Putnam
RetirementReady^®
Funds

 

Annual report
7 | 31 | 21

 

Message from the Trustees

September 14, 2021

Dear Fellow Shareholder:

Through the summer months of 2021, financial markets continued to rise. Stocks were powered by new highs in corporate earnings, and bonds appreciated despite an uptick in inflation. Experts at Putnam believe inflation will likely be temporary, caused by an uneven recovery from the Covid-19 pandemic.

Even as the economy returns to a more normal trajectory, the evolving pandemic remains a justifiable concern. During these unsettled times, well-managed companies have tried to be flexible and resilient, adapting to conditions while focusing on their goals.

Putnam’s research teams also remain focused on their objectives. They analyze and debate how businesses are adjusting to these challenges as they work to identify investment opportunities for our portfolios. We believe this active approach is well-suited to this time.

Thank you for investing with Putnam.

Performance history as of 7/31/21

Annualized total return (%) before sales charge comparison

 

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 table above do not reflect a sales charge of 4.00% for RetirementReady Maturity Fund and 5.75% for all other funds; had they, returns would have been lower. See below and pages 9–37 for additional performance information. For a portion of the periods, the funds had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.

* With the exception of Putnam RetirementReady 2050 Fund, 2055 Fund, 2060 Fund, and 2065 Fund (inceptions: 5/2/05, 11/30/10, 11/30/15, and 1/4/21, respectively), the inception date of the class A shares of the RetirementReady Funds is 11/1/04. Life of fund return for the 2065 Fund is cumulative.

See above and pages 9–37 for additional fund performance information. Index descriptions can be found on pages 46–47.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

How were market conditions during the 12-month reporting period?

Global financial markets proved to be surprisingly resilient during the 12-month period. Key equity market indexes advanced, driven by widespread Covid-19 vaccinations, fiscal stimulus, accommodative monetary policy, and signs of economic recovery. However, stocks and other risky assets came under pressure periodically due to rising inflation, concerns that a speedy economic recovery could prompt an end to easy monetary policy, and the spread of the highly contagious Delta variant. The S&P 500 Index, a broad measure of U.S. stocks, rose 36.45% for the fiscal year after hitting records in recent months. International stocks, as measured by the MSCI EAFE Index [ND], climbed 30.31%.

From March 2020 through year-end, the Federal Reserve [Fed] purchased billions of dollars in corporate bonds and exchange-traded funds, helping keep rates low. In 2021, stimulus-fueled growth and inflation expectations drove yields on all but very short-term government debt higher. Many investors were betting that inflationary pressures will eventually lead the Fed to raise short-term interest rates. These worries

 

slightly subsided and markets calmed mid-year when the Fed called the rise in inflation “transitory” and stated it will not rush into raising rates. Some central banks across Europe and Latin America have already started to lift rates, while the European Central Bank has pledged to maintain easy monetary policies.

The prospect of near-term asset tapering by the Fed continues to be a top concern for investors. The rate-sensitive Bloomberg U.S. Aggregate Bond Index declined 0.70% for the period.

The yield on the 10-year Treasury note, which helps set borrowing costs on everything from mortgages to corporate debt, rose to 1.24% at period-end from 0.55% at the end of July 2020. The yield on the 2-year Treasury note advanced to 0.19% from 0.11%.

How did the funds perform during the period?

All the RetirementReady Funds finished with positive returns. Funds intended for investors further from retirement outperformed near-retirement funds, reflecting strength across equity markets.

The glide path of the RetirementReady Funds is an important tool that distinguishes Putnam from its peers. Our glide path starts off more aggressive than the average for our Lipper peer group, with a higher equity weight in the early part of the glide path for funds serving people retiring in the 2050s or 2060s. Our glide path becomes more conservative relative to peers for the funds serving investors nearing retirement in the 2020s or 2030s.

What underlying funds’ strategies contributed to or detracted from performance during the period?

Across the funds, performance was largely a product of positive returns from U.S. stocks held by the underlying funds. Dynamic asset allocation benefited performance, while active implementation detracted from results.

Over the past year, we shifted our asset allocations on several occasions. For most of the third quarter of 2020, fund positions were aligned closely with benchmarks. Our slight equity risk underweight in the third quarter resulted in a small loss at that time, but it was offset by our slight overweight position in credit risk.

The portfolios benefited from allocation calls in the fourth quarter, when we moved to an overweight equity position because of strong market breadth and other bullish quantitative signals. Being slightly overweight credit risk and slightly underweight rate risk at various points in the fourth quarter also proved beneficial.

Allocation calls to equities and commodities were the primary drivers of continued dynamic asset allocation strength from January 2021 through period-end. The funds ranged from slightly overweight to overweight equity risk relative to the funds’ custom benchmarks during this time. This benefited the portfolios as stocks soared to new highs with more stimulus and Covid-19 vaccine progress. An out-of-benchmark long position to commodity risk, implemented in January 2021, also aided performance.

Active implementation detracted from the funds’ benchmark-relative performance. Our fundamental U.S. large-cap growth strategy experienced some weakness over the 12-month period. In equities, quantitative strategies in U.S. large caps and international developed markets aided performance. In quantitative strategies, our team analyzes stock market history to identify characteristics of stocks [factors] that have excess risk-adjusted returns. Over the recent past, many factor-based quantitative models, particularly those that emphasize

 

“value” factors, have struggled. Performance in these factors and in our quantitative strategies overall has begun to turn, with positive contributions in late 2020 and 2021 adding value across the glide path. Our exposure to fixed-income absolute return strategies was additive, while the allocation to multi-asset absolute return strategies detracted.

What is your near-term outlook for the markets?

Despite persistent inflation worries and surging cases of Covid-19 variants, several tailwinds continue to broadly propel markets higher. The stimulative monetary and fiscal policy backdrop in the G-10 countries, historically strong earnings that continue to beat estimates, positive economic data, and ample liquidity are fueling the performance of financial markets. While we remain optimistic with these catalysts in place, we also anticipate some volatility ahead as investors weigh the impact of rising Covid-19 cases and the potential for a shift in central bank policy.

Given the current environment, we are bullish on equities in the second half of 2021 until the Fed is close to signaling a taper of its asset purchase program. The combination of pent-up demand and the Fed’s accommodative monetary policy makes a compelling case for equities, in our view.

In fixed income, our outlook on credit is modestly bullish. Banks have eased credit conditions for large corporate commercial and industrial loans. In addition, average total leverage for new high-yield issues has declined to low levels that were last seen in 2013. Our outlook on interest-rate risk is slightly bearish, as we believe risks are skewed to higher yields given the expectations for continued economic momentum and the potential for an overreaction to temporary inflation spikes. We believe upward pressure on yields could extend into the latter part of the year as an eventual taper and change in the Fed’s rate policy slowly approaches.

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 underlying funds’ managers generally serve one of two main purposes: to implement a strategy that may be difficult or more expensive to invest in through traditional securities, or to hedge unwanted risk associated with a particular position.

For example, the underlying funds’ managers might use currency forward contracts to capitalize on an anticipated change in exchange rates between two currencies. This approach would require a significantly smaller outlay of capital than purchasing traditional bonds denominated in the underlying currencies. In another example, the managers may identify a bond that they believe is undervalued relative to its risk of default, but may seek to reduce the interest-rate risk of that bond by using interest-rate swaps, a derivative through which two parties “swap” payments based on the movement of certain rates. In other examples, the managers may use options and futures contracts to hedge against a variety of risks by establishing a combination of long and short exposures to specific equity markets or sectors.

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. Putnam monitors the counterparty risks we assume. For example, Putnam often enters into collateral agreements that require the counterparties to post collateral on a regular basis to cover their obligations to the funds. 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.

 

Our outlook on commodities is neutral. Risk from the Covid-19 Delta variant suggests outcomes skew negative for commodities prices, in our view. Against this backdrop, we continue to have conviction in our investment strategies based on their strong long-term results.

Thank you, Jason, for your time and insights today.

The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.

Please note that the holdings discussed in this report may not have been held by each fund for the entire period. Portfolio composition is subject to review in accordance with each fund’s investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk. Statements in the Q&A concerning each fund’s performance or portfolio composition relative to those of each fund’s Lipper peer group may reference information produced by Lipper Inc. or through a third party.

 

Composition of the funds’ underlying investments

Historically, each Putnam RetirementReady^® Fund invests, to varying degrees, in a variety of Putnam mutual funds. This section describes the goals and strategies of each of the underlying Putnam funds as of July 31, 2021. For more information, please see the funds’ prospectus.

Putnam Fixed Income Absolute Return Fund and Putnam Multi-Asset Absolute Return Fund

Each fund pursues an “absolute return” strategy that seeks to earn a positive total return over a reasonable period of time regardless of market conditions or general market direction. Putnam Fixed Income Absolute Return Fund invests in a broadly diversified portfolio reflecting uncorrelated fixed-income strategies. Putnam Multi-Asset Absolute Return Fund combines two independent investment strategies: a beta strategy, which provides broad exposure to investment markets, and an alpha strategy, which seeks returns from active trading. Actual allocations of both funds will vary.

Putnam Dynamic Asset Allocation Equity Fund

The fund’s portfolio invests mainly in common stocks (growth or value stocks or both) of large and midsize companies worldwide and is designed for investors seeking long-term growth. The fund typically allocates approximately 75% of its assets to investments in U.S. companies and 25% of its assets to international companies, but allocations may vary. The Portfolio Managers can adjust allocations based on market conditions.

Putnam Dynamic Asset Allocation Growth Fund

The fund’s portfolio invests mainly in equity securities (growth or value stocks or both) of U.S. and international companies of any size and is designed for investors seeking capital appreciation with moderate risk. The fund’s strategic equity weighting is 80% (the range is 65% to 95%), with the balance invested in a range of fixed-income investments. The Portfolio Managers can adjust allocations based on market conditions.

Putnam Dynamic Asset Allocation Balanced Fund

The fund’s portfolio is diversified across stocks and bonds in global markets and is designed for investors seeking total return. The fund’s strategic equity allocation is 60% (the range is 45% to 75%), with the balance invested in bonds and money market instruments. The Portfolio Managers can adjust the allocations based on market conditions.

Putnam Dynamic Asset Allocation Conservative Fund

The fund’s globally diversified portfolio emphasizes bonds over stocks and is designed for investors who want to protect the value of their investment while receiving regular income and protection against inflation. The strategic fixed-income allocation is 70% (with a range of 55% to 85%), with the balance invested in stocks and money market instruments. The Portfolio Managers can adjust allocations based on market conditions.

Putnam Government Money Market Fund

The fund seeks as high a rate of current income as Putnam Management believes is consistent with preservation of capital and maintenance of liquidity. The fund invests at least 99.5% of its total assets in cash, U.S. government securities, and repurchase agreements that are fully collateralized by U.S. government securities or cash.

 

You can lose money by investing in Putnam Government Money Market 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.

Each RetirementReady Fund has a different target date that may be attractive to investors who plan to retire or otherwise begin withdrawing assets from their account, typically at retirement. The funds are generally weighted more heavily toward more aggressive, higher-risk investments when the target date of the fund is far off, and more conservative, lower-risk investments when the target date of the fund is near. The principal value of the funds is not guaranteed at any time, including the target date.

Allocations by fund as of 7/31/21

 

Percentages are based on net assets as of 7/31/21. Portfolio composition will vary over time. Due to rounding, percentages may not equal 100%.

 

Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended July 31, 2021, 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, R3, R4, R5, 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 7/31/21

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

 

Fund performance Total return for periods ended 7/31/21 cont.

 

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 levied at the time of purchase. The maximum sales charges for RetirementReady Maturity Fund class A shares is 4.00%. Class B share returns after the 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, R3, R4, R5, R6 and Y shares have no initial sales charge or CDSC. Performance for class R3 and R4 shares prior to their inception is derived from the historical performance of class Y shares by adjusting for the higher operating expenses for such shares. Performance for class R5 shares of the Maturity, 2025, 2030, and 2035 Funds before their inception is derived from the historical performance of class R6 shares and has been adjusted for the higher operating expenses for such shares. Performance for class R5 shares of the 2040, 2045, 2050, 2055, and 2060 Funds is derived from the historical performance of class R6 shares and has not been adjusted for the lower expenses; had it been adjusted, performance would be higher. Performance for class R6 shares before their inception is derived from the historical performance of class Y shares, which has not been adjusted for the lower operating expenses; had it been adjusted, performance would be higher.

For a portion of the periods, these funds had expense limitations, without which returns would have been lower.

For the funds with eight years of performance, class B and class C share performance reflects conversion to class A shares after eight years.

 

Comparative index returns For periods ended 7/31/21

 

Index results should be compared with fund performance before sales charge, before CDSC, or at net asset value. All Bloomberg indices provided by Bloomberg Index Services Limited.

^* Inception date of all the Putnam RetirementReady Funds with the exception of the 2050, 2055, 2060, and 2065 Fund.

^† Inception date of the Putnam RetirementReady 2050 Fund.

^‡ Inception date of the Putnam RetirementReady 2055 Fund.

^§ Inception date of the Putnam RetirementReady 2060 Fund.

^** Inception date of the Putnam RetirementReady 2065 Fund.

Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class C shares would have been valued at $11,290 ($11,190 after contingent deferred sales charge). A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $11,320, $11,330, $11,350, $11,360, $11,360, and $11,360, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

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 and C shares would have been valued at $17,016 ($16,916 after contingent deferred sales charge) and $17,024 (contingent deferred sales charge no longer applies). A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $17,494, $17,681, $17,936, $18,071, $18,084, and $18,018, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

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 and C shares would have been valued at $24,922 and $24,925, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $25,771, $26,302, $26,996, $27,260, $27,279, and $27,121, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

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 and C shares would have been valued at $24,684 and $24,697, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $25,553, $26,069, $26,729, $27,001, $27,013, and $26,887, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

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 and C shares would have been valued at $23,679 and $23,676, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $24,499, $25,000, $25,638, $25,880, $25,897, and $25,795, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

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 and C shares would have been valued at $22,168, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $22,936, $23,309, $23,894, $24,185, $24,226, and $24,120, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

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 and C shares would have been valued at $20,085 and $20,080, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $20,792, $21,098, $21,640, $21,881, $21,972, and $21,884, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

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 and C shares would have been valued at $17,865 and $17,869, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $18,496, $18,717, $19,200, $19,412, $19,526, and $19,449, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

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 and C shares would have been valued at $15,776 and $15,770, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $16,315, $16,503, $16,918, $17,114, $17,248, and $17,162, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

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 and C shares would have been valued at $12,537 and $12,539, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R3, R4, R5, R6, and Y shares would have been valued at $12,970, $13,113, $13,449, $13,617, $13,714, and $13,653, respectively. See first page of performance section for performance calculation method.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

Fund price and distribution information For the 12-month period ended 7/31/21^*

 

 

Fund price and distribution information For the 12-month period ended 7/31/21 cont.

 

 

Fund price and distribution information For the 12-month period ended 7/31/21 cont.

 

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 for all funds except RetirementReady Maturity Fund, for which the rate is 4.00% for class A shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.

* Inception date of RetirementReady 2065 Fund and class R3, R4, and R5 shares.