Putnam Municipal Bond Funds

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Q2

|

2015

Municipal bonds offer a

source of tax-free income

with a low historical level

of risk.

Putnam's municipal bond

team has more than two

decades of investment

experience.

Putnam's wide range

of funds has generated

attractive long-term

performance.

putnam.com

Putnam Municipal

Bond Funds

A tax-smart approach to investing

Thalia Meehan, CFA

Portfolio Manager

Paul M. Drury, CFA

Portfolio Manager

Susan A. McCormack, CFA

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Municipal bonds help finance a variety of projects

EDUCATION

School districts,

colleges, universities,

student loan

programs

HEALTH CARE

Hospitals,

long-term-care

facilities

HOUSING

Single- and

multi-family housing

INDUSTRIALS

Chemical, container,

paper, and waste

management

companies

UTILITIES

Public and private

utilities, waterworks,

sewers

Municipal bonds offer tax-free income

and a low historical level of risk

The tax-free advantage

Unlike Treasuries or corporate bonds, the interest paid

on municipal bonds is free from federal and, in some

cases, state and local income taxes. That can make

municipal bonds particularly attractive to investors

subject to higher personal income tax rates.

A low historical default rate

Municipal bonds have been an asset class with limited

risk of default. Over the past five years, corporate bonds

defaulted at a rate more than 100 times higher than

municipal bonds.

Municipal bonds’ tax benefits can make their income potential more attractive than other types of bonds

Yield and annual after-tax income generated by a hypothetical $100,000 investment as of 6/30/15

Three-month CDs Treasuries Investment-grade

corporates Municipal bonds 0.27%

2.33% 1.48%

$153

$1,902

$2,330

$838

3.36% Yield After-tax income

Source: Putnam, as of 6/30/15. Yields for Treasuries, investment-grade corporates, and municipal bonds are represented by the average “yield to worst” — a calculation of the lowest possible yield generated without defaulting — of the Barclays U.S. Treasury Index, the Barclays U.S. Corporate Bond Index, and the Barclays Municipal Bond Index, respectively. Yields on three-month CDs are the national average as reported by Bloomberg. Unlike other investments that incur more risk, the interest and principal value of CDs are fixed and are insured by the FDIC up to $250,000. Bonds incur investment risk; CDs do not. Income from municipal bonds may be subject to the alternative minimum tax. Taxable-equivalent yield and annual after-tax income are based on a 43.40% federal income tax rate. This rate reflects the American Taxpayer Relief Act of 2012 and includes the 3.80% Medicare surtax.

Muni bonds can give you more after-tax income than many alternatives.

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AA

A

BBB

0 100 200 300 400 500

6/30/15 2014

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Defaults in the municipal bond market have

been a relative rarity

Five-year average cumulative default rates, all rated securities

Through recessions and expansions, defaults

consistently have remained below 1%

Defaults as a percentage of municipal bond market

Municipal bond credit spreads have narrowed, but still remain attractive

Municipal bond spreads by quality rating

Despite rallying since the 2008 credit crisis, the "spread" — or yield advantage — that certain

segments of the market offer versus the highest-rated AAA securities is still higher than usual,

suggesting parts of the market may be undervalued today.

Source: Moody’s, U.S. Municipal Bond Defaults and Recoveries,

1970–2013 (May 2014).

Source: Putnam, as of 6/30/15. Credit ratings are as determined by Putnam.

Sources: BAML, Putnam, as of 6/30/15. 0%

2% 4% 6% 8% 10%

Municipal bonds Corporate bonds 0.07%

7.55%

0.00% 0.02% 0.04% 0.06% 0.08% 0.10% 0.12%

’15 ’14 ’13 ’12 ’11 ’10 ’09 ’08 ’07 ’06 ’05 ’04 ’03 ’02 ’01 ’00

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A tenured team of industry veterans

Experienced managers in a deep organization

Putnam’s team of portfolio managers specializing in

tax-free investing has 27 years of investment experience

on average, and is part of a broader fixed-income

organization of more than 70 investment professionals.

They provide comprehensive coverage of the risk and

opportunities in fixed-income investing.

Leveraging technology in new ways

The tax-exempt team has used technology to leverage

research insights by building a proprietary web database

that tracks characteristics of over a million municipal

bonds. This tool, combined with accumulated internal

credit research, allows the team to react quickly when

opportunities or risks arise.

Putnam’s municipal bond team has managed

money through all kinds of markets and has worked

together at Putnam for more than 19 years.

On 10/30/89, this fund had a three-for-one split. The price before the split was $25.83 and after the split was $8.61. Prices prior to this have been adjusted to reflect the split.

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 is shown before sales charge, assumes reinvestment of distributions, and does not account for taxes. Had the 4.00% (1.00% for Putnam Short-Term Municipal Income Fund) sales charge been reflected, returns would have been lower. For a portion of the periods, this fund may have had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.

The team's disciplined process has helped lend

stability to Putnam Tax Exempt Income Fund.

$0 $4 $8 $12 $16 $20 6/30/15 ’14 ’13 ’12 ’11 ’10 ’09 ’08 ’07 ’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97 ’96 ’95 ’94 ’93 ’92 ’91 ’90 ’89 ’88 ’87 ’86 ’85 ’84 ’83 ’82 ’81 ’80 ’79 ’78 ’77 12/31/76 8.68 6/30/15 ’14 ’13 ’12 ’11 ’10 ’09 ’08 ’07 ’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97 ’96 ’95 ’94 ’93 ’92 ’91 ’90 ’89 ’88 ’87 ’86 ’85 ’84 ’83 ’82 ’81 ’80 ’79 ’78 ’77 12/31/76

February 1989: Federal government bails out

savings and loan industry _{December 1994:} Orange County, CA, declares bankruptcy

September 1998: Long-Term Capital Management

collapses September 2001: Terrorists attack World Trade Center and Pentagon

Summer 2007: Subprime mortgage crisis

June 2008: Credit ratings cut for municipal

bond insurers _{S&P cuts ratings}August 2011: on Treasuries and 11,000 munis with ties to federal government

June 2013: S&P revises its outlook on Treasuries to “stable” from “negative” Thalia Meehan, CFA

Investing since 1983 Joined Putnam in 1989

Susan A. McCormack, CFA Investing since 1986 Joined Putnam in 1994 Paul M. Drury, CFA

Investing since 1989 Joined Putnam in 1989

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Today’s market demands a disciplined investment process

The municipal bond market has changed dramatically over the past decade, and Putnam has responded with new ways

of thinking. In 2005, more than 50% of new municipal bonds carried third-party insurance against default, and as a

result, many investors viewed the market as uniform and essentially risk free.

Today, less than 10% of new municipal issuance carries insurance, while only 6% of the market is rated AAA. In reality,

the municipal bond market is nuanced and complex, and we believe successful investing requires intensive fundamental

research at the security level — the kind of research Putnam’s municipal bond team has been producing for nearly 20 years.

1. MACRO VIEW

Establish our overarching strategy

• How do we want to position the funds regarding

interest rates?

• How much credit risk do we want to assume?

2. AVAILABLE SUPPLY

Filter investment options

• What is the credit outlook for the issuers we

are monitoring?

• What is the structure of the bonds available?

• Are they attractive on a relative value basis?

3. FUND FIT

Determine the size of our investments

• How large an investment is warranted?

• If applicable, which states do we want

to invest in?

4. TRADE EXECUTION

Implement efficient buys and sells

• We seek the best execution of trades possible,

which helps limit fund expenses.

Sources: Moody’s, U.S. Municipal Bond Defaults and Recoveries, 1970–2009, February 2010; Morgan Stanley Smith Barney, Global Investment Committee Special Report, Navigating the Transition of the Municipal Bond Market, April 18, 2011.

Consider these risks before investing:

Capital gains, if any, are taxable for federal and, in most cases, state purposes.

Income from federally tax-exempt funds may be subject to state and local taxes. Income from federally tax-exempt

funds may be subject to state and local taxes. Bond investments are subject to interest-rate risk (the risk of bond prices

falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate

risk is greater for longer-term bonds, and credit risk is greater for below-investment-grade bonds. Unlike bonds, funds

that invest in bonds have fees and expenses. Tax-exempt bonds may be issued under the Internal Revenue Code only

by limited types of issuers for limited types of projects. As a result, the funds’ investments may be focused in certain

market segments and be more vulnerable to fluctuations in the values of the securities it holds than a more broadly

invested fund. Interest the fund receives might be taxable. The prices of bonds may fall or fail to rise over time for several

reasons, including both general financial market conditions and factors related to a specific issuer or industry. You can

lose money by investing in the funds. Single state investments are at risk of common economic forces and other factors

affecting a state's tax-exempt investments. This may result in greater losses and volatility.

$3.7 trillion

municipal bond

market

MACRO VIEW

1

AVAILABLE SUPPLY

2

4

TRADE EXECUTION

3

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Tax Exempt Income Fund

6.58%

Life of fund return after sales charge

3.46%

SEC taxable-equivalent yield

Tax-Free High Yield Fund*

6.17%

5.05%

AMT-Free Municipal Fund*

6.01%

3.07%

Short-Term Municipal Income Fund

0.41%

0.55%

Intermediate-Term Municipal Income Fund

1.47%

1.77%

Source: Putnam, as of 6/30/15.

1

The performance of the fund’s class A shares for the period prior to 9/20/93 is based upon the performance of the fund’s class B shares (inception 9/9/85), adjusted for the applicable sales charge or contingent deferred sales charge.

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 after sales charge assumes reinvestment of distributions and does not account for taxes. After-sales-charge returns reflect a maximum 4.00% (1.00% for Putnam Short-Term Municipal Income Fund) load. For a portion of the periods, these funds may have had expense limitations, without which returns would have been lower. Putnam money market funds have no initial sales charge. To obtain the most recent month-end performance, visit putnam.com. The funds' expense ratio is taken from the most recent prospectus and is subject to change.

Taxable-equivalent yields are based on the funds' 30-day SEC yields. Those shown for Putnam Arizona, California, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania Tax Exempt Income funds assume a combined federal and state tax rate of 45.97%, 50.93%, 46.31%, 45.81%, 48.98%, 48.48%, 50.59%, 46.42%, and 45.14%, respectively, inclusive of the 3.80% Medicare surtax. Tax Exempt Income, Tax-Free High Yield, AMT-Free Municipal, Short-Term Municipal Income, and Intermediate-Term Municipal Income funds assume a maximum federal income tax rate of 43.40%, which includes the 3.80% Medicare surtax.

6.49%

4.12%

5.16%

2.79%

California Tax Exempt Income Fund Arizona Tax Exempt Income Fund 5.40%

3.39%

5.74%

3.33%

Pennsylvania Tax Exempt Income Fund Massachusetts Tax Exempt Income Fund 5.16%

3.19%

6.55%

3.82%

Ohio Tax Exempt Income Fund New York Tax Exempt Income Fund 5.16%

2.84%

5.18%

3.14%

Minnesota Tax Exempt Income Fund Michigan Tax Exempt Income Fund 5.29%

3.96%

New Jersey Tax Exempt Income Fund

Putnam is a leader in tax-free investing

A broad range of options

Putnam offers a complete range of municipal bond funds, including high-yield and AMT-free portfolios,

and state-specific funds, which are also free from state and local taxes.

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Annualized returns after sales charge

30-day SEC yield

Load-waived/risk-adjusted Morningstar ratings

(number of funds in category)

Data for class A shares as of 6/30/15 _{1 year} _{5 years} _{10 years} _Overall _{3 years} _{5 years} _{10 years} _Category

AMT-Free Municipal Fund (PPNAX)

Inception: 9/20/93 Total expense ratio: 0.78% 3.66% 4.56% 4.15% 1.74%

3/3 stars

(190) 3/2 stars (190) 3/2 stars (178) 3/3 stars (145) Muni National Long

Intermediate-Term Municipal Income Fund (PIMEX) Inception: 3/18/13 Total expense ratio: 1.76% What you pay: 0.85%*

1.40 N/A N/A 1.00% — — — — Muni National _Intermediate

Short-Term Municipal Income Fund (PSMEX) Inception: 3/18/13 Total expense ratio: 1.42%

What you pay: 0.60%* 0.13

N/A N/A 0.31% — — — — Muni National _Short

Tax Exempt Income Fund (PTAEX)

Inception: 12/31/76 Total expense ratio: 0.75% 3.40 4.66 4.09 1.96%

4/3 stars

(190) 3/2 stars (190) 3/3 stars (178) 4/3 stars (145) Muni National Long

Tax-Free High Yield Fund (PTHAX)

Inception: 9/20/93 Total expense ratio: 0.80% 5.40 6.10 4.61

2.86% 4/3 stars

(159) 4/2 stars (159) 4/3 stars (149) 4/3 stars (95) High Yield Muni

Arizona Tax Exempt Income Fund (PTAZX) Inception: 1/30/91 Total expense ratio: 0.92% What you pay: 0.91%*

3.19 4.06 3.90 1.51% 4/3 stars ₍₂₇₄₎ 3/2 stars ₍₂₇₄₎ 3/3 stars ₍₂₆₂₎ 4/3 stars ₍₂₁₄₎ Muni Single State _Long

California Tax Exempt Income Fund (PCTEX)

3/3 stars

(117) 3/2 stars (117) 3/2 stars (108) 3/3 stars (91) Muni California Long

Massachusetts Tax Exempt Income Fund (PXMAX)

Inception: 10/23/89 Total expense ratio: 0.77% 2.92 4.05 4.16 1.79% 4/3 stars (61) 3/2 stars (61) 3/3 stars (59) 4/3 stars (51)

Muni Massachusetts Michigan Tax Exempt Income Fund (PXMIX)

4/3 stars

(200) 4/3 stars (200) 4/3 stars (188) 4/3 stars (175) Muni Single State Intermediate

Minnesota Tax Exempt Income Fund (PXMNX)

3/3 stars

(57) 3/2 stars (57) 3/2 stars (52) 3/3 stars (43) Muni Minnesota

New Jersey Tax Exempt Income Fund (PTNJX)

3/3 stars

(57) 3/2 stars (57) 2/2 stars (55) 4/3 stars (42) Muni New Jersey

New York Tax Exempt Income Fund (PTEIX)

3/3 stars

(96) 3/2 stars (96) 3/2 stars (80) 3/3 stars (75) Muni New York Long

Ohio Tax Exempt Income Fund (PXOHX)

4/3 stars

(49) 3/2 stars (49) 3/3 stars (47) 4/3 stars (37) Muni Ohio

Pennsylvania Tax Exempt Income Fund (PTEPX)

3/3 stars

(73) 3/2 stars (73) 3/2 stars (72) 3/3 stars (60) PennsylvaniaMuni

1

"What you pay" reflects Putnam Management's decision to contractually limit expenses for Intermediate-Term Municipal Income Fund though March 30, 2016, Short-Term Municipal Income Fund through March 30, 2016, and Arizona Tax Exempt Income Fund through September 30, 2015.

2

With expense limitation.

3

Without expense limitation.

For each fund with at least a three-year history, Morningstar calculates two sets of ratings based on a fund's monthly performance, placing more emphasis on downward variations and rewarding consistent performance. Risk-Adjusted Ratings reflect the effects of sales charges, loads, and redemption fees; Load-Waived Ratings exclude those effects. Load-Waived Ratings should only be used by investors not subject to the sales charge. Load-waived share classes are for qualified plan participants only (e.g., plan participants of a defined contribution plan). The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. Data is historical. Past performance is no guarantee of future results. Morningstar Ratings shown

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A BALANCED APPROACH

Since 1937, when George Putnam created a diverse

mix of stocks and bonds in a single, professionally

managed portfolio, Putnam has championed the

balanced approach.

A WORLD OF INVESTING

Today, we offer investors a world of equity, fixed-

income, multi-asset, and absolute-return portfolios

to suit a range of financial goals.

A COMMITMENT TO EXCELLENCE

Our portfolio managers seek superior results over time,

backed by original, fundamental research on a global

scale. We believe in the value of experienced financial

advice, in providing exemplary service, and in putting

clients first in all we do.

Support your investment decisions

with sound advice

In a world of rapidly changing markets, a full-service

financial representative can be one of your most

important assets. A financial representative can help

you clarify your objectives, evaluate your tolerance for

risk, and create a long-term strategy to help you reach

your financial goals. And with thousands of mutual funds

available to investors, a financial representative can also

help you narrow the field to those investments that have

the potential to meet those goals.

Investors should carefully consider the investment

objectives, risks, charges, and expenses of a fund before

investing. For a prospectus or summary prospectus

containing this and other information for any Putnam

fund or product, contact your financial representative

or call Putnam at 1-800-225-1581. Please read the

prospectus carefully before investing.

Putnam Retail Management FB524 295489 7/15

One Post Office Square Boston, MA 02109 1-800-225-1581 putnam.com