Q3 | 2012Putnam Investors Fund Q&A

Investors look past macroeconomic headwinds in brighter quarter for U.S. equities
Gerard P. Sullivan Portfolio Manager

Earnings expectations were low coming into the third quarter, but I believe the market acknowledged that even if earnings were weak, valuations still werent stretched.

Key takeaways Equities moved up in the face of many challenges, and investors didnt get too caught up in negative headlines. Positions in financials and consumer discretionary were beneficial as these sectors rebounded in a risk-on environment. Valuation is an important component of my strategy, and I have sought to allocate assets to sectors that offer more promising return potential in a recovering economy. Equities rebounded, and the fund outperformed its benchmark. How did the market environment change in the third quarter? The advance we saw in the S&P 500 was impressive, especially with a global economy that seems to be stagnant or at best recovering at a very slow pace. Equities moved up in the face of many challenges, and investors didnt get too caught up in negative headlines. We moved into more of a risk-on environment, where cyclical stocks whose performance is tied to the overall economy were able to post nice gains. What worked well for the fund in this environment? The top-performing sectors for the portfolio were financials and consumer discretionary, which performed well in the risk-on environment. Also among cyclical stocks, we saw basic materials advance in the quarter. I believe this is due in large part to economic stimulus from the Federal Reserve, which announced a third round of quantitative easing that was well received by the market. And when the Fed demonstrates a commitment to pump money into the economy, basic materials, hard assets, and commodities typically benefit.

PUTNAM INVESTM ENTS| putnam.com

Q32012| Investors look past macroeconomic headwinds in brighter quarter for U.S. equities

I continued to maintain underweight positions in defensive sectors. As investors spent much of 2012 hiding in these safe haven equities, they have become too expensive, in my view. Valuation is an important component of my strategy, and I have sought to allocate assets to sectors that offer more promising return potential in a recovering economy. What is your view on the financial health of U.S. companies? Should we expect a slowdown in corporate earnings growth? We are getting more signs that there may be earnings disappointments on the horizon, but I believe investors are prepared for this. In fact, expectations were low coming into the third quarter, but I believe the market acknowledged that even if earnings were weak, valuations still werent stretched. Also worth noting is the fact that companies have record amounts of cash on their balance sheets, yet most have not put this cash to use in any meaningful way such as stock buybacks, acquisitions, or development of new products. To me, this indicates a lack of confidence from businesses. The ongoing conservatism on the part of company managements has been surprising. Businesses simply arent taking risks, but equity markets should benefit once they begin spending some of this cash.

As we enter the final three months of 2012, what is your outlook? It wont surprise me if we see meaningful pullback in equity markets before the close of 2012, as investors refocus on issues such as the looming fiscal cliff. While the outcome is still undetermined, investors know that the combination of tax increases and federal budget cuts is certainly not a stimulative measure, and could have a detrimental impact on the economy. Despite the potential headwinds, I continue to believe the U.S. equity market offers opportunities for researchfocused investors. Corporate America is healthy, and I believe investors are capable of looking beyond the macroeconomic worries to see that business fundamentals are strong, valuations are reasonable, and stocks across an array of sectors offer solid longterm growth prospects.

PUTNAM INVESTM ENTS| putnam.com

Q32012| Investors look past macroeconomic headwinds in brighter quarter for U.S. equities

Putnam Investors Fund (PINVX)

Annualized total return performance as of September 30, 2012 Class A shares (inception 12/1/25)
Last quarter 1 year 3 years 5 years 10 years Life of fund Total expense ratio: 1.18%

Before sales charge

6.85% 30.82 11.64 0.65 6.54 9.03

After sales charge

0.69% 23.31 9.47 1.82 5.91 8.96

S&P 500 Index

6.35% 30.20 13.20 1.05 8.01 *

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class A shares before sales charge assumes reinvestment of distributions and does not account for taxes. After-sales-charge returns reflect a maximum 5.75% load. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the funds prospectus. The funds expense ratio is taken from the most recent prospectus and is subject to change. To obtain the most recent month-end performance, visit putnam.com. Recent performance may have benefited from one or more legal settlements. Recent performance may have benefited from one or more legal settlements. 1The fund predates the S&P 500 Index by more than 25 years. Quarterly returns are cumulative. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.

The views and opinions expressed are those of Gerard P. Sullivan, Portfolio Manager, as of September 30, 2012. They are subject to change with market conditions and are not meant as investment advice. Consider these risks before investing: Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. Request a prospectus or summary prospectus from your financial representative or by calling 1-800-225-1581. The prospectus includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.
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