 | 5,001 | 46,213 |
416,041 | 4,170,687 | 120,673 | 1,264,411 | |
Shares repurchased | (99,205) | (972,734) | (51,715) | (527,874) |
Net increase | 316,836 | $3,197,953 | 68,958 | $736,537 |
YEAR ENDED 8/31/20 | YEAR ENDED 8/31/19 | |||
Class Y | Shares | Amount | Shares | Amount |
Shares sold | 63,130 | $652,872 | 57,830 | $621,032 |
Shares issued in connection with | ||||
reinvestment of distributions | 278,102 | 2,728,180 | 17,277 | 159,642 |
341,232 | 3,381,052 | 75,107 | 780,674 | |
Shares repurchased | (806,837) | (7,950,179) | (23,246) | (238,148) |
Net increase (decrease) | (465,605) | $(4,569,127) | 51,861 | $542,526 |
* Amount represents less than 1 share.
** Effective November 25, 2019, the fund converted all of its class M shares to class A shares and class M shares were no longer able to be purchased.
PanAgora Risk Parity Fund 39 |
At the close of the reporting period, two shareholders of record owned 35.8% and 20.0%, respectively, of the outstanding shares of the fund.
At the close of the reporting period, Putnam Investments, LLC owned the following shares of the fund:
Shares owned | Percentage of ownership | Value | |
Class A | 1,524,596 | 98.6% | $15,993,012 |
Class B | 1,151 | 100.0 | 11,982 |
Class C | 1,152 | 66.3 | 11,981 |
Class R | 1,162 | 100.0 | 12,162 |
Note 5: Basis of consolidation
The accompanying consolidated financial statements of the fund include the account of the subsidiary which primarily invests in commodity-related instruments and other derivatives. The fund may invest up to 25% of its total assets in the subsidiary. The fund’s Consolidated portfolio and Consolidated financial statements include the positions and accounts, respectively, of the subsidiary. Intercompany accounts and transactions, if any, have been eliminated. The subsidiary is subject to the same investment policies and restrictions that apply to the fund, except that the subsidiary may invest without limitation in commodity-related instruments. As of the reporting period, the fund’s investment in its subsidiary totaled $3,033,750 which represented 7.4% of the fund’s net assets.
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 involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities.
Beginning in January 2020, global financial markets have experienced, and may continue to experience, significant volatility resulting from the spread of a virus known as COVID–19. The outbreak of COVID–19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand, and general market uncertainty. The effects of COVID–19 have adversely affected, and may continue to adversely affect, the global economy, the economies of certain nations, and individual issuers, all of which may negatively impact the fund’s performance.
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:
Futures contracts (number of contracts) | 2,000 |
40 PanAgora Risk Parity Fund |
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 | Consolidated | Consolidated | ||
accounted for as | statement of | statement of | ||
hedging instruments | assets and | assets and | ||
under ASC 815 | liabilities location | Fair value | liabilities location | Fair value |
Receivables, Net | ||||
assets — Unrealized | Payables, Net assets — | |||
Equity contracts | appreciation | $1,789,765* | Unrealized depreciation | $40,452* |
Receivables, Net | ||||
assets — Unrealized | Payables, Net assets — | |||
Interest rate contracts | appreciation | 183,746* | Unrealized depreciation | 160,402* |
Receivables, Net assets – | ||||
Commodity contracts | Unrealized appreciation | 1,061,514* | Payables | — |
Total | $3,035,025 | $200,854 |
* Includes cumulative appreciation/depreciation of futures contracts as reported in the fund’s consolidated portfolio. Only initial and current day’s variation margin is reported within the Consolidated statement of assets and liabilities.
The following is a summary of realized and change in unrealized gains or losses of derivative instruments in the Consolidated 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 | Futures | Total |
Equity contracts | $(668,774) | $(668,774) |
Interest rate contracts | 2,564,970 | $2,564,970 |
Commodity contracts | (1,038,425) | $(1,038,425) |
Total | $857,771 | $857,771 |
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 | Futures | Total |
Equity contracts | $1,878,994 | $1,878,994 |
Interest rate contracts | (1,146,023) | $(1,146,023) |
Commodity contracts | 1,067,851 | $1,067,851 |
Total | $1,800,822 | $1,800,822 |
PanAgora Risk Parity Fund 41 |
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 Consolidated statement of assets and liabilities.
BofA Securities, Inc. |
Total | |
Assets: | ||
Futures contracts | $3,013,417 | $3,013,417 |
Total Assets | $3,013,417 | $3,013,417 |
Liabilities: | ||
Futures contracts | 174,894 | 174,894 |
Total Liabilities | $174,894 | $174,894 |
Total Financial and Derivative Net Assets | $2,838,523 | $2,838,523 |
Total collateral received (pledged)†## | $(1,186,343) | |
Net amount | $4,024,866 | |
Controlled collateral received (including TBA | ||
commitments)** | $1,663,515 | $1,663,515 |
Uncontrolled collateral received | $— | $— |
Collateral (pledged) (including TBA commitments)** | $(2,849,858) | $(2,849,858) |
** Included with Investments in securities and/or Deposits due to broker on the Consolidated statement of assets and liabilities. With respect to future contracts, this amount represents collateral on initial and variation margin for outstanding contracts.
† Additional collateral may be required from certain brokers based on individual agreements.
## Any over-collateralization of total financial and derivative net assets is not shown. Collateral may include amounts related to unsettled agreements.
42 PanAgora Risk Parity Fund |
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $2,026,463 as a capital gain dividend with respect to the taxable year ended August 31, 2020, or, if subsequently determined to be different, the net capital gain of such year.
For the reporting period, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $464,777 of distributions paid as qualifying to be taxed as interest-related dividends, and $1,644,683 to be taxed as short-term capital gain dividends for nonresident alien shareholders.
The Form 1099 that will be mailed to you in January 2021 will show the tax status of all distributions paid to your account in calendar 2020.
PanAgora Risk Parity Fund 43 |
44 PanAgora Risk Parity Fund |
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund and Putnam Investments. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
The address of each Trustee is 100 Federal Street, Boston, MA 02110.
As of August 31, 2020, there were 98 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 75, removal, or death.
PanAgora Risk Parity Fund 45 |
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
Robert T. Burns (Born 1961) | Richard T. Kircher (Born 1962) |
Vice President and Chief Legal Officer | Vice President and BSA Compliance Officer |
Since 2011 | Since 2019 |
General Counsel, Putnam Investments, | Assistant Director, Operational Compliance, Putnam |
Putnam Management, and Putnam Retail Management | Investments and Putnam Retail Management |
James F. Clark (Born 1974) | Susan G. Malloy (Born 1957) |
Vice President and Chief Compliance Officer | Vice President and Assistant Treasurer |
Since 2016 | Since 2007 |
Chief Compliance Officer and Chief Risk Officer, | Head of Accounting and Middle Office Services, |
Putnam Investments and Chief Compliance Officer, | Putnam Investments and Putnam Management |
Putnam Management | |
Denere P. Poulack (Born 1968) | |
Nancy E. Florek (Born 1957) | Assistant Vice President, Assistant Clerk, |
Vice President, Director of Proxy Voting and Corporate | and Assistant Treasurer |
Governance, Assistant Clerk, and Assistant Treasurer | Since 2004 |
Since 2000 | |
Janet C. Smith (Born 1965) | |
Michael J. Higgins (Born 1976) | Vice President, Principal Financial Officer, Principal |
Vice President, Treasurer, and Clerk | Accounting Officer, and Assistant Treasurer |
Since 2010 | Since 2007 |
Head of Fund Administration Services, | |
Jonathan S. Horwitz (Born 1955) | Putnam Investments and Putnam Management |
Executive Vice President, Principal Executive Officer, | |
and Compliance Liaison | Mark C. Trenchard (Born 1962) |
Since 2004 | Vice President |
Since 2002 | |
Director of Operational Compliance, Putnam | |
Investments and Putnam Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above, although in some cases they have held different positions with such employers. The address of each officer is 100 Federal Street, Boston, MA 02110.
46 PanAgora Risk Parity Fund |
Putnam family of funds
The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, contact your financial advisor or call Putnam Investor Services at 1-800-225-1581. Please read the prospectus carefully before investing.
Blend | Income |
Emerging Markets Equity Fund | Convertible Securities Fund |
Focused Equity Fund | Diversified Income Trust |
Global Equity Fund | Floating Rate Income Fund |
International Capital Opportunities Fund | Global Income Trust |
International Equity Fund | Government Money Market Fund* |
Multi-Cap Core Fund | High Yield Fund |
Research Fund | Income Fund |
Money Market Fund† | |
Global Sector | Mortgage Opportunities Fund |
Global Health Care Fund | Mortgage Securities Fund |
Global Technology Fund | Short Duration Bond Fund |
Ultra Short Duration Income Fund | |
Growth | |
Growth Opportunities Fund | Tax-free Income |
Small Cap Growth Fund | Intermediate-Term Municipal Income Fund |
Sustainable Future Fund | Short-Term Municipal Income Fund |
Sustainable Leaders Fund | Strategic Intermediate Municipal Fund |
Tax Exempt Income Fund | |
Value | Tax-Free High Yield Fund |
Equity Income Fund | |
International Value Fund | State tax-free income funds‡: |
Small Cap Value Fund | California, Massachusetts, Minnesota, |
New Jersey, New York, Ohio, and Pennsylvania. |
PanAgora Risk Parity Fund 47 |
Absolute Return | Asset Allocation (cont.) |
Fixed Income Absolute Return Fund | Putnam Retirement Advantage Maturity Fund |
Multi-Asset Absolute Return Fund | Putnam Retirement Advantage 2060 Fund |
Putnam Retirement Advantage 2055 Fund | |
Putnam PanAgora** | Putnam Retirement Advantage 2050 Fund |
Putnam PanAgora Managed Futures Strategy | Putnam Retirement Advantage 2045 Fund |
Putnam PanAgora Market Neutral Fund | Putnam Retirement Advantage 2040 Fund |
Putnam PanAgora Risk Parity Fund | Putnam Retirement Advantage 2045 Fund |
Putnam Retirement Advantage 2040 Fund | |
Asset Allocation | Putnam Retirement Advantage 2035 Fund |
Dynamic Risk Allocation Fund | Putnam Retirement Advantage 2030 Fund |
George Putnam Balanced Fund | Putnam Retirement Advantage 2025 Fund |
Putnam Retirement Advantage 2020 Fund | |
Dynamic Asset Allocation Balanced Fund | |
Dynamic Asset Allocation Conservative Fund | RetirementReady® Maturity Fund |
Dynamic Asset Allocation Growth Fund | RetirementReady® 2060 Fund |
RetirementReady® 2055 Fund | |
RetirementReady® 2050 Fund | |
RetirementReady® 2045 Fund | |
RetirementReady® 2040 Fund | |
RetirementReady® 2035 Fund | |
RetirementReady® 2030 Fund | |
RetirementReady® 2025 Fund | |
RetirementReady® 2020 Fund |
* You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
† You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
‡ Not available in all states.
** Sub-advised by PanAgora Asset Management.
Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.
48 PanAgora Risk Parity Fund |
Fund information
Founded over 80 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage funds across income, value, blend, growth, sustainable, asset allocation, absolute return, and global sector categories.
Investment Manager | Trustees | Michael J. Higgins |
Putnam Investment | Kenneth R. Leibler, Chair | Vice President, Treasurer, |
Management, LLC | Liaquat Ahamed | and Clerk |
100 Federal Street | Ravi Akhoury | |
Boston, MA 02110 | Barbara M. Baumann | Jonathan S. Horwitz |
Katinka Domotorffy | Executive Vice President, | |
Investment Sub-Advisor | Catharine Bond Hill | Principal Executive Officer, |
PanAgora Asset Management | Paul L. Joskow | and Compliance Liaison |
One International Place, 24th Floor | George Putnam, III | |
Boston, MA 02110 | Robert L. Reynolds | Richard T. Kircher |
Manoj P. Singh | Vice President and BSA | |
Marketing Services | Mona K. Sutphen | Compliance Officer |
Putnam Retail Management | ||
100 Federal Street | Officers | Susan G. Malloy |
Boston, MA 02110 | Robert L. Reynolds | Vice President and |
President | Assistant Treasurer | |
Custodian | ||
State Street Bank | Robert T. Burns | Denere P. Poulack |
and Trust Company | Vice President and | Assistant Vice President, Assistant |
Chief Legal Officer | Clerk, and Assistant Treasurer | |
Legal Counsel | ||
Ropes & Gray LLP | James F. Clark | Janet C. Smith |
Vice President, Chief Compliance | Vice President, | |
Independent Registered Public | Officer, and Chief Risk Officer | Principal Financial Officer, |
Accounting Firm | Principal Accounting Officer, | |
PricewaterhouseCoopers LLP | Nancy E. Florek | and Assistant Treasurer |
Vice President, Director of | ||
Proxy Voting and Corporate | Mark C. Trenchard | |
Governance, Assistant Clerk, | Vice President | |
and Assistant Treasurer |
This report is for the information of shareholders of Putnam PanAgora Risk Parity Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit putnam.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.
Item 2. Code of Ethics: |
(a) The fund's principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
(c) In October 2019, the Code of Ethics of Putnam Investments was amended. The key changes to the Code of Ethics are as follows: (i) Employee notification to the Code of Ethics Officer before acting as a public official for any government entity (ii) Clarifying changes to the Insider Trading provisions and to the rules for trading in securities issued by Great-West Lifeco. |
In December 2019, the Code of Ethics of PanAgora Asset Management, Inc. was amended to remove a previous exemption from the preclearance requirements of personal trades in certain “broad based” closed-end funds and legacy references to Marsh & McLennan Companies. |
Item 3. Audit Committee Financial Expert: |
The Funds' Audit, Compliance and Risk Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each member of the Audit, Compliance and Distributions Committee also possesses a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualifies him or her for service on the Committee. In addition, the Trustees have determined that each of Dr. Hill, Dr. Joskow, and Mr. Singh qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education; in the case of Dr. Joskow, including his experience serving on the audit committees of several public companies and institutions and his education and experience as an economist who studies companies and industries, routinely using public company financial statements in his research. The SEC has stated, and the funds' amended and restated agreement and Declaration of Trust provides, that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit, Compliance and Risk Committee and the Board of Trustees in the absence of such designation or identification. |
Item 4. Principal Accountant Fees and Services: |
The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund's independent auditor: |
Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
August 31, 2020 | $56,426 | $ — | $8,466 | $ — | |
August 31, 2019 | $53,345 | $ — | $8,370 | $ — |
For the fiscal years ended August 31, 2020 and August 31, 2019, the fund's independent auditor billed aggregate non-audit fees in the amounts of $354,308 and $555,354 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
Audit Fees represent fees billed for the fund's last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
Audit-Related Fees represent fees billed in the fund's last two fiscal years for services traditionally performed by the fund's auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
Tax Fees represent fees billed in the fund's last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
Pre-Approval Policies of the Audit, Compliance and Distributions Committee. The Audit, Compliance and Distributions Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds' independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
The Audit, Compliance and Distributions Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds' independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
The following table presents fees billed by the fund's independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2–01 of Regulation S-X. |
Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
August 31, 2020 | $ — | $345,842 | $ — | $ — | |
August 31, 2019 | $ — | $546,984 | $ — | $ — |
Item 5. Audit Committee of Listed Registrants |
Not applicable |
Item 6. Schedule of Investments: |
The registrant's schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above. |
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies: |
Not applicable |
Item 8. Portfolio Managers of Closed-End Investment Companies |
Not Applicable |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers: |
Not applicable |
Item 10. Submission of Matters to a Vote of Security Holders: |
Not applicable |
Item 11. Controls and Procedures: |
(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 180 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. |
(b) Changes in internal control over financial reporting: Not applicable |
Item 12. Disclosures of Securities Lending Activities for Closed-End Management Investment Companies: |
Not Applicable |
Item 13. Exhibits: |
(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith. |
SIGNATURES |
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. |
Putnam Investment Funds |
By (Signature and Title): |
/s/ Janet C. Smith Janet C. Smith Principal Accounting Officer |
Date: October 29, 2020 |
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. |
By (Signature and Title): |
/s/ Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
Date: October 29, 2020 |
By (Signature and Title): |
/s/ Janet C. Smith Janet C. Smith Principal Financial Officer |
Date: October 29, 2020 |
December 31, 2019
CODE OF ETHICS
PanAgora Asset Management, Inc.
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CODE OF ETHICS
It is the personal responsibility of every PanAgora Employee to avoid any conduct that could create a conflict, or even the appearance of a conflict, with our fund shareholders and other clients, or to do anything that could damage or erode the trust our fund shareholders and other clients place in PanAgora and its Employees.
TABLE OF CONTENTS
OVERVIEW | 4 |
PREAMBLE | 7 |
GUIDELINES AND DEFINITIONS | 9 |
SECTION I: Personal Securities Rules for All Employees | 15 |
A. Pre-clearance and the Restricted List | 15 |
Rule 1: Pre-clearance Requirements and the PTA System | 15 |
Rule 2: PTA System and Restricted List | 15 |
Rule 3: Bitcoin and Other Cryptocurrencies | 19 |
B. Prohibited Transactions | 20 |
Rule 1: Short-Selling Prohibition | 20 |
Rule 2: IPO Prohibition | 20 |
Rule 3: Private Placement Pre-Approval Requirements | 21 |
Rule 4: Trading with Material Non-Public Information | 22 |
Rule 5: No Personal Trading with Client Portfolios | 22 |
Rule 6: Special: Good Until Canceled Orders | 23 |
Rule 7: Excessive Trading | 23 |
C. Discouraged Transactions | 24 |
Rule 1: Naked Options | 24 |
D. Exempted Transactions | 24 |
Rule 1: Involuntary Transactions | 24 |
Rule 2: Special Exemptions | 25 |
SECTION II: Additional Special Rules for Personal Securities Transactions of Access Persons and Certain Investment Professionals | 26 |
Rule 1: 60-Day Short Term Rule | 26 |
Rule 2: 7-Day Rule | 26 |
Rule 3: Blackout Rule | 27 |
Rule 4: Contra Trading Rule | 28 |
Rule 5: No Personal Benefit | 29 |
SECTION III: General Rules for All Employees | 31 |
Rule 1: Compliance with All Laws, Regulations and Policies | 31 |
Rule 2: Immediate Family Members’ Conflict Policy | 31 |
SECTION IV: Reporting Requirements for All Employees | 33 |
Rule 1: Broker Confirmations and Statements | 33 |
Rule 2: Access Persons – Quarterly Transaction Report | 34 |
Rule 3: Access Persons – Initial/Annual Holdings Report | 35 |
Rule 4: Certifications | 35 |
Rule 5: Reporting of Irregular Activity | 35 |
Rule 6: Ombudsman | 36 |
SECTION V: Education Requirements | 37 |
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Rule 1: Distribution of Code | 37 |
Rule 2: New Employee Training Requirement | 37 |
Rule 3: Annual Training Requirement | 37 |
SECTION VI: Compliance and Appeal Procedures | 38 |
A. Restricted List | 38 |
B. Consultation of Restricted List | 38 |
C. Request for Determination | 38 |
D. Request for Ad Hoc Exemption | 38 |
E. Appeal to Code of Ethics Officer with Respect to Restricted List | 39 |
F. Information Concerning Identity of Compliance Personnel | 39 |
Section VII: Sanctions | 40 |
APPENDIX A: Policy Statement Concerning Insider Trading Prohibitions | 42 |
PREAMBLE | 42 |
DEFINITIONS: Insider Trading | 43 |
SECTION I: Rules Concerning Inside Information | 45 |
Rule 1: Inside Information | 45 |
Rule 2: Material, Non-Public Information | 45 |
Rule 3: Reporting of Material, Non-Public Information | 46 |
SECTION II: Overview of Insider Trading | 48 |
APPENDIX B: Policy Statement Regarding Employee Trades in Shares of PanAgora Closed-End Funds | 53 |
APPENDIX C: Contra-Trading Rule Sample Clearance Form | 54 |
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OVERVIEW
This overview is provided only as a convenience and is not intended to substitute for a careful reading of the complete document. As a condition of continued employment, every PanAgora Employee is required to read, understand, and comply with the provisions of the entire Code. Additionally, Employees are expected to comply with the policies and procedures contained within PanAgora’s Compliance Program, which can be accessed online through PAMZone or in hard copy through the Code of Ethics Officer.
It is the personal responsibility of every PanAgora Employee to avoid any conduct that could create a conflict, or even the appearance of a conflict, with our fund shareholders or other clients, or do anything that could damage or erode the trust our clients place in PanAgora and its Employees. This is the spirit of the Code. In accepting employment at PanAgora, every Employee accepts the absolute obligation to comply with the letter and the spirit of the Code. Failure to comply with the spirit of the Code is just as much a violation of the Code as failure to comply with the written rules of the Code.
The rules of the Code cover activities, including Personal Securities Transactions, of PanAgora Employees, certain Immediate Family Members of Employees, and entities (such as corporations, trusts, or partnerships) that Employees may be deemed to control or influence.
Sanctions will be imposed for violations of the Code. Sanctions may include monetary fines, bans on personal trading, reductions in salary increases or bonuses, disgorgement of trading profits, suspension of employment, and termination of employment. The proceeds resulting from monetary sanctions will be given to a charity chosen by the Code of Ethics Officer.
Insider trading
PanAgora Employees are forbidden to buy or sell any Security while either PanAgora or the Employee is in possession of material, non-public information (inside information) concerning the Security or the issuer. A violation of PanAgora’s insider trading policies may result in criminal and civil penalties, including imprisonment, disgorgement of profits, and substantial fines. An Employee aware of or in possession of Inside Information must report it immediately to the Code of Ethics Officer or the Deputy Code of Ethics Officer. See Appendix A: Overview of Insider Trading.
PanAgora sub-advised registered funds
Employees are responsible for providing transaction and holdings reports related to shares of any funds registered under the Investment Company Act of 1940, as amended, and advised or sub-advised by PanAgora as described in Section IV, including transactions effected through the Employee’s retirement account(s) (other than those offered by PanAgora).
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Personal securities trading
PanAgora Employees (with certain very limited exceptions discussed below) may not buy or sell any Security for their own account without clearing the proposed transaction in advance. Clearance is facilitated through the Personal Trading Assistant (PTA). See Section I for exemptions from this requirement.
Pre-clearance must be obtained in advance, between 9:00 a.m. and 4:00 p.m. Eastern Standard Time (EST) on the day of the trade. A pre-clearance is valid only for the day it is obtained. PanAgora Employees are strongly discouraged from engaging in excessive trading for their personal securities accounts. Employees will be prohibited from making more than 10 trades in individual securities within a quarter. Trading in excess of this level will be reviewed with the Code of Ethics Oversight Committee.
Short Selling
PanAgora Employees are prohibited from Short Selling any Security, whether or not it is held in a PanAgora Client portfolio, except that Short Selling against broad market indexes, Short Selling Broad-Based ETFs, Short Selling Broad-Based ETNs, and Short Selling Against the Box are permitted. Note, however, that Short Selling Against the Box or otherwise hedging an investment in shares of Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc. stock is prohibited.
Confirmations of trading and periodic account statements
All PanAgora Employees must have their brokers send duplicate confirmations and statements of transactions in Personal Brokerage Accounts, including retirement account(s) (other than those offered by PanAgora), including transactions of those who share the same household as the Employee or for accounts over which the Employee has investment discretion, to the Code of Ethics Officer. Employees must enter a broker account profile into PTA, then the Deputy Code of Ethics Officer will: (a) provide an authorization letter from PanAgora to hold the account; and (b) provide instructions to the broker in establishing the Rule 407 Letter from PanAgora for setting up the Employee’s Personal Brokerage Account.
Quarterly and annual reporting
All employees of PanAgora are ‘Access Persons’. Access Persons must report all their securities transactions in each calendar quarter to the Code of Ethics Officer within 15 days after the end of the quarter. All Access Persons must disclose all personal securities holdings (even those to which pre-clearance may not apply) upon commencement of employment, quarterly and thereafter on an annual basis. If you fail to report as required, sanctions will be imposed. Egregious conduct, e.g., willful failures to report, will be subject to harsher sanctions, which may include termination of employment.
Initial Public Offerings (IPOs) and Private Placements
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PanAgora Employees may not buy any securities in an IPO or in a Private Placement, except in limited circumstances when prior written authorization is obtained.
Personal securities transactions by Access Persons
and Investment Professionals
The Code imposes special restrictions on Personal Securities Transactions by Access Persons and Investment Professionals, which are summarized as follows. (Refer to Section II for details):
• 60-Day Short Term Holding Period. No Access Person shall purchase and then sell at a profit, or sell and then repurchase at a lower price, any security or related derivative security within 60 calendar days.
• 7-Day Rule. Before an Investment Professional places an order to buy a Security for any portfolio his team manages, he must sell from his personal account any such Security or related derivative Security purchased within the preceding seven calendar days and disgorge any profit from the sale.
• Blackout Rule. No Investment Professional may sell any Security or related derivative Security for her personal account until seven calendar days have passed since the most recent purchase of that Security or related derivative Security by any portfolio managed by her team. No Investment Professional may buy any Security or related derivative Security for his personal account until seven calendar days have passed since the most recent sale of that Security or related derivative Security by any portfolio managed by his team.
• Contra-Trading Rule. No Investment Professional may sell out of her personal account any Security or related derivative Security that is held in any portfolio managed by her team unless she has received the written approval of an appropriate Director in her group and the Code of Ethics Officer or his designee.
• No Investment Professional may cause a PanAgora Client to take action for the individual’s own personal benefit.
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PREAMBLE
It is the personal responsibility of every PanAgora Employee to avoid any conduct that would create a conflict, or even the appearance of a conflict, with our fund shareholders or other clients, or do anything that could damage or erode the trust our clients place in PanAgora and its Employees. This is the spirit of the Code. In accepting employment at PanAgora, every Employee also accepts the absolute obligation to comply with the letter and the spirit of the Code. Failure to comply with the spirit of the Code is just as much a violation of the Code as failure to comply with the written rules of the Code. Sanctions will be imposed for violations of the Code, including the Code’s reporting requirements.
Sanctions will include bans on personal trading, reductions in salary increases or bonuses, disgorgement of trading profits, suspension of employment, and termination of employment.
PanAgora is required by law to adopt a Code. The purposes of the law are to ensure that companies and their employees comply with all applicable laws and to prevent abuses in the investment advisory business that can arise when conflicts of interest exist between the employees of an investment advisor and its clients. By adopting and enforcing a Code, we strengthen the trust and confidence reposed in us by demonstrating that, at PanAgora, client interests come before personal interests.
The Code that follows represents a balancing of important interests. On the one hand, as a registered investment advisor, PanAgora owes a duty of undivided loyalty to its clients, and must avoid even the appearance of a conflict that might be perceived as abusing the trust they have placed in PanAgora. On the other hand, PanAgora does not want to prevent conscientious professionals from investing for their own accounts where conflicts do not exist or are so attenuated as to be immaterial to investment decisions affecting PanAgora Clients.
When conflicting interests cannot be reconciled, the Code makes clear that, first and foremost, PanAgora Employees owe a fiduciary duty to PanAgora Clients. In most cases, this means that the affected Employee will be required to forego conflicting Personal Securities Transactions. In some cases, personal investments will be permitted, but only in a manner that, because of the circumstances and applicable controls, cannot reasonably be perceived as adversely affecting PanAgora Client portfolios or taking unfair advantage of the relationship PanAgora Employees have to PanAgora Clients.
The Code contains specific rules prohibiting defined types of conflicts. Because every potential conflict cannot be anticipated in advance, the Code also contains certain general provisions prohibiting conflict situations. In view of these general provisions, it is critical that any individual who is in doubt about the applicability of the Code in a given situation seek a determination from the Code of Ethics Officer about the propriety of the conduct in advance. The procedures for obtaining such a determination are described in Section VI of the Code.
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It is critical that the Code be strictly observed. Not only will adherence to the Code ensure that PanAgora renders the best possible service to its clients, it will ensure that no individual is liable for violations of law.
It should be emphasized that adherence to the Code is a fundamental condition of employment at PanAgora. Every Employee is expected to adhere to the requirements of this Code despite any inconvenience that may be involved. Any Employee failing to do so may be subject to such disciplinary action, including financial penalties and termination of employment, as determined by the Code of Ethics Officer, the Code of Ethics Oversight Committee or the Chief Executive Officer of PanAgora.
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GUIDELINES AND DEFINITIONS
Guidelines
Gender references — Gender references in the Code alternate.
Rule of construction regarding time periods — Unless the context indicates otherwise, time periods used in the Code shall be measured inclusively, i.e., beginning on the dates from which the measurement is made.
Exceptions — Unless the context indicates otherwise, there will be no exceptions to the rules.
Definitions
The words below are defined specifically for the purpose of PanAgora’s Code.
Access Persons
Generally, all Employees of PanAgora are considered Access Persons and are therefore subject to the Personal Securities Rules of Section I hereof. However, an Independent PanAgora Director will not be considered an Access Person so long as the Independent PanAgora Director:
(1) Is not involved in making securities recommendations to PanAgora or Putnam clients;
AND
(2) Does not have access to:
(a) nonpublic information regarding the purchase or sale of securities for any PanAgora or Putnam client;
(b) nonpublic information regarding the portfolio holdings of any fund sponsored or advised by PanAgora or Putnam; or
(c) securities recommendations to PanAgora or Putnam clients that are nonpublic.
Each Independent PanAgora Director shall certify in writing annually that he or she satisfies both conditions set forth in the previous sentence. In addition, an Independent PanAgora Director who ceases to satisfy one or both of these conditions shall promptly inform PanAgora of this fact, and the Director shall consequently be considered an Access Person and subject to the Code.
Additionally, individuals whom PanAgora hires on a temporary basis for short-term or administrative responsibilities (e.g. a temporary replacement receptionist) shall not be considered “Employees” or “Access Persons” for purpose of this Code of Ethics.
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Employees of companies affiliated with PanAgora who may, as a result of their job responsibilities, have access to investment information of PanAgora are not considered “Employees” or “Access Persons” for purpose of this Code of Ethics if such employees (i) are subject to a Code of Ethics with similar personal securities trading limitations, and (ii) on a quarterly and annual basis, the Deputy Code of Ethics Officer confirms with PanAgora affiliate that these Employees are subject to and comply with their employer’s Code of Ethics. Any violations to this policy are also reported to PanAgora Compliance at this time.
PanAgora may, from time to time, make use of unaffiliated consultants in regards to certain investment activities who, in the course of providing services, may have access to contemplated or pending investment recommendations of PanAgora. Any such unaffiliated persons shall be considered “Access Persons” and shall be subject to this Code of Ethics as well as all applicable reporting requirements.
CDs
Certificates of deposit.
Closed-End Fund
A fund with a fixed number of shares outstanding and which does not redeem shares the way a typical mutual fund does. Closed-End Funds typically trade like stocks on exchange. Closed-End Funds may also issue preferred or convertible securities.
Code
This Code of Ethics.
Code of Ethics Administrator
The individual designated by the Code of Ethics Officer to assume responsibility for day-to-day, nondiscretionary administration of this Code. The current Code of Ethics Administrator is Stephanie Ackerman, who can be reached at extension 6625.
Code of Ethics Officer
The PanAgora officer who has been assigned the responsibility of enforcing and interpreting this Code. The Code of Ethics Officer shall be the Chief Compliance Officer or such other person as is designated by the Chief Executive Officer of PanAgora. If the Code of Ethics Officer is unavailable, the Deputy Code of Ethics Officer shall act in his or her stead. The current Code of Ethics Officer is Louis X. Iglesias. The current Deputy Code of Ethics Officer is Stephanie Ackerman.
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Code of Ethics Oversight Committee
Has oversight responsibility for administering the Code. Members include the Code of Ethics Officer and other members of PanAgora’s senior management approved by the Chief Executive Officer of PanAgora.
Discretionary Account
An account for which the holder gives his/her broker or investment advisor (but not an Immediate Family Member) complete authority to make management decisions to buy and sell securities (also called controlled account or managed account).
Exchange Traded Fund (ETF)
A fund that tracks an index, but can be traded like a stock, ETFs always bundle together the securities that are in an index.
Broad-Based ETF
Contains a portfolio of securities of 10 or more issuers (e.g., SPDRs, WEBs, QQQQs, iShares, HLDRs).
Narrow-Based ETF
ETFs that are not Broad-Based ETFs.
Exchange Traded Note (ETN)
An unsecured, unsubordinated debt security that tracks an index, but can be traded like a stock. ETNs are linked to the performance of a market benchmark.
Broad-Based ETN
Contains a portfolio of securities of 10 or more issuers
Narrow-Based ETN
ETNs that are not Broad-Based ETNs.
Immediate Family Members
Spouse, domestic partner, minor children, or other relatives living in the same household as the PanAgora Employee. All pre-clearance and reporting applies to Immediate Family Members.
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Independent PanAgora Director
A member of the PanAgora board who is not otherwise affiliated with PanAgora or Putnam.
Investment Professional
Any of the following: portfolio manager, analyst, director or Chief Investment Officer that is on an investment team.
IPO
Initial public offering.
Large-/Mid-Cap Exemption
This rule permits the purchase or sale of up to 1,000 shares of a Security on PanAgora’s Restricted List per day if the market capitalization of the issuer of the Security is at least $2 billion.
Narrow-Based Derivative
A future, swap, put or call option, or similar derivative instrument whose return is determined by reference to fewer than 10 underlying issuers. Single stock futures and exchange traded funds based on fewer than 10 issuers are included.
Non-PanAgora Affiliate
Any affiliate of PanAgora that provides investment advisory services.
PanAgora
Any or all of PanAgora Asset Management, Inc. and its subsidiaries (if any), any one of which shall be a PanAgora company.
PanAgora Client
Any of the PanAgora mutual funds, or any advisory, trust, or other client of PanAgora.
PanAgora Employee (or Employee)
Any employee of PanAgora. In addition, the Chief Compliance Officer may determine, in his or her sole discretion, that any other person who provides investment advice on behalf of PanAgora and is subject to PanAgora’s supervision or control is a PanAgora Employee, provided that such person: (i) has access to nonpublic information; or (ii) is
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involved in making securities recommendations to PanAgora Clients.
Personal Brokerage Account
An Access Person’s Personal Brokerage Account includes any brokerage account for which the Access Person has shared and sole discretionary investment authority, including any retirement account(s).
Personal Trading Assistant (PTA)
The Personal Trading Assistant (PTA) is an intuitive, browser-based application that provides an automated and streamlined mechanism for managing Employee personal trading practices, e.g., pre-clearance, reporting and certifications in accordance with regulatory requirements and the Code.
Policy Statements
The Policy Statement Concerning Insider Trading Prohibitions attached to the Code as Appendix A and the Policy Statement Regarding Employee Trades in Shares of PanAgora Closed-End Funds (if any) attached to the Code as Appendix B.
Private Placement
Any offering of a Security not offered to the public and not requiring registration with the relevant securities authorities.
Purchase or Sale of a Security
Any acquisition or transfer of any interest in the Security for direct or indirect consideration; this includes the writing of an option. This definition includes any transfer of a Security by an Employee as a gift to an individual or a charity.
Restricted List
The list established in accordance with Rules 1 and 2 of Section I.A.
SEC
The U.S. Securities and Exchange Commission.
Security
The following instruments are defined as “securities”. They require pre-clearance and periodic reporting:
• | Any type or class of equity or debt security; any rights relating to a security, such as warrants, convertible securities; |
• | Closed-End Funds; |
• | Narrow-Based ETFs; |
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· | Narrow-Based ETNs; and |
· | Narrow-Based Derivatives. |
Unless otherwise noted, the following instruments are not considered “securities”, and do not require pre-clearance. If marked with an asterisk, periodic reporting is required:
Direct investment in cryptocurrencies, coins, or tokens (collectively, “Cryptocurrency”) or bitcoin may be considered “securities.” See Rule 3 of Section 1(A) herein for details regarding the trading of cryptocurrencies or bitcoin.
Selling Short
The sale of a Security that the investor does not own in order to take advantage of an anticipated decline in the price of the Security. In order to sell short, the investor must borrow the Security from his broker in order to make delivery to the buyer.
Selling Short Against the Box
A short sale where the investor owns the Security, but does not want to use the shares for delivery, so he borrows them from the brokerage firm.
Transaction for a Personal Account (or Personal Securities Transaction)
Securities transactions: (a) for the personal account of any employee (including her retirement account(s)); (b) for the account of a Immediate Family Member of any Employee; (c) for the account of a partnership in which a PanAgora Employee or Immediate Family Member is a general partner or a partner with investment discretion; (d) for the account of a trust in which a PanAgora Employee or Immediate Family Member is a trustee with investment discretion; (e) for the account of a closely-held corporation in which a PanAgora Employee or Immediate Family Member holds shares and for which he has investment discretion; and (f) for any account other than a PanAgora Client account that receives investment advice of any sort from the Employee or Immediate Family Member, or over which the Employee or Immediate Family Member has investment discretion.
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SECTION I: Personal Securities Rules for All Employees
A. Pre-clearance and the Restricted List
Rule 1 – Pre-clearance Requirements and the PTA System
Pre-clearance is required for all transactions in the following Securities:
• | Stock of Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc.; |
• | Any type or class of equity or debt Security, including corporate and municipal bonds (including stock acquired in a stock purchase plan or 401(k) plan); |
• | Any rights relating to a Security, such as warrants and convertible Securities; |
• | Closed-End Funds; |
• | Narrow-Based ETFs; |
• | Narrow-Based ETNs; |
• | Narrow-Based Derivatives; and |
• | Any Security donated as a gift to an individual or a charity. |
Pre-clearance is not required for transactions in the following Securities (although reporting is required for the categories marked with an asterisk):
• | Broad-Based ETFs, and any option on a broad-based market index or an exchange-traded futures contract or option thereon;* |
• | Broad-Based ETNs;* |
• | Open-end mutual funds* (reporting is only required for open-end mutual funds advised or sub-advised by PanAgora); |
• | Currencies, Treasuries (T-bills), and direct and indirect obligations of the U.S. government and its agencies; |
• | Direct and indirect obligations of any member country of the Organization for Economic Co-Operation and Development (OECD); or |
• | Commercial paper, CDs, repurchase agreements, bankers’ acceptances, and other money market instruments. |
Rule 2: PTA System and Restricted List
No PanAgora Employee shall purchase or sell for his personal account any Security requiring pre-clearance under Rule 1 without prior clearance obtained through procedures set forth by the Code of Ethics Officer. Clearance is facilitated through the Personal Trading Assistant (PTA). Subject to the limited exceptions below, no clearance will be granted for securities appearing on the Restricted List. Securities will be placed on the Restricted List in the following circumstances:
(a) When orders to purchase or sell such Security have been entered for any PanAgora Client, or the Security is being actively considered for purchase for any PanAgora Client, unless the Security is a nonconvertible investment grade rated (at least BBB by S&P or Baa by Moody’s) fixed-income investment;
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(b) When such a Security is a voting Security of a corporation in the banking, savings and loan, insurance, communications, public utilities, or gaming (i.e., casinos) industries, if holdings of PanAgora or PanAgora Clients in that corporation exceed 7%;
(c) When, in the judgment of the Code of Ethics Officer, other circumstances warrant restricting personal transactions of PanAgora Employees in a particular Security;
(d) When required under the circumstances described in the Policy Statement Concerning Insider Trading Prohibitions, attached as Appendix A.
Reminder: Securities for an Employee’s personal account include securities owned by Immediate Family Members of a PanAgora Employee. Thus, this Rule prohibits certain trades by Immediate Family Members of PanAgora Employees. See Definitions.
Compliance with this rule does not exempt an Employee from complying with any other applicable rules of the Code, such as those described in Section III. In particular, Access Persons and Investment Professionals must comply with the special rules set forth in Section II.
IMPLEMENTATION
An Employee wishing to trade any Security shall first obtain clearance through the PTA system. Pre-clearance must be obtained in advance, between 9:00 a.m. and 4:00 p.m. Eastern Standard Time (EST) on the day of the trade. A pre-clearance is valid only for the day it is obtained. PanAgora Employees are strongly discouraged from engaging in excessive trading for their personal securities accounts. Employees will be prohibited from making more than 10 trades in individual securities within a quarter. Trading in excess of this level will be reviewed with the Code of Ethics Oversight Committee.
The PTA system will inform the Employee whether the Security may be traded and whether trading in the Security is subject to the “Large-/Mid-Cap Exemption.” The response of the pre-clearance system as to whether a Security appears on the Restricted List and, if so, whether it is eligible for the exceptions set forth after this Rule shall be final, unless the Employee appeals to the Code of Ethics Officer, using the procedure described in Section VI, regarding the request to trade a particular Security.
A pre-clearance is only valid for trading on the day it is obtained. Trades in securities listed on Asian or European stock exchanges, however, may be executed within one business day after pre-clearance is obtained.
If a Security is not on the Restricted List, other classes of securities of the same issuer (e.g., preferred or convertible preferred stock) may be on the Restricted List. It is the Employee’s responsibility to identify with particularity the class of securities for which permission is being sought for a personal investment.
If the pre-clearance system does not recognize a Security, or if an Employee is unable to use the system or has any questions with respect to the system or pre-clearance, the Employee may consult the Code of Ethics Administrator. The Code of Ethics
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Administrator shall not have authority to answer any questions about a Security other than whether trading is permitted. The response of the Code of Ethics Administrator as to whether a Security appears on the Restricted List and, if so, whether it is eligible for any applicable exceptions set forth after this Rule shall be final, unless the Employee appeals to the Code of Ethics Officer, using the procedure described in Section VI, regarding the request to trade a particular Security.
EXCEPTIONS
A. Large-/Mid-Cap Exemption.
(a) For PanAgora Employees other than Investment Professionals. If a Security appearing on the Restricted List is an equity Security for which the issuer has a market capitalization (defined as outstanding shares multiplied by current price per share) of at least $2 billion, then a PanAgora Employee (other than an Investment Professional) may purchase or sell up to 1,000 shares of the Security per day for his personal account.
(b) For Investment Professionals. If a Security appearing on the Restricted List is an equity Security for which the issuer (i) is listed on the new York Stock Exchange, or (ii) has a market capitalization (defined as outstanding shares multiplied by current price per share) of at least $10 billion, then an Investment Professional may purchase or sell up to 1,000 shares of the Security over any consecutive thirty (30) calendar day period.
If a Security appearing on the Restricted List is a fixed income Security, then an Investment Professional may purchase or sell up to $100,000 principal amount of such fixed income Security over any consecutive thirty (30) calendar day period.
B. Pre-clearing Transactions Effected by Share Subscription. The purchase of securities made by subscription rather than on an exchange is limited to issuers having a market capitalization of $5 billion or more and is subject to a 1,000 share limit. The following are procedures to comply with Rule 1 when effecting a purchase or sale of shares by subscription:
(a) The PanAgora Employee must pre-clear the trade on the day he or she submits a subscription to the issuer, rather than on the actual day of the trade since the actual day of the trade typically will not be known to the Employee who submits the subscription. At the time of pre-clearance, the Employee will be told whether the purchase is permitted (in the case of a corporation having a market capitalization of $5 billion or more), or not permitted (in the case of a smaller capitalization issuer).
(b) The subscription for any purchase or sale of shares must be reported on the Employee’s Quarterly Personal Securities Transaction report, noting the trade was accomplished by subscription.
(c) Because no brokers are involved in the transaction, the confirmation requirement will be waived for these transactions, although the PanAgora Employee must provide the Compliance Department with any transaction summaries or statements sent by the issuer.
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C. Trades in Approved Discretionary Brokerage Accounts. A transaction does not need to be pre-cleared if it takes place in an account that the Code of Ethics Officer has approved in writing as exempt from the pre-clearance requirement. In the sole discretion of the Code of Ethics Officer accounts that will be considered for exclusion from the pre-clearance requirement are only those for which an Employee’s securities broker or investment advisor has complete discretion (a Discretionary Account) and the following conditions are met: (i) the Employee certifies annually in writing that the Employee has no direct or indirect influence over the transactions in the Discretionary Account and is not aware of the transactions in the Discretionary Account prior to their execution; (ii) the compliance department of the Employee’s broker or investment advisor certifies annually in writing that the Employee has no direct or indirect influence over the transactions in the Discretionary Account and is not aware of the transactions in the Discretionary Account prior to their execution; and (iii) each calendar quarter, the broker or investment advisor sends PanAgora’s Code of Ethics Administrator copies of each quarterly statement for the Discretionary Account. Employees wishing to seek such an exemption must send a written request to the Code of Ethics Administrator.
COMMENTS
• Pre-clearance. Subpart (a) of Rule 2 is designed to avoid the conflict of interest that might occur when an Employee trades for his personal account a Security that currently is being traded or is likely to be traded for a PanAgora Client. Such conflicts arise, for example, when the trades of an Employee might have an impact on the price or availability of a particular Security, or when the trades of the client might have an impact on price to the benefit of the Employee. Thus, exceptions involve situations where the trade of a PanAgora Employee is unlikely to have an impact on the market.
• Regulatory Limits. Owing to a variety of federal statutes and regulations in the banking, savings and loan, insurance, communications, and gaming industries, it is critical that accounts of PanAgora and PanAgora Clients not hold more than 10% of the voting securities (7% for public utilities) of any issuer in those industries. Because of the risk that the personal holdings of PanAgora and PanAgora Employees may be aggregated with PanAgora and Putnam holdings for these purposes, subpart (b) of this Rule limits personal trades in these areas. The 7% limit will allow the regulatory limits to be observed.
• Options. For the purposes of this Code, options are treated like the underlying Security. See Definitions. Thus, an Employee may not purchase, sell, or “write” option contracts for a Security that is on the Restricted List. The automatic exercise or assignment of an options contract (the purchase or writing of which was previously pre-cleared) does not have to be pre-cleared. Note, however, that the sale of securities obtained through the exercise of options must be pre-cleared.
• Involuntary transactions. Involuntary Personal Securities Transactions are exempted from the Code. Special attention should be paid to this exemption. (See Section I.D.)
• Tender offers. This Rule does not prohibit an Employee from tendering securities from
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his personal account in response to an “any and all” tender offer, even if PanAgora Clients are also tendering securities. A PanAgora Employee is, however, prohibited from tendering securities from his personal account in response to a partial tender offer, if PanAgora Clients are also tendering securities.
• Gifts of Securities. Pre-clearance is required for securities donated as a gift to a charitable organization or to an individual. Employees are required to provide a gift transfer certificate of the transaction (if produced) to the Code of Ethics Administrator along with an account statement reflecting the gift transaction. Receipt of a securities gift should be reported on the Access Person’s Annual Holding Report. Employees who receive a securities gift must report the gift to the Code of Ethics Administrator to make the necessary adjustments in PTA and Access Persons must disclose this holding in PTA.
Rule 3: Bitcoin and Other Cryptocurrencies
PanAgora Employees should confer with the Code of Ethics Officer prior to trading Cryptocurrencies.
Cryptocurrencies may constitute Securities. Due to the developing legal framework governing cryptocurrencies and Initial Coin Offerings (“ICOs”), PanAgora requires all PanAgora Employees to pre-clear trades and disclose holdings in Cryptocurrencies and ICOs to the Code of Ethics Officer consistent with the treatment of Securities consistent with the requirements of this Code, unless pre-clearance and reporting are specifically excepted under this Rule.
Pre-clearance and reporting is not required for transactions in the following cryptocurrencies:
• | Bitcoin |
This list of excepted Cryptocurrencies may be updated from time to time through amendments to the Code or other communications to Employees by the Chief Compliance Officer. Cryptocurrencies will only be added to the excepted list upon a determination by the Chief Compliance Officer, after consultation with counsel, that it is reasonably likely that the Cryptocurrency is not a Security under applicable law.
COMMENT
• | PanAgora Strategy Change. Currently, no PanAgora strategy contemplates trading in Cryptocurrencies or ICOs for client accounts. This Rule may be amended in the future should any PanAgora strategy begin to trade Cryptocurrencies or ICOs for client accounts. |
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B. Prohibited Transactions
Rule 1: Short-Selling Prohibition
PanAgora Employees are prohibited from Short Selling any Security in their own accounts, whether or not the Security is held in a PanAgora Client portfolio. Employees are prohibited from hedging investments made in securities of Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc.
EXCEPTIONS
Short selling against broad market indexes (such as the Dow Jones Industrial Average, the NASDAQ index, and the S&P 100 & 500 indexes); short selling of Broad-Based ETFs, or Broad-Based ETNs; and short selling against the box are permitted (except that short selling shares of Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc. against the box is not permitted).
Rule 2: IPO Prohibition
No PanAgora Employee shall purchase any Security for her personal account in an IPO. Employees are also restricted from participating in IPOs through a Discretionary Account.
EXCEPTION
Pre-existing Status Exception. A PanAgora Employee shall not be barred by this Rule or by Rule 1(a) of Section I.A. from purchasing securities for her personal account in connection with an IPO of securities by a bank or insurance company when the Employee’s status as a policyholder or depositor entitles her to purchase securities on terms more favorable than those available to the general public, in connection with the bank’s conversion from mutual or cooperative form to stock form, or the insurance company’s conversion from mutual to stock form, provided that the Employee has had the status entitling her to purchase on favorable terms for at least two years. This exception is only available with respect to the value of bank deposits or insurance policies that an Employee owns before the announcement of the IPO. This exception does not apply, however, if the Security appears on the Restricted List in the circumstances set forth in subparts (b), (c), or (d) of Section I.A., Rule 2.
IMPLEMENTATION
A. General Implementation. An Employee shall inquire, before any purchase of a Security for her personal account, whether the Security to be purchased is being offered pursuant to an initial public offering. If the Security is offered through an IPO, the Employee shall refrain from purchasing that Security for her personal account unless the exception applies.
B. Administration of Exception. If the Employee believes the exception applies, she shall consult the Code of Ethics Administrator concerning whether the Security appears on the
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Restricted List and if so, whether it is eligible for this exception.
COMMENTS
• The purpose of this Rule is designed to avoid the conflict of interest that might occur when an Employee trades for his personal account a Security that currently is being traded or is likely to be traded for a PanAgora Client. Such conflicts arise, for example, when the trades of an Employee might have an impact on the price or availability of a particular Security, or when the trades of the client might have an impact on price to the benefit of the Employee. Thus, exceptions involve situations where the trade of a PanAgora Employee is unlikely to have an impact on the market.
• Purchases of securities in the immediate after-market of an initial public offering are not prohibited, provided they do not constitute violations of other portions of the Code.
• Public offerings subsequent to initial public offerings are not deemed to create the same potential for competition between PanAgora Employees and PanAgora Clients because of the pre-existence of a market for the securities.
Rule 3: Private Placement Pre-Approval Requirements
No PanAgora Employee shall purchase any Security for his personal account in a limited private offering or Private Placement without prior approval from the Code of Ethics Officer. Privately placed limited partnerships and funds such as private equity or hedge funds are specifically included in this Rule.
COMMENTS
• The purpose of this Rule is to prevent a PanAgora Employee from investing in securities for his own account pursuant to a limited private offering that could compete with or disadvantage PanAgora Clients, and to prevent PanAgora Employees from being subject to efforts to curry favor by those who seek to do business with PanAgora.
• Exemptions to the prohibition will generally not be granted where the proposed investment relates directly or indirectly to investments by a PanAgora Client, or where individuals involved in the offering (including the issuers, broker, underwriter, placement agent, promoter, fellow investors and affiliates of the foregoing) have any prior or existing business relationship with PanAgora or a PanAgora Employee, or where the PanAgora Employee believes that such individuals may expect to have a future business relationship with PanAgora or a PanAgora Employee.
• An exemption may be granted, subject to reviewing all the relevant facts and circumstances, for investments in:
(a) Pooled investment funds, including hedge funds, subject to the condition that an employee investing in a pooled investment fund would have no involvement in the activities or decision-making process of the fund except for financial reports made in the ordinary course of the fund’s business, and subject to the condition that the hedge fund
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does not invest significantly in registered investment companies.
(b) Private Placements where the investment cannot relate, or be expected to relate, directly or indirectly to PanAgora or investments by a PanAgora Client.
• Employees who apply for an exemption will be expected to disclose to the Code of Ethics Officer in writing all facts and relationships relating to the proposed investment.
• Applications to invest in Private Placements will be reviewed by the Code of Ethics Oversight Committee. This review will take into account, among other factors, the considerations described in the preceding comments.
Rule 4: Trading with Material Non-Public Information
No PanAgora Employee shall purchase or sell any Security for her personal account or for any PanAgora Client account while in possession of material, nonpublic information concerning the Security or the issuer.
When in possession of material, nonpublic information, such PanAgora Employee shall also not advise or encourage another person to purchase, sell or hold any such Security, either for a personal account or for the account of a PanAgora Client.
EXCEPTIONS
None. Please read Appendix A, Policy Statement Concerning Insider Trading Prohibitions.
Rule 5: No Personal Trading with Client Portfolios
No PanAgora Employee shall purchase from or sell to a PanAgora Client any securities or other property for his personal account, nor engage in any personal transaction to which a PanAgora Client is known to be a party, or which transaction may have a significant relationship to any action taken by a PanAgora Client.
EXCEPTIONS
None.
IMPLEMENTATION
It shall be the responsibility of every PanAgora Employee to make inquiry prior to any personal transaction sufficient to satisfy himself that the requirements of this Rule have been met.
COMMENT
This rule is required by federal law. It does not prohibit a PanAgora Employee from purchasing any shares of an open-end fund sponsored by PanAgora. The policy with respect to Employee trading in closed-end PanAgora funds is attached as Appendix B.
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Rule 6: Special: Good Until Canceled Orders
Good Until Canceled Limit Orders are prohibited.
Any order not executed on the day of pre-clearance must be resubmitted for pre-clearance before being executed on a subsequent day. “Good until canceled limit” orders are prohibited because of the potential failure to pre-clear.
EXCEPTION
Same-day limit orders are permitted.
Rule 7: Excessive Trading
PanAgora Employees are strongly discouraged from engaging in excessive trading for their personal accounts. Employees are prohibited from making more than 10 trades in individual securities in any given quarter. Excessive trading within PanAgora sub-advised open-end mutual funds is prohibited. For the purpose of this rule, an Employee is prohibited from engaging in more than a total of 10 trades in all accounts the Employee may hold (including those accounts held by his Immediate Family Members), not 10 trades per individual account.
EXCEPTIONS
For the purpose of calculating the number of trades in any quarter, trading the same Security in the same direction (buy or sell) over a period of five business days will be counted as one transaction.
Trades in Broad-Based ETFs, and ETNs and affiliate stock in internal plans are not counted towards the 10 trade limit.
COMMENTS
• Although a PanAgora Employee’s excessive trading may not itself constitute a conflict of interest with PanAgora Clients, PanAgora believes that its clients’ confidence in PanAgora will be enhanced, and the likelihood of PanAgora achieving better investment results for its clients over the long term will be increased, if PanAgora Employees rely on their investment — as opposed to trading — skills in transactions for their own accounts. Moreover, excessive trading by a PanAgora Employee for her own account diverts the Employee’s attention from the responsibility of servicing PanAgora Clients, and increases the possibilities for transactions that are in actual or apparent conflict with PanAgora Client transactions. Short-term trading is strongly discouraged while Employees are encouraged to take a long-term view.
• Employees should be aware that their trading activity is closely monitored. Activity exceeding 10 trades per quarter will be prohibited by the Code of Ethics Oversight Committee. Sanctions will be imposed such as a trading ban or a more stringent sanction may be determined at the discretion of the Committee.
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C. Discouraged Transactions
Rule 1: Naked Options
PanAgora Employees are strongly discouraged from engaging in writing (selling) naked options for their personal accounts.
Naked option transactions are particularly dangerous because a PanAgora Employee may be prevented by the restrictions in this Code from covering the naked option at the appropriate time. All Employees should keep in mind the limitations on their personal securities trading imposed by this Code when contemplating such an investment strategy. Engaging in naked options transactions on the basis of material, nonpublic information is prohibited. See Appendix A, Policy Statement Concerning Insider Trading Prohibitions.
EXCEPTIONS
None.
D. Exempted Transactions
Rule 1: Involuntary Transactions
Transactions that are involuntary on the part of a PanAgora Employee are exempt from the prohibitions set forth in Sections I.A., I.B., and I.C.
EXCEPTIONS
None.
COMMENTS
• This exemption is based on categories of conduct that the SEC does not consider “abusive.”
• Examples of involuntary Personal Securities Transactions include:
(a) Sales out of the brokerage account of a PanAgora Employee as a result of bona fide margin call, provided that withdrawal of collateral by the PanAgora Employee within the ten days previous to the margin call was not a contributing factor to the margin call;
(b) Purchases arising out of an automatic dividend reinvestment program of an issuer of a publicly traded Security.
• Transactions by a trust in which the PanAgora Employee (or an Immediate Family Member of the Employee) holds a beneficial interest, but for which the Employee has no direct or indirect influence or control with respect to the selection of investments, are involuntary transactions. In addition, these transactions do not fall within the definition of “Personal Securities Transactions.” See Definitions.
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• A good-faith belief on the part of the Employee that a transaction was involuntary will not be a defense to a violation of the Code. In the event of confusion as to whether a particular transaction is involuntary, the burden is on the Employee to seek a prior written determination of the applicability of this exemption. The procedures for obtaining such a determination appear in Section VI.
Rule 2: Special Exemptions
Transactions that have been determined in writing by the Code of Ethics Officer before the transaction occurs to be reasonably unlikely to harm PanAgora Clients because the transaction would be very unlikely to affect a highly institutional market, or because the transaction is clearly not related economically to the securities to be purchased, sold, or held by a PanAgora Client, are exempt from the prohibitions set forth in Sections I.A., I.B., and I.C.
IMPLEMENTATION
An Employee may seek an ad-hoc exemption under this Rule by following the procedures in Section VI.
COMMENTS
• This exemption is also based upon categories of conduct that the SEC does not consider “abusive.”
• The burden is on the Employee to seek a prior written determination that the proposed transaction meets the standards for an ad hoc exemption set forth in this Rule.
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SECTION II: Additional Special Rules for Personal Securities Transactions of Access Persons and Certain Investment Professionals
Rule 1: 60-Day Short Term Rule
Access Persons may not sell a security at a profit within 60 days of purchase or buy a security at a price below which he or she sold it within the past 60 days.
EXCEPTIONS
None, unless prior written approval from the Code of Ethics Officer is obtained. Exceptions may be granted on a case-by-case basis when no abuse is involved and the equities of the situation support an exemption. For example, although an Access Person may buy a stock as a long-term investment, that stock may have to be sold involuntarily due to unforeseen activity such as a merger.
IMPLEMENTATION
A. The 60-Day Short-Term Rule applies to all Access Persons, as defined in the Definitions section of the Code.
B. Calculation of whether there has been a profit is based upon the market prices of the securities. The calculation includes commissions and other sales charges.
C. As an example, an Access Person would not be permitted to sell a security at $12 that he purchased within the prior 60 days for $10. Similarly, an Access Person would not be permitted to purchase a security at $10 that she had sold within the prior 60 days for $12.
COMMENTS
• The prohibition against short-term trading profits by Access Persons is designed to minimize the possibility that they will capitalize inappropriately on the market impact of trades involving a client portfolio about which they might possibly have information.
• Although directors, portfolio managers, and analysts may sell securities at a profit within 60 days of purchase in order to comply with the requirements of the 7-Day Rule applicable to them (described below), the profit will have to be disgorged to charity under the terms of the 7-Day Rule.
• An Access Person cannot trade a security within 60 days regardless of tax lot election.
Rule 2: 7-Day Rule
Before an Investment Professional places an order to buy a Security for any PanAgora Client portfolio that is managed by his team, he must sell that Security or related derivative Security if he has purchased it in his personal account within the
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preceding seven calendar days.
COMMENTS
• This Rule applies to Investment Professionals in connection with any purchase (no matter how small) in any client account managed by her team. In particular, it should be noted that the requirements of this Rule also apply with respect to purchases in client accounts, resulting from “cash flows.” To comply with the requirements of this Rule, it is the responsibility of each Investment Professional to be aware of the placement of all orders for purchases of a Security by client accounts that are managed by her team for seven days following the purchase of that Security for her personal account.
• An Investment Professional who must sell securities to be in compliance with the 7-Day Rule must absorb any loss and disgorge to charity any profit resulting from the sale. The recipient charity will be chosen by the Code of Ethics Officer.
• This Rule is designed to avoid even the appearance of a conflict of interest between an Investment Professional and a PanAgora Client. A greater burden is placed on these professionals given their positions in the organization. Transactions executed for the employee's personal account must be conducted in a manner consistent with the Code of Ethics and in such a manner as to avoid any actual or perceived conflict of interest or any abuse of the employee’s position of trust and responsibility.
EXCEPTIONS
For Investment Professionals. The 7-Day Rule shall not apply with respect to the purchase or sale of up to 1,000 shares of an equity Security by an Investment Professional over any consecutive thirty (30) calendar day period if the issuer of the equity Security (i) is listed on the new York Stock Exchange, or (ii) has a market capitalization (defined as outstanding shares multiplied by current price per share) of at least $10 billion (such security, a “Mega Cap Security”).
The 7-Day Rule shall not apply with respect to the purchase or sale of up to $100,000 principal amount of a fixed income Security by an Investment Professional over any consecutive thirty (30) calendar day period.
Rule 3: Blackout Rule
No Investment Professional shall: (i) sell any Security or related derivative Security for his personal account until seven calendar days have elapsed since the most recent purchase of that Security or related derivative Security by any PanAgora Client portfolio managed by his team; or (ii) purchase any Security or related derivative Security for his personal account until seven calendar days have elapsed since the most recent sale of that Security or related derivative Security from any PanAgora Client portfolio managed by his team.
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COMMENTS
• This Rule applies to Investment Professionals in connection with any purchase (no matter how small) in any client account managed by his team. In particular, it should be noted that the requirements of this rule also apply with respect to transactions in client accounts resulting from “cash flows”. In order to comply with the requirements of this Rule, it is the responsibility of each Investment Professional to be aware of all transactions in a Security by client accounts managed by his team that took place within the seven days preceding a transaction in that Security for his personal account.
• This Rule is designed to prevent an Investment Professional from engaging in personal investment conduct that appears to be counter to the investment strategy his team is managing on behalf of a PanAgora Client.
• Trades by an Investment Professional for his personal account in the “same direction” as the PanAgora Client portfolio managed by his team do not present the same danger, so long as any same direction trades do not violate other provisions of the Code or the Policy Statements.
EXCEPTIONS
For Investment Professionals. The Blackout Rule shall not apply with respect to the purchase or sale of up to 1,000 shares of a Mega Cap Security by an Investment Professional over any consecutive thirty (30) calendar day.
The Blackout Rule shall not apply with respect to the purchase or sale of up to $100,000 principal amount of a fixed income Security by an Investment Professional over any consecutive thirty (30) calendar day period.
Rule 4: Contra Trading Rule
No Investment Professional shall, without prior approval, sell out of her personal account Securities or related derivative Securities held in any PanAgora Client portfolio that is managed by her team.
EXCEPTIONS
None, unless prior written approval is granted.
IMPLEMENTATION
A. Individuals Authorized to Give Approval. Prior to engaging in any such sale, an Investment Professional shall seek approval, in writing, of the proposed sale. In the case of a portfolio manager or analyst, prior written approval of the proposed sale shall be obtained from a director to whom he reports or, in his absence, another director. In the case of a director, prior written approval of the proposed sale shall be obtained from the Chief Investment Officer. In the case of the Chief Investment Officer, prior written
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approval shall be obtained from the Code of Ethics Officer. In addition to the foregoing, prior written approval must also be obtained from the Code of Ethics Officer, his designee, or, in the case of the Chief Investment Officer, prior written approval from the Chief Executive Officer.
B. Contents of Written Approval. Written approval similar to the form attached as Appendix C (or such other form as the Code of Ethics Officer shall designate) shall be used. Such written approval shall be sent by the director approving the transaction to the Code of Ethics Officer, or her designee, for her approval. Approvals obtained after a transaction has been completed or while it is in process will not satisfy the requirements of this Rule.
COMMENT
This Rule is designed to prevent an Investment Professional from engaging in personal investment conduct that appears to be counter to the investment strategy that is being managed by her team on behalf of a PanAgora Client.
EXCEPTIONS
For Investment Professionals. The Contra Trading Rule shall not apply with respect to the purchase or sale of up to 1,000 shares of a Mega Cap Security by an Investment Professional over any consecutive thirty (30) calendar day.
The Contra Trading Rule shall not apply with respect to the purchase or sale of up to $100,000 principal amount of a fixed income Security by an Investment Professional over any consecutive thirty (30) calendar day period.
Rule 5: No Personal Benefit
No Investment Professional shall cause a PanAgora Client to take action for the Investment Professional’s own personal benefit.
EXCEPTIONS
None.
COMMENTS
• An Investment Professional who trades in particular securities for a PanAgora Client account in order to support the price of securities in his personal account, or who “front runs” a PanAgora Client order is in violation of this Rule. Investment Professionals should be aware that this Rule is not limited to personal transactions in Securities (as that word is defined in Definitions). Thus, an Investment Professional who front runs a PanAgora Client purchase or sale of obligations of the U.S. government is in violation of this Rule, although U.S. government obligations are excluded from the definition of Security.
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• This Rule is not limited to instances when an Investment Professional has malicious intent. It also prohibits conduct that creates an appearance of impropriety. Investment Professionals who have questions about whether proposed conduct creates an appearance of impropriety should seek a prior written determination from the Code of Ethics Officer, using the procedures described in Section VI.
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SECTION III: General Rules for All Employees
Rule 1: Compliance with All Laws, Regulations and Policies
All Employees must comply with applicable laws and regulations as well as company policies. This includes tax, anti-trust, political contribution, and international boycott laws. In addition, no PanAgora Employee may engage in fraudulent conduct of any kind.
EXCEPTIONS
None.
COMMENTS
• PanAgora may report to the appropriate legal authorities conduct by PanAgora Employees that violates this Rule.
• It should also be noted that the U.S. Foreign Corrupt Practices Act makes it a criminal offense to make a payment or offer of payment to any non-U.S. governmental official, political party, or candidate to induce that person to affect any governmental act or decision, or to assist PanAgora’s obtaining or retaining business.
Rule 2: Immediate Family Members’ Conflict Policy
No Employee or Immediate Family Member of an Employee shall have any direct or indirect personal financial interests in companies that do business with PanAgora, unless such interest is disclosed to and approved by the Code of Ethics Officer.
Investment holdings in public companies which are not material to the Employee are excluded from this prohibition. The Code also provides more detailed supplemental rules to address potential conflicts of interests which may arise if Immediate Family Members of Employees are closely involved in doing business with PanAgora.
Corporate purchase of goods and services
PanAgora will not acquire goods and services from any firm in which an Immediate Family Member of an Employee serves as the sales representative in a senior management capacity or has an ownership interest in the supplier firm (excluding normal investment holdings in public companies) without permission from the Code of Ethics Officer. Any Employee who is aware of a proposal to purchase goods and services from a firm at which an Immediate Family Member of the Employee meets one of the previously mentioned conditions must notify the Code of Ethics Officer.
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Portfolio Trading
PanAgora will not allocate any trades for a portfolio to any firm that employs an Immediate Family Member of an Employee as a sales representative to PanAgora (in a primary, secondary or back up role).
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SECTION IV: Reporting Requirements for All Employees
Reporting of Personal Securities Transactions
Rule 1: Broker Confirmations and Statements
Each PanAgora Employee shall ensure that copies of all confirmations for securities transactions for his Personal Brokerage Accounts and brokerage account statements are sent to the PanAgora Compliance Department (Code of Ethics Administrator). (For the purpose of this Rule, Securities shall also include ETFs, futures, Closed-End Funds, ETNs and other derivatives on broad-based market indexes excluded from the pre-clearance requirement.) Statements and confirmations are required for U.S. mutual funds advised or sub-advised by PanAgora.
PanAgora Employees must disclose their Personal Brokerage Accounts in the PTA system and complete all required information which will facilitate the instructions to the broker.
EXCEPTION
None.
IMPLEMENTATION
A. PanAgora Employees must instruct their broker-dealers to send duplicate statements and confirmations with respect to their Personal Brokerage Accounts to PanAgora and must follow up with the broker-dealer on a reasonable basis to ensure that the instructions are being followed. For brokerage accounts, PanAgora Employees should contact the Code of Ethics Administrator to obtain a letter from PanAgora authorizing the setting up of a Personal Brokerage Account. Note: If an Employee has accurately reported his accounts in the PTA, and informed Compliance of opening any new accounts, the Code of Ethics Administrator or its delegate will manage the duplicate statement and confirmation process with no further action needed from the Employee.
B. Statements and confirmations should be submitted to the Code of Ethics Administrator.
C. Failure of a broker-dealer to comply with the instructions of a PanAgora Employee to send confirmations shall be a violation by the PanAgora Employee of this Rule. Similarly, failure by an Employee to report the existence of a Personal Brokerage Account (and, if the account is opened after joining PanAgora, failure to obtain proper authorization to establish the account) shall be a violation of this Rule.
D. Statements and confirmations must also be sent for Immediate Family Members of an Employee, including statements received with respect to such Immediate Family Member’s 401(k) plan at another employer.
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COMMENTS
• Transactions for Personal Brokerage Accounts are defined broadly to include more than transactions in accounts under an Employee’s own name. See Definitions.
• Statements and confirmations are required for all Personal Securities Transactions, whether or not exempted or excepted by this Code.
• To the extent that a PanAgora Employee has investment authority over securities transactions of a family trust or estate, confirmations of those transactions must also be made, unless the Employee has received a prior written exception from the Code of Ethics Officer.
Rule 2: Access Persons – Quarterly Transaction Report
Every Access Person shall file a quarterly report, within fifteen calendar days of the end of each quarter, recording all purchases and sales of any securities in the Access Person’s personal securities accounts as defined in the Definitions. (For the purpose of this Rule, reportable “Securities” also includes ETFs, Closed-End Funds, ETNs, futures, and any option on a Security or securities index, including broad-based market indexes excluded from the pre-clearance requirement and also includes transactions in U.S. mutual funds sub-advised by PanAgora.)
Each report must contain, at a minimum, the following information about each transaction involving a reportable Security, in which the Access Person had or as a result of the transaction acquired, any direct or indirect beneficial ownership: (i) the title and type of Security, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable Security involved; (ii) the nature of the transaction (i.e. purchase, sale or any other type of acquisition or disposition); (iii) the price of the Security at which the transaction was effected; (iv) the name of the broker, dealer or bank or through which the transaction was effected; and (v) the date the Access Person submits the report.
EXCEPTIONS
None.
IMPLEMENTATION
All Employees required to file such a report will receive by e-mail a notice to complete the appropriate certifications through PTA. The report shall contain a representation that employees have complied fully with all provisions of the Code of Ethics.
The date for each transaction required to be disclosed in the quarterly report is the trade date for the transaction, not the settlement date.
Planned absences, i.e., vacations, leaves (other than certain medical leaves), or business
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trips, are not valid excuses for providing late reports. Failure to meet the deadline violates the Code’s rules and sanctions may be imposed.
COMMENTS
• If the requirement to file a quarterly report applies to you and you fail to report within the required 15-day period, salary increases and bonuses may be reduced in accordance with guidelines stated in the form. It is the responsibility of the Employee to request an early report if he has knowledge of a planned absence, i.e., vacation or business trip.
Reporting of Personal Securities Holdings
Rule 3: Access Persons – Initial/Annual Holdings Report
Access Persons must disclose all personal securities holdings, including all holdings in Personal Brokerage Accounts and accounts of Immediate Family Members, to the Code of Ethics Officer upon commencement of employment within ten calendar days of hire and thereafter on an annual basis. This requirement is mandated by SEC regulations and is designed to facilitate the monitoring of Personal Securities Transactions. The Code of Ethics Administrator will provide Access Persons with instructions regarding the submission and certification of these reports in PTA.
Each report must contain, at a minimum: (i) the title and type of Security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each reportable Security in which the Access Person has any direct or indirect beneficial ownership; (ii) the name of any broker, dealer or bank with which the Access Person maintains an account in which any Security are held for the access person’s direct or indirect benefit; and (iii) the date the Access Person submits the report.
Rule 4: Certifications
All Employees are required to submit a certification in PTA annually attesting to compliance with all of the conditions of the Code.
In addition, all Employees are required to certify at the time they join PanAgora and quarterly thereafter that they have disclosed to PanAgora their relevant disciplinary history, and that they will notify the Chief Compliance Officer immediately upon becoming aware that any prior disclosure has become inaccurate. Members of the PanAgora board are also required to certify annually that they have disclosed to PanAgora their relevant disciplinary history, and that they will notify the Chief Compliance Officer immediately upon becoming aware that any prior disclosure has become inaccurate.
Rule 5: Reporting of Irregular Activity
If a PanAgora Employee suspects that fraudulent, illegal, or other irregular activity (including violations of the Code) might be occurring at PanAgora, the activity
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should be reported immediately to the managing director in charge of that Employee’s business unit. Managing directors who are notified of any such activity must immediately report it in writing to PanAgora’s Chief Compliance Officer.
An Employee who does not feel comfortable reporting this activity to the relevant Director may instead contact the Chief Compliance Officer, the Ethics hotline at 1-888-475-4210, or Ombudsman.
Rule 6: Ombudsman
PanAgora has access to a formal Office of the Ombudsman as an additional mechanism for an Employee to report an impropriety or conduct that is not in line with the company’s value system. The Ombudsman is a person who is authorized to receive complaints or questions confidentially about alleged acts, omissions, improprieties, and broader systemic problems within the organization. The Ombudsman is available on an anonymous basis by calling 1-866-ombuds7 (866-662-8377) or by calling 1-617-760-8897.
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SECTION V: Education Requirements
Every PanAgora Employee has an obligation to fully understand the requirements of the Code. The Rules set forth below are designed to enhance this understanding.
Rule 1: Distribution of Code
A copy of the Code will be distributed to every PanAgora Employee periodically. All Access Persons will be required to certify annually that they have read, understood, and will comply with the provisions of the Code, including the Code’s Policy Statement Concerning Insider Trading Prohibitions.
Rule 2: New Employee Training Requirement
Each new Employee attends a Code of Ethics orientation training with the Deputy Code of Ethics Officer.
Rule 3: Annual Training Requirement
Every PanAgora Employee has an obligation to fully understand the requirements of the Code.
The Chief Compliance Officer, as appropriate, will review the Code (including any updates) with all Employees and provide training on the Code on an annual basis. The Chief Compliance Officer will maintain a log of participants.
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SECTION VI: Compliance and Appeal Procedures
A. Restricted List
No Employee may engage in a Personal Securities Transaction without prior clearance.
B. Consultation of Restricted List
It is the responsibility of each Employee to pre-clear through PTA or consult with the Code of Ethics Administrator prior to engaging in a Personal Securities Transaction, to determine if the Security he proposes to trade is on the Restricted List and, if so, whether it is subject to the Large-/Mid-Cap Exemption.
C. Request for Determination
An Employee who has a question concerning the applicability of the Code to a particular situation shall request a determination from the Code of Ethics Officer before engaging in the conduct or Personal Securities Transaction about which he has a question.
If the question pertains to a Personal Securities Transaction, the request shall state for whose account the transaction is proposed, the relationship of that account to the Employee, the Security proposed to be traded, the proposed price and quantity, the entity with whom the transaction will take place (if known), and any other information or circumstances of the trade that could have a bearing on the Code of Ethics Officer’s determination. If the question pertains to other conduct, the request for determination shall give sufficient information about the proposed conduct to assist the Code of Ethics Officer in ascertaining the applicability of the Code. In every instance, the Code of Ethics Officer may request additional information, and may decline to render a determination if the information provided is insufficient.
The Code of Ethics Officer shall make every effort to render a determination promptly.
No perceived ambiguity in the Code shall excuse any violation. Any person who believes the Code to be ambiguous in a particular situation shall request a determination from the Code of Ethics Officer.
D. Request for Ad Hoc Exemption
Any Employee who wishes to obtain an ad hoc exemption under Section I.D., Rule 2, shall request from the Code of Ethics Officer an exemption in writing in advance of the conduct or transaction sought to be exempted. In the case of a Personal Securities Transaction, the request for an ad hoc exemption shall give the same information about the transaction required in a request for determination under number 3 of this section, and shall state why the proposed Personal Securities Transaction would be unlikely to affect a highly institutional market, or is unrelated economically to securities to be purchased, sold, or held by any PanAgora Client. In the case of other conduct, the request shall give information sufficient for the Code of Ethics Officer to ascertain whether the conduct
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raises questions of propriety or conflict of interest (real or apparent).
The Code of Ethics Officer shall make reasonable efforts to promptly render a written determination concerning the request for an ad hoc exemption.
E. Appeal to Code of Ethics Officer with Respect to Restricted List
If an Employee ascertains that a Security that he wishes to trade for his personal account appears on the Restricted List, and thus the transaction is prohibited, he may appeal the prohibition to the Code of Ethics Officer by submitting a written memorandum containing the same information as would be required in a request for a determination. The Code of Ethics Officer shall make every effort to respond to the appeal promptly.
F. Information Concerning Identity of Compliance Personnel
The names of Code personnel are available by contacting the Compliance Department and will be published on PAMZone.
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Section VII: Sanctions
Sanctions Guidelines
The Code of Ethics Oversight Committee is responsible for setting sanctions policies for violating the Code. The Committee has adopted the following minimum monetary sanctions for violations of the Code. These sanctions apply even if the exception results from inadvertence rather than intentional misbehavior. The Code of Ethics Officer is authorized to impose the minimum sanction on Employees without further Committee action. However, the sanctions noted below are only minimums and the Committee reserves the right to impose additional sanctions such as higher monetary sanctions, trading bans, suspension or termination of employment as it determines to be appropriate.
A. The minimum sanction for a violation of the following Rules is disgorgement of any profits or payment of avoided losses and the following payments:
Section IA, Rule 1 (Pre-clearance and Restricted List)
Section IB, Rule 1 (Short-selling)
Section IB, Rule 2 (IPOs)
Section IB, Rule 3 (Private Placements)
Section IB, Rule 4 (Trading with Inside Information)
Section II, Rule 2 (7-Day Rule)
Section II, Rule 3 (Blackout Rule)
Section II, Rule 4, (Contra Trading Rule)
Section II, Rule 5 (Trading for personal benefit)
Director/Officer | Investment Professional | Non-Investment Professional | |
1st violation | $500 | $250 | $50 |
2nd | $1,000 | $500 | $100 |
3rd | Minimum monetary sanction as above with ban on all new personal individual investments |
B. The minimum sanction for violations of all other rules in the Code is as follows:
Director/Officer | Investment Professional | Non-Investment Professional | |
1st violation | $100 | $50 | $25 |
2nd | $200 | $100 | $50 |
3rd | Minimum monetary sanction as above with ban on all new personal individual investments |
The reference period for determining whether a violation is initial or subsequent will be five years.
NOTE Regarding Sanctions
These are the sanction guidelines for successive failures to pre-clear personal trades within a two-year period. The Code of Ethics Oversight Committee retains the right to increase or decrease the sanction for a particular violation in light of the circumstances.
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The Committee’s belief that an Employee has violated the Code intentionally may result in more severe sanctions than outlined in the guidelines above. The sanctions described in paragraph B apply to Restricted List securities that are stocks not entitled to the Large-/Mid-Cap Exemption.
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APPENDIX A: Policy Statement Concerning Insider Trading Prohibitions
PREAMBLE
PanAgora has always forbidden trading on material nonpublic information (inside information) by its Employees. Tough federal laws make it important for PanAgora to state that prohibition in the strongest possible terms, and to establish, maintain, and enforce written policies and procedures to prevent the misuse of material nonpublic information.
Unlawful trading while in possession of inside information can be a crime. Federal law provides that an individual convicted of trading on inside information may go to jail for a period of time. There is also significant monetary liability for an inside trader; the SEC can seek a court order requiring a violator to pay back profits, as well as penalties substantially greater than those profits. In addition private plaintiffs can seek recovery for harm suffered by them. The inside trader is not the only one subject to liability. In certain cases, controlling persons of inside traders (including supervisors of inside traders or PanAgora itself) can be liable for large penalties.
Section I of this Policy Statement contains rules concerning inside information. Section II contains a discussion of what constitutes unlawful insider trading.
Neither material nonpublic information nor unlawful insider trading is easy to define. Section II of this Policy Statement gives a general overview of the law in this area. However, the legal issues are complex and must be resolved by the Code of Ethics Officer. If an Employee has any doubt as to whether she has received material nonpublic information, she must consult with the Code of Ethics Officer prior to using that information in connection with the Purchase or Sale of a Security for his own account or the account of any PanAgora Client, or communicating the information to others. A simple rule of thumb is if you think the information is not available to the public at large, do not disclose it to others and do not trade securities to which the inside information relates.
An Employee aware of or in possession of inside information must report it immediately to the Code of Ethics Officer. If an Employee has failed to consult the Code of Ethics Officer, PanAgora will not excuse Employee misuse of inside information on the ground that the Employee claims to have been confused about this Policy Statement or the nature of the information in his possession.
If PanAgora determines, in its sole discretion, that an Employee has failed to abide by this Policy Statement, or has engaged in conduct that raises a significant question concerning insider trading, he will be subject to disciplinary action, including termination of employment.
There are no exceptions to this policy statement and no one is exempt.
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APPENDIX A
DEFINITIONS: Insider Trading
Gender references in Appendix A alternate.
Code of Ethics Administrator
The individual designated by the Code of Ethics Officer to assume responsibility for day-to-day, non-discretionary administration of this Policy Statement.
Code of Ethics Officer
The PanAgora officer who has been assigned the responsibility of enforcing and interpreting this Policy Statement. The Code of Ethics Officer shall be the Chief Compliance Officer or such other person as is designated by the Chief Executive Officer of PanAgora. If he or she is unavailable, the Deputy Code of Ethics Officer (to be appointed by the Code of Ethics Officer) shall act in his or her stead. The Code of Ethics Officer is Louis Iglesias. The Deputy Code of Ethics Officer is Stephanie Ackerman.
Immediate Family Members
Spouse, domestic partner, minor children or other relatives living in the same household as the PanAgora Employee.
Purchase or Sale of a Security
Any acquisition or transfer of any interest in the Security for direct or indirect consideration, including the writing of an option.
PanAgora
Any or all of PanAgora, and its subsidiaries, any one of which shall be a PanAgora company.
PanAgora Client
Any of the PanAgora Clients.
PanAgora Employee (or Employee)
Any employee of PanAgora. In addition, the Chief Compliance Officer may determine, in his or her sole discretion, that any other person who provides investment advice on behalf of PanAgora and is subject to PanAgora’s supervision or control is a PanAgora Employee, provided that such person: (i) has access to nonpublic information; or (ii) is involved in making securities recommendations to PanAgora Clients.
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Security
Anything defined as a Security under federal law. The term includes any type of equity or debt Security, any interest in a business trust or partnership, and any rights relating to a Security, such as put and call options, warrants, convertible securities, and securities indexes. (Note: The definition of Security in this Policy Statement varies significantly from that in the Code of Ethics. For example, the definition in this Policy Statement specifically includes all securities of any type.)
Transaction for a Personal Account (or Personal Securities Transaction)
Securities transactions: (a) for the Personal Account of any Employee (including her retirement account(s)); (b) for the account of an Immediate Family Member of any Employee; (c) for the account of a partnership in which a PanAgora Employee or Immediate Family Member of the Employee is a partner with investment discretion; (d) for the account of a trust in which a PanAgora Employee or Immediate Family Member of the Employee is a trustee with investment discretion; (e) for the account of a closely-held corporation in which a PanAgora Employee or Immediate Family Member of the Employee holds shares and for which he has investment discretion; and (f ) for any account other than a PanAgora Client account that receives investment advice of any sort from the Employee or Immediate Family Member of the Employee, or as to which the Employee or Immediate Family Member of the Employee has investment discretion.
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APPENDIX A
SECTION I: Rules Concerning Inside Information
Rule 1: Inside Information
No PanAgora Employee shall purchase or sell any Security listed on the Inside Information List (the Red List) either for his personal account or for a PanAgora Client.
IMPLEMENTATION
When an employee seeks clearance in the PTA system for a Personal Securities Transaction, the Code of Ethics Administrator will deny approval for any security on the Red List.
COMMENT
This Rule is designed to prohibit any employee from trading a Security while PanAgora may have inside information concerning that Security or the issuer. Every trade, whether for a personal account or for a PanAgora Client, is subject to this Rule.
Rule 2: Material, Non-Public Information
No PanAgora Employee shall purchase or sell any Security, either for a personal account or for the account of a PanAgora Client, while in possession of material, nonpublic information concerning that Security or the issuer.
IMPLEMENTATION
In order to determine whether a PanAgora Employee is in possession of material, nonpublic information, the PanAgora Employee should follow the reporting steps prescribed in Rule 3.
COMMENTS
• Rule 1 concerns the conduct of an employee when PanAgora possesses material nonpublic information. Rule 2 concerns the conduct of an employee who herself possesses material, nonpublic information about a Security that is not yet on the Red List.
• If an employee has any question as to whether information she possesses is material and/or nonpublic information, she must contact the Code of Ethics Officer in accordance with Rule 3 prior to purchasing or selling any Security related to the information or communicating the information to others. The Code of Ethics Officer shall have the sole authority to determine what constitutes material, nonpublic information for the purposes of this Policy Statement.
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Rule 3: Reporting of Material, Non-Public Information
Any PanAgora Employee who believes he is aware of or has received material, nonpublic information concerning a Security or the issuer shall immediately report the information to the Code of Ethics Officer, the Deputy Code of Ethics Officer or, in their absence, Chief Operating Officer and to no one else. After reporting the information, the PanAgora Employee shall comply strictly with Rule 2 by not trading in the Security without the prior written approval of the Code of Ethics Officer and shall: (a) take precautions to ensure the continued confidentiality of the information; and (b) refrain from communicating the information in question to any person.
IMPLEMENTATION
A. In order to make any use of potential material, nonpublic information, including purchasing or selling a Security or communicating the information to others, an employee must communicate that information to the Code of Ethics Officer in a way designed to prevent the spread of such information. Once the employee has reported potential material, nonpublic information to the Code of Ethics Officer, the Code of Ethics Officer will evaluate whether information constitutes material, nonpublic information, and whether a duty exists that makes use of such information improper. If the Code of Ethics Officer determines that (a) the information is not material or is public, and (b) the use of the information is proper, he will issue a written approval to the employee specifically authorizing trading while in possession of the information, if the employee so requests. If the Code of Ethics Officer determines (a) that the information may be nonpublic and material, and (b) that use of such information may be improper, he will place the Security that is the subject of such information on the Red List.
B. An employee who reports potential inside information to the Code of Ethics Officer should expect that the Code of Ethics Officer will need significant information (and time to gather such information) to make the evaluation described in the foregoing paragraph, including information about (a) the manner in which the employee acquired the information, and (b) the identity of individuals to whom the employee has revealed the information, or who have otherwise learned the information. In appropriate situations, the Code of Ethics Officer will normally place the affected Security or securities on the Red List pending the completion of his evaluation.
C. If an employee possesses documents, disks, or other materials containing the potential inside information, an employee must take precautions to ensure the confidentiality of the information in question. Those precautions include (a) putting documents containing such information out of the view of a casual observer, and (b) securing files containing such documents or ensuring that computer files reflecting such information are secure from
viewing by others.
D. The PTA system will automatically reject requests to pre-clear a purchase or sale of securities of any of the following Putnam affiliates: Great-West Lifeco Inc., Power
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Financial Corporation, Power Corporation of Canada, and IGM Financial
Inc. Any employee wishing to place a trade in one of these companies’ securities must contact the Code of Ethics Officer
or the Deputy Code of Ethics Officer to request manual approval of the pre-clearance request. An employee requesting such approval
must certify that he or she is not in possession of any material non-public information regarding the company in which he or she
is seeking to place a trade. The decision whether or not to grant the pre-clearance request is in the sole discretion of the Code
of Ethics Officer and the Deputy Code of Ethics Officer. The Code of Ethics Officer and Deputy Code of Ethics Officer will reject
any such request for pre-clearance made by members of Putnam’s Executive Board and certain members of the Chief Financial
Officer’s staff from the end of each calendar quarter to the date of announcement of Great-West Lifeco Inc.’s earnings
for such quarter.
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APPENDIX A
SECTION II: Overview of Insider Trading
Introduction
This section of the Policy Statement provides guidelines for employees as to what may constitute inside information. It is possible that in the course of her employment, an employee may receive inside information. No employee should misuse that information, either by trading for her own account or by communicating the information to others.
What constitutes unlawful insider trading?
The basic definition of unlawful insider trading is trading on material, nonpublic information (also called inside information) by an individual who has a duty not to take advantage of the information. The following sections help explain the definition.
What is material information?
Trading on inside information is not a basis for liability unless the information is material. Information is material if a reasonable person would attach importance to the information in determining his course of action with respect to a Security. Information that is reasonably likely to affect the price of a company’s securities is material, but effect on price is not the sole criterion for determining materiality. Information that employees should consider material includes but is not limited to: dividend changes, earnings estimates, changes in previously released earnings estimates, reorganization, recapitalization, asset sales, plans to commence a tender offer, merger or acquisition proposals or agreements, major litigation, liquidity problems, significant contracts, and
extraordinary management developments.
Material information does not have to relate to a company’s business. For example, a court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a Security. In that case, a reporter for The Wall Street Journal was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Journal’s “Heard on the
Street” column and whether those reports would be favorable or not.
What is nonpublic information?
Information is nonpublic until it has been effectively communicated to, and sufficient opportunity has existed for it to be absorbed by, the marketplace. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal, or other publications of general circulation would be considered public.
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Who has a duty not to “take advantage” of inside information?
Unlawful insider trading occurs only if there is a duty not to take advantage of material nonpublic information. When there is no such duty, it is permissible to trade while in possession of such information. Questions as to whether a duty exists are complex, fact-specific, and must be answered by a lawyer. If you have any doubt, err on the side of caution.
Insiders and Temporary Insiders
Corporate insiders have a duty not to take advantage of inside information. The concept of insider is broad. It includes officers, directors, and employees of a corporation. In addition, a person can be a temporary insider if she enters into a special confidential relationship with a corporation and as a result is given access to information concerning the corporation’s affairs. A temporary insider can include, among others, accounting firms, consulting firms, law firms, banks, and the employees of such organizations. PanAgora would generally be a temporary insider of a corporation it advises or for which it performs other services, because typically PanAgora Clients expect PanAgora to keep any information disclosed to it confidential.
EXAMPLE
An investment advisor to the pension fund of a large publicly-traded corporation, Acme, Inc., learns from an Acme employee that Acme will not be making the minimum required annual contribution to the pension fund because of a serious downturn in Acme’s financial situation. The information conveyed is material and nonpublic.
COMMENT
Neither the investment advisor or its employees, nor its clients can trade on the basis of that information, because the investment advisor and its employees could be considered “temporary insiders” of Acme.
Misappropriators
Certain people who are not insiders (or temporary insiders) also have a duty not to deceptively take advantage of inside information. Included in this category is an individual who misappropriates (or takes for his own use) material, nonpublic information in violation of a duty owed either to the corporation that is the subject of inside information or some other entity. Such a misappropriator can be held liable if he trades while in possession of that material, nonpublic information.
EXAMPLE
The Chief Investment Officer of Acme, Inc., is aware of Acme’s plans to engage in a hostile takeover of Profit, Inc. The proposed hostile takeover is material and nonpublic.
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COMMENT
The Chief Investment Officer of Acme cannot trade in Profit, Inc.’s stock for his own account. Even though he owes no duty to Profit, Inc., or its shareholders, he owes a duty to Acme not to take advantage of the information about the proposed hostile takeover by using it for his personal benefit.
Tippers and Tippees
A person (the tippee) who receives material, nonpublic information from an insider or misappropriator (the tipper) has a duty not to trade while in possession of that information if he knew or should have known that the information was provided by the tipper for an improper purpose and in breach of a duty owed by the tipper. In this context, it is an improper purpose for a person to provide such information for personal benefit, such as money, affection, or friendship.
EXAMPLE
The Chief Executive Officer of Acme, Inc., tells his daughter that negotiations concerning a previously announced acquisition of Acme have been terminated. This news is material and, at the time the father tells his daughter, nonpublic. The daughter sells her shares of Acme.
COMMENT
The father is a tipper because he has a duty to Acme and its shareholders not to take advantage of the information concerning the breakdown of negotiations, and he has conveyed the information for an improper purpose (here, out of love and affection for his daughter). The daughter is a tippee and is liable for trading on inside information because she knew or should have known that her father was conveying the information to her for his personal benefit, and that her father had a duty not to take advantage of Acme information.
A person can be a tippee even if he did not learn the information directly from the tipper, but learned it from a previous tippee.
EXAMPLE
An employee of a law firm which works on mergers and acquisitions learns at work about impending acquisitions. She tells her friend and her friend’s stockbroker about the upcoming acquisitions on a regular basis. The stockbroker tells the brother of a client on a regular basis, who in turn tells two friends, A and B. A and B buy shares of the companies being acquired before public announcement of the acquisition, and regularly profit from such purchases. A and B do not know the employee of the law firm. They do not, however, ask about the source of the information.
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COMMENT
A and B, although they have never heard of the tipper, are tippees because they did not ask about the source of the information, even though they were experienced investors, and were aware that the “tips” they received from this particular source were always right.
Who can be liable for insider trading?
The categories of individuals discussed above (insiders, temporary insiders, misappropriators, or tippees) can be liable if they trade while in possession of material nonpublic information.
In addition, individuals other than those who actually trade on inside information can be liable for trades of others. A tipper can be liable if (a) he provided the information in exchange for a personal benefit in breach of a duty, and (b) the recipient of the information (the tippee) traded while in possession of the information.
Most importantly, a controlling person can be liable if the controlling person knew or recklessly disregarded the fact that the controlled person was likely to engage in misuse of inside information and failed to take appropriate steps to prevent it. PanAgora is a controlling person of its employees. In addition, certain supervisors may be controlling persons of those employees they supervise.
EXAMPLE
A supervisor of an analyst learns that the analyst has, over a long period of time, secretly received material inside information from Acme, Inc.’s Chief Investment Officer. The supervisor learns that the analyst has engaged in a number of trades for his personal account on the basis of the inside information. The supervisor takes no action.
COMMENT
Even if he is not liable to a private plaintiff, the supervisor can be liable to the SEC for a civil penalty of up to three times the amount of the analyst’s profit. (Penalties are discussed in the following section.)
Penalties for insider trading
Penalties for misuse of inside information are severe, both for individuals involved in such unlawful conduct and their employers. A person who violates the insider trading laws can be subject to some or all of the types of penalties below, even if he does not personally benefit from the violation. Penalties include:
• Jail sentences, criminal monetary penalties.
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• Injunctions permanently preventing an individual from working in the securities industry.
• Injunctions ordering an individual to pay over profits obtained from unlawful insider trading.
• Civil penalties substantially greater than the profit gained or loss avoided by the trader, even if the individual paying the penalty did not trade or did not benefit personally.
• Civil penalties for the employer or other controlling person.
• Damages in the amount of actual losses suffered by other participants in the market for the Security at issue.
Regardless of whether penalties or money damages are sought by others, PanAgora will take whatever action it deems appropriate (including dismissal) if PanAgora determines, in its sole discretion, that an employee appears to have committed any violation of this Policy Statement, or to have engaged in any conduct which raises significant questions about whether an insider trading violation has occurred.
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APPENDIX B: Policy Statement Regarding Employee Trades in Shares of PanAgora Closed-End Funds
[Note: PanAgora does not currently manage any Closed-End Funds.]
Pre-clearance for all employees
Any purchase or sale of PanAgora Closed-End Fund shares by a PanAgora Employee must be pre-cleared by the Code of Ethics Officer or, in his absence, the Deputy Code of Ethics Officer. A list of the Closed-End Funds can be obtained from the Code of Ethics Administrator. The automated pre-clearance system is not available for PanAgora Closed-End Fund clearance. Trading in shares of Closed-End Funds is subject to all the rules of the Code. Contact the Code of Ethics Administrator with these pre-clearance requests.
Special Rules Applicable to Managing Directors of PanAgora Asset
Management, Inc. and officers of the PanAgora Funds.
Please be aware that any employee who is a director of PanAgora and officers of PanAgora will not receive clearance to engage in any combination of purchase and sale or sale and purchase of the shares of a given Closed-End Fund within six months of each other. Therefore, purchases should be made only if you intend to hold the shares more than six months; no sales of fund shares should be made if you intend to purchase additional shares of that same fund within six months.
You are also required to file certain forms with the SEC in connection with purchases and sales of PanAgora Closed-End Funds. Please contact the Code of Ethics Officer Administrator for further information.
Reporting by all employees
As with any Purchase or Sale of a Security, duplicate confirmations of all such purchases and sales must be forwarded to the Code of Ethics Officer by the broker-dealer utilized by an employee. If you are required to file a quarterly report of all Personal Securities Transactions, this report should include all purchases and sales of Closed-End Fund shares.
Certain forms are also required to be filed with the SEC in connection with purchases and sales of PanAgora Closed-End Funds. You will be notified by the Code of Ethics Administrator if this applies to you. Please contact the Code of Ethics Officer or Deputy Code of Ethics Officer if there are any questions regarding these matters.
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APPENDIX C: Contra-Trading Rule Sample Clearance Form
To: Code of Ethics Officer
From: __________________________________________________________________
Date: ___________________________________________________________________
Re: Personal Securities Transaction of ________________________________________
This serves as prior written approval of the Personal Securities Transaction described below:
Name of Investment Professional contemplating personal trade: ____________________
Security to be traded: ______________________________________________________
Fund(s) holding securities: __________________________________________________
Director approval: ________________________________ Date:___________________
Compliance approval: ________________________ Date: ___________________
Certifications | |
I, Jonathan S. Horwitz, the Principal Executive Officer of the funds listed on Attachment A, certify that: | |
1. I have reviewed each report on Form N-CSR of the funds listed on Attachment A: | |
2. Based on my knowledge, each report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by each report; | |
3. Based on my knowledge, the financial statements, and other financial information included in each report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in each report; | |
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which each report is being prepared; | |
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 180 days prior to the filing date of each report based on such evaluation; and | |
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
5. The registrant's other certifying officer and I have disclosed to each registrant's auditors and the audit committee of each registrant's board of directors (or persons performing the equivalent functions): | |
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect each registrant's ability to record, process, summarize, and report financial information; and | |
b) any fraud, whether or not material, that involves management or other employees who have a significant role in each registrant's internal control over financial reporting. | |
Date: October 29, 2020 | |
/s/ Jonathan S. Horwitz | |
_______________________ | |
Jonathan S. Horwitz | |
Principal Executive Officer | |
Certifications | |
I, Janet C. Smith, the Principal Financial Officer of the funds listed on Attachment A, certify that: | |
1. I have reviewed each report on Form N-CSR of the funds listed on Attachment A: | |
2. Based on my knowledge, each report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by each report; | |
3. Based on my knowledge, the financial statements, and other financial information included in each report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in each report; | |
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which each report is being prepared; | |
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 180 days prior to the filing date of each report based on such evaluation; and | |
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
5. The registrant's other certifying officer and I have disclosed to each registrant's auditors and the audit committee of each registrant's board of directors (or persons performing the equivalent functions): | |
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect each registrant's ability to record, process, summarize, and report financial information; and | |
b) any fraud, whether or not material, that involves management or other employees who have a significant role in each registrant's internal control over financial reporting. | |
Date: October 29, 2020 | |
/s/ Janet C. Smith | |
_______________________ | |
Janet C. Smith | |
Principal Financial Officer | |
Attachment A | |
Period (s) ended August 31, 2020 | |
Putnam Emerging Markets Equity Fund | |
Putnam Floating Rate Income Fund | |
Putnam Focused Equity Fund | |
Putnam Global Health Care Fund | |
Putnam Global Technology Fund | |
Putnam Income Strategies Portfolio | |
Putnam International Capital Opportunities Fund | |
Putnam PanAgora Market Neutral Fund | |
Putnam PanAgora Risk Parity Fund | |
Putnam PanAgora Managed Futures Strategy | |
Putnam Retirement Advantage Fund 2060 | |
Putnam Retirement Advantage Fund 2055 | |
Putnam Retirement Advantage Fund 2050 | |
Putnam Retirement Advantage Fund 2045 | |
Putnam Retirement Advantage Fund 2040 | |
Putnam Retirement Advantage Fund 2035 | |
Putnam Retirement Advantage Fund 2030 | |
Putnam Retirement Advantage Fund 2025 | |
Putnam Retirement Advantage Fund 2020 | |
Putnam Retirement Advantage Maturity Fund | |
Putnam Small Cap Value Fund |
Section 906 Certifications | |
I, Jonathan S. Horwitz, the Principal Executive Officer of the Funds listed on Attachment A, certify that, to my knowledge: | |
1. The form N-CSR of the Funds listed on Attachment A for the period ended August 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
2. The information contained in the Form N-CSR of the Funds listed on Attachment A for the period ended August 31, 2020 fairly presents, in all material respects, the financial condition and results of operations of the Funds listed on Attachment A. | |
Date: October 29, 2020 | |
/s/ Jonathan S. Horwitz | |
______________________ | |
Jonathan S. Horwitz | |
Principal Executive Officer | |
Section 906 Certifications | |
I, Janet C. Smith, the Principal Financial Officer of the Funds listed on Attachment A, certify that, to my knowledge: | |
1. The form N-CSR of the Funds listed on Attachment A for the period ended August 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
2. The information contained in the Form N-CSR of the Funds listed on Attachment A for the period ended August 31, 2020 fairly presents, in all material respects, the financial condition and results of operations of the Funds listed on Attachment A. | |
Date: October 29, 2020 | |
/s/ Janet C. Smith | |
______________________ | |
Janet C. Smith | |
Principal Financial Officer | |
Attachment A | |
Period (s) ended August 31, 2020 | |
Putnam Emerging Markets Equity Fund | |
Putnam Floating Rate Income Fund | |
Putnam Focused Equity Fund | |
Putnam Global Health Care Fund | |
Putnam Global Technology Fund | |
Putnam Income Strategies Portfolio | |
Putnam International Capital Opportunities Fund | |
Putnam PanAgora Market Neutral Fund | |
Putnam PanAgora Risk Parity Fund | |
Putnam PanAgora Managed Futures Strategy | |
Putnam Retirement Advantage Fund 2060 | |
Putnam Retirement Advantage Fund 2055 | |
Putnam Retirement Advantage Fund 2050 | |
Putnam Retirement Advantage Fund 2045 | |
Putnam Retirement Advantage Fund 2040 | |
Putnam Retirement Advantage Fund 2035 | |
Putnam Retirement Advantage Fund 2030 | |
Putnam Retirement Advantage Fund 2025 | |
Putnam Retirement Advantage Fund 2020 | |
Putnam Retirement Advantage Maturity Fund | |
Putnam Small Cap Value Fund |
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