a_shorttermmuniinc.htm

Putnam
Short-Term Municipal
Income Fund

Annual report
11 | 30 | 17


Message from the Trustees	1
About the fund	2
Interview with your fund’s portfolio manager	5
Your fund’s performance	9
Your fund’s expenses	12
Terms and definitions	14
Other information for shareholders	15
Important notice regarding Putnam’s privacy policy	16
Trustee approval of management contract	17
Financial statements	22
Federal tax information	46
About the Trustees	47
Officers	49

Consider these risks before investing: Bond prices may fall or fail to rise over time for several reasons, including general financial market conditions, changing market perceptions (including perceptions about the risk of default and expectations about monetary policy or interest rates), changes in government intervention in the financial markets, and factors related to a specific issuer or industry. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings. 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. Interest the fund receives might be taxable. 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 fund’s 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. Capital gains, if any, are taxed at the federal and, in most cases, state levels. For some investors, investment income may be subject to the federal alternative minimum tax. You can lose money by investing in the fund.

Message from the Trustees

January 10, 2018

Dear Fellow Shareholder:

Investor sentiment remained positive through most of 2017, helping to keep financial markets on a steady course. While bond market performance was a bit uneven, global stock markets generally made solid advances with low volatility. However, we enter the new year mindful of a number of risks that could disrupt the positive momentum.

Although no one can predict the direction of the markets in the months ahead, Putnam’s experienced investment professionals actively seek to position their fund portfolios for all types of conditions. They take a research-intensive approach to investing that includes risk management strategies designed to serve investors through changing markets.

In all environments, we believe investors should remain focused on time-tested strategies: maintain a well-diversified portfolio, think about long-term goals, and speak regularly with your financial advisor. In the following pages, you will find an overview of your fund’s performance for the reporting period as well as an outlook for the coming months.

Thank you for investing with Putnam.

Municipal bonds’ tax benefits can make their income even more attractive

INDEX-BASED YIELDS AS OF 11/30/17
(annual after-tax income generated by a hypothetical $100,000 investment)

Source: Putnam, as of 11/30/17. Past performance is no guarantee of future results. Yields for U.S. 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 Bloomberg Barclays U.S. Treasury Index, the Bloomberg Barclays U.S. Credit Index, and the Bloomberg Barclays Municipal Bond Index, respectively. You cannot invest directly in an index. 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. 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, which reflects the American Taxpayer Relief Act of 2012 and includes the 3.80% Medicare surtax. Tax rates are as of November 30, 2017, and do not reflect the recent changes to the Tax Cuts and Jobs Act of 2017.

Defaults in the municipal bond market have been a relative rarity

FIVE-YEAR AVERAGE CUMULATIVE DEFAULT RATES, ALL RATED SECURITIES

Source: Moody’s Investor Services, Annual U.S. Municipal Bond Defaults and Recoveries, 1970–2016 (June 2017).

Short-Term Municipal Income Fund 3

Performance history as of 11/30/17

Annualized total return (%) 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 bar chart do not reflect a sales charge of 1.00%; had they, returns would have been lower. See below and pages 9–12 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.

Recent broad market index and fund performance

This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 11/30/17. See above and pages 9–12 for additional fund performance information. Index descriptions can be found on pages 14–15.

4 Short-Term Municipal Income Fund

Interview with your fund’s portfolio manager

Garrett L. Hamilton, CFA
Portfolio Manager

Garrett has an M.S. in Investment Management from Boston University and a B.S. in International Business Administration from Southern New Hampshire University. He joined Putnam in 2016 and has been in the investment industry since 2006.

In addition to Garrett, your fund is managed by Paul M. Drury, CFA. He has a B.A. from Suffolk University. Paul has been in the investment industry since he joined Putnam in 1989.

Garrett, how was the market environment for short-term municipal bonds during the reporting period?

Short-term municipal bonds rallied during the first half of the period but lost steam during the second half. Lower supply and increased demand for securities with limited sensitivity to interest rates [duration] contributed to the rally, which pushed prices up and yields down. In the second half, with short-term rates increasing in response to expectations for rate hikes by the Federal Reserve, short-term municipal bonds sold off. During the closing weeks of the period, anticipation of increased municipal bond supply due to potential tax reform contributed to further selling. With short-term interest rates increasing, the municipal bond yield curve had flattened by period-end.

As the U.S. economy steadily improved, the Fed remained vigilant for signs of inflation. The central bank announced its second interest-rate hike of 2017 on June 14 but revised its inflation expectations downward, adding that it believed inflation would “remain somewhat below 2% in the near term.” In September 2017, Fed chair Janet Yellen’s comments were somewhat more hawkish, although the Fed left interest

Short-Term Municipal Income Fund 5

Sector allocations

Allocations are shown as a percentage of the fund’s net assets as of 11/30/17. Cash and net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio. Summary information may differ from the information in the portfolio schedule notes included in the financial statements due to the inclusion of derivative securities, any interest accruals, the use of different classifications of securities for presentation purposes, and rounding. Holdings and allocations may vary over time.

Credit quality overview

Credit qualities are shown as a percentage of the fund’s net assets as of 11/30/17. A bond rated BBB or higher (SP-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor’s, Moody’s, and Fitch. Ratings may vary over time.

Cash and net other assets, if any, represent the market value weights of cash, derivatives, and short-term securities in the portfolio. The fund itself has not been rated by an independent rating agency.

6 Short-Term Municipal Income Fund

rates unchanged. The central bank signaled that, despite recent low levels of inflation, it expected one more rate increase by year-end and envisioned three more increases in 2018. The Fed also reaffirmed its commitment to begin reducing its balance sheet in October 2017, which included over $4 trillion in U.S. Treasury bonds and mortgage-backed securities that it purchased in the years following the 2008 financial crisis.

With economic growth continuing without stoking inflation, the Fed once again maintained its target range of 1% to 1.25% for the federal funds rate at its October 2017 meeting. Fed officials acknowledged that the U.S. economy remained solid despite hurricane-related disruptions and that the labor market continued to strengthen. As widely expected, the Fed announced a rate hike of a quarter percentage point at its December 2017 meeting, after the close of the period.

Were supply/demand dynamics supportive of municipal bond prices?

Favorable supply/demand dynamics created a tailwind for the asset class, helping to offset the price-dampening pressures from rates trending higher. The pace of new issuance was generally light, especially during the third quarter of 2017. As such, demand outpaced supply — contributing to rising prices and a narrowing of credit spreads of lower-investment-grade as well as high-yield municipal bonds. [Credit spreads reflect the difference in yield between higher- and lower-quality municipal bonds.] Given the favorable economic climate, lower-investment-grade and high-yielding non-investment-grade municipal bonds outperformed higher-quality municipal bonds given investor preferences for higher-risk strategies.

How did the fund perform?

For the 12 months ended November 30, 2017, the fund underperformed its benchmark index, the Bloomberg Barclays 3-Year Municipal Bond Index, but outperformed the average return of its Lipper peer group, Short Municipal Debt Funds.

What was your investment approach in this environment?

Following the November 2016 U.S. presidential election, prices of municipal bonds declined and their yields rose, along with other rate-sensitive investments. The selloff was partly due to investor concerns that President Trump’s pro-growth agenda might lead to an uptick in inflation. We took advantage of the selloff to add what we viewed as stable credits at attractive prices, which improved the portfolio’s overall positioning, in our opinion.

In response to the post-election selloff, the fund had a long duration with an overweight exposure to securities with two- to five-year maturities. As the municipal bond market rallied, we reduced the overweight in four- and five-year securities and concentrated assets in two- and three-year securities, as well as in cash-like variable-rate demand notes [VRDNs] with overnight maturities. With nearly 25% of the fund’s assets invested in VRDNs and short-term floating-rate notes, this barbell approach gradually shortened the portfolio’s duration, as municipal bond yields moved lower, and valuations rose. As the market came under pressure during the second half of the period, prices fell as yields moved higher. We added back securities in the four- and five-year basket. The fund’s duration at period-end was neutral, as was its yield-curve positioning.

We maintained overweight exposure to lower-rated investment-grade municipal bonds for their income generation versus high-quality investment-grade bonds and underweighted high-quality investment-grade

Short-Term Municipal Income Fund 7

bonds due to what we believed to be their rich valuations. From a sector perspective, we placed greater emphasis on continuing-care retirement communities, prepaid-gas, and essential service utilities sectors relative to the fund’s Lipper group, which were additive for performance results.

During the period, the portfolio had overweight positions in State of Illinois and City of Chicago credits. On July 6, 2017, the Illinois legislature overrode the governor’s veto of a new budget plan, which included a major income tax increase. After a two-year impasse, we believe the 2018 fiscal-year budget may help relieve some pressure from the credit agencies, which had warned that Illinois’ credit rating was in jeopardy of falling into junk bond status. While challenges remained, investors welcomed news of the override and a balanced budget. Illinois municipal debt rallied, which aided the fund’s performance during the period.

Additionally, we maintained an underweight position in Puerto Rico-based issuers relative to the fund’s Lipper peers. This underweight exposure added to performance during the period. Puerto Rico was devastated by the recent hurricanes, which made its economic and financial situation even more difficult and could further challenge the debt restructuring process, in our view.

The fund experienced higher-than-normal turnover for the reporting period due in part to the redemption of initial seed capital out of the fund.

What is your outlook as we look into 2018?

We expect that moderate, trend-like economic growth will facilitate the continued gradual normalization of short-term interest rates. From a fiscal policy perspective, the market appears to be focused on how much stimulus might come from Washington, and how those initiatives may affect the pulse of the U.S. economy. Should additional stimulus augment U.S. growth, we believe the Fed might be inclined to increase rates a little faster, or conversely, more slowly if fiscal policy proves less stimulative.

Just after period-end, the Republican House and Senate versions of a tax reform plan were sent into a reconciliation process with the goal of many of the proposed changes going into effect on January 1, 2018. President Trump signed the legislation in late December. While the Tax Cuts and Jobs Act included tax cuts for individuals and corporations, the elimination of certain taxes, and changes to some popular tax deductions, it left the municipal bond tax exemption intact. We do not believe the changes in tax rates will materially affect demand for municipal bonds from individuals. Overall, the tax bill appears constructive for the municipal bond market, in our view.

Looking ahead, we will be closely monitoring the debt ceiling debate; a budget resolution for the next fiscal year; and the confirmation of President Trump’s nomination of Jerome Powell as the next Federal Reserve chair, as Janet Yellen’s current term is due to expire in February 2018. As always, we will continue to rely on in-depth research and our experienced market insights to evaluate new and existing holdings for attractive income and return potential.

Thank you, Garrett, 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 the fund for the entire period. Portfolio composition is subject to review in accordance with the 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 the fund’s performance or portfolio composition relative to those of the fund’s Lipper peer group may reference information produced by Lipper Inc. or through a third party.


8 Short-Term Municipal Income Fund

Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended November 30, 2017, 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 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 11/30/17


		Annual		Annual
	Life of fund	average	3 years	average	1 year
Class A (3/18/13)
Before sales charge	2.37%	0.50%	1.34%	0.44%	1.45%
After sales charge	1.35	0.29	0.32	0.11	0.43
Class B (3/18/13)
Before CDSC	1.44	0.31	0.73	0.24	1.35
After CDSC	1.44	0.31	0.73	0.24	0.35
Class C (3/18/13)
Before CDSC	–0.05	–0.01	–0.46	–0.15	0.81
After CDSC	–0.05	–0.01	–0.46	–0.15	–0.19
Class M (3/18/13)
Before sales charge	2.14	0.45	1.19	0.40	1.50
After sales charge	1.38	0.29	0.43	0.14	0.74
Class Y (3/18/13)
Net asset value	3.58	0.75	2.11	0.70	1.81

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 1.00% and 0.75% 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 1% in the first year, declining over time to 0.50% in the second year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class 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.

Short-Term Municipal Income Fund 9

Comparative index returns For periods ended 11/30/17


		Annual		Annual
	Life of fund	average	3 years	average	1 year
Bloomberg
Barclays 3-Year
Municipal Bond	4.70%	0.98%	2.31%	0.76%	1.62%
Index
Lipper Short
Municipal Debt
Funds category	2.38	0.50	1.34	0.44	1.30
average^*

Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.

^*Over the 1-year, 3-year, and life-of-fund periods ended 11/30/17, there were 107, 93, and 84 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 and C shares would have been valued at $10,144 and $9,995, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,925 after sales charge) would have been valued at $10,138. A $10,000 investment in the fund’s class Y shares would have been valued at $10,358.

10 Short-Term Municipal Income Fund

Fund price and distribution information For the 12-month period ended 11/30/17


Distributions	Class A		Class B	Class C	Class M		Class Y
Number	12		12	12	12		12
Income¹	$0.093241		$0.073484	$0.020791	$0.088555		$0.118514
Capital gains²	—		—	—	—		—
Total	$0.093241		$0.073484	$0.020791	$0.088555		$0.118514
	Before	After	Net	Net	Before	After	Net
	sales	sales	asset	asset	sales	sales	asset
Share value	charge	charge	value	value	charge	charge	value
11/30/16	$9.92	$10.02	$9.91	$9.91	$9.91	$9.98	$9.91
11/30/17	9.97	10.07	9.97	9.97	9.97	10.05	9.97
	Before	After	Net	Net	Before	After	Net
Current rate	sales	sales	asset	asset	sales	sales	asset
(end of period)	charge	charge	value	value	charge	charge	value
Current dividend rate³	1.08%	1.06%	0.87%	0.32%	1.03%	1.02%	1.33%
Taxable equivalent⁴	1.91	1.87	1.54	0.57	1.82	1.80	2.35
Current 30-day
SEC yield (with
expense limitation)^5,6	N/A	0.97	0.77	0.23	N/A	0.92	1.22
Taxable equivalent⁴	N/A	1.71	1.36	0.41	N/A	1.63	2.16
Current 30-day SEC
yield (without
expense limitation)⁶	N/A	0.00	–0.20	–0.74	N/A	–0.04	0.25

The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M 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 (1.00% for class A shares and 0.75% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.

¹For some investors, investment income may be subject to the federal alternative minimum tax.

²Capital gains, if any, are taxable for federal and, in most cases, state purposes.

³Most recent distribution, including any return of capital and excluding capital gains, annualized and divided by share price before or after sales charge at period-end.

⁴Assumes maximum 43.40% federal combined tax rate for 2017. Results for investors subject to lower tax rates would not be as advantageous. Tax rates are as of November 30, 2017, and do not reflect the recent changes to the Tax Cuts and Jobs Act of 2017.

⁵For a portion of the period, the fund had expense limitations, without which returns would have been lower.

⁶Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.

Short-Term Municipal Income Fund 11

Fund performance as of most recent calendar quarter Total return for periods ended 12/31/17


		Annual		Annual
	Life of fund	average	3 years	average	1 year
Class A (3/18/13)
Before sales charge	2.59%	0.54%	1.61%	0.53%	1.61%
After sales charge	1.56	0.32	0.60	0.20	0.59
Class B (3/18/13)
Before CDSC	1.54	0.32	0.91	0.30	1.31
After CDSC	1.54	0.32	0.91	0.30	0.31
Class C (3/18/13)
Before CDSC	0.00	0.00	–0.22	–0.07	0.76
After CDSC	0.00	0.00	–0.22	–0.07	–0.24
Class M (3/18/13)
Before sales charge	2.25	0.47	1.36	0.45	1.46
After sales charge	1.49	0.31	0.60	0.20	0.70
Class Y (3/18/13)
Net asset value	3.71	0.77	2.28	0.75	1.77

See the discussion following the fund performance table on page 9 for information about the calculation of fund performance.

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 M	Class Y
Net expenses for the fiscal year
ended 11/30/16^*	0.60%	0.80%	1.35%	0.65%	0.35%
Total annual operating expenses for the fiscal
year ended 11/30/16	1.62%	1.82%	2.37%	1.67%	1.37%
Annualized expense ratio for the six-month
period ended 11/30/17^†	0.60%	0.80%	1.35%	0.65%	0.35%

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 financial highlights of this report.

Expenses are shown as a percentage of average net assets.

^*Reflects Putnam Management’s contractual obligation to limit certain fund expenses through 3/30/18.

^†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 financial highlights.

12 Short-Term Municipal Income Fund

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 6/1/17 to 11/30/17. 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 M	Class Y
Expenses paid per $1,000 ^*†	$3.01	$4.01	$6.76	$3.26	$1.76
Ending value (after expenses)	$1,000.10	$1,000.10	$997.40	$1,000.90	$1,002.40

^*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 11/30/17. 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.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended 11/30/17, use the following calculation method. To find the value of your investment on 6/1/17, 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 M	Class Y
Expenses paid per $1,000 ^*†	$3.04	$4.05	$6.83	$3.29	$1.78
Ending value (after expenses)	$1,022.06	$1,021.06	$1,018.30	$1,021.81	$1,023.31

^†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.

Short-Term Municipal Income Fund 13

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 1.00% maximum sales charge for class A shares and 0.75% for class M 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 1.00% maximum during the first year to 0.50% during the second year. After the second 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 M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC.

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.

Fixed-income terms

Current rate is the annual rate of return earned from dividends or interest of an investment. Current rate is expressed as a percentage of the price of a security, fund share, or principal investment.

Yield curve is a graph that plots the yields of bonds with equal credit quality against their differing maturity dates, ranging from shortest to longest. It is used as a benchmark for other debt, such as mortgage or bank lending rates.

Comparative indexes

Bloomberg Barclays 3-Year Municipal Bond Index is an unmanaged index of publicly issued investment-grade corporate, U.S. Treasury, and government agency securities with remaining maturities of one to three years.

Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

ICE BofAML 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.

S&P 500 Index is an unmanaged index of common stock performance.

ICE Data Indices, LLC (“ICE BofAML”), used with permission. ICE BofAML permits use of the ICE BofAML 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 BofAML 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

14 Short-Term Municipal Income Fund

sponsor, endorse, or recommend Putnam Investments, or any of its products or services.

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.

Lipper 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.

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, 2017, 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-Q. Shareholders may obtain the fund’s Form N-Q on the SEC’s website at www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s website or the operation of the Public Reference Room.

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 November 30, 2017, Putnam employees had approximately $524,000,000 and the Trustees had approximately $91,000,000 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.

Short-Term Municipal Income 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.

16 Short-Term Municipal Income Fund

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-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”). 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 discussed with representatives of Putnam Management the annual contract review materials furnished to the Contract Committee during the course of the previous year’s review, identifying possible changes in these materials that might be necessary or desirable for the coming year. Following these discussions and in consultation with the Contract Committee, the Independent Trustees’ independent legal counsel requested that Putnam Management and its affiliates furnish specified information, together with any additional information that Putnam Management considered relevant, to the Contract Committee. Over the course of several months ending in June 2017, 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 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 2017, 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 2017 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 and sub-management contracts, effective July 1, 2017. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not attempted to evaluate PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)

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 in providing services to the fund, and the continued 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 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. It is also important to recognize that the management arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous

Short-Term Municipal Income Fund 17

years. For example, with some minor exceptions, the funds’ current fee arrangements under the management contracts were first implemented at the beginning of 2010 following extensive review by the Contract Committee and discussions with representatives of Putnam Management, as well as approval by shareholders.

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. (In a few instances, funds have implemented so-called “all-in” 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 structure 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 rates as assets under management in the Putnam family of funds increase. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale between fund shareholders and Putnam Management.

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 have implemented certain expense limitations that were in effect during your fund’s fiscal year ending in 2016. These expense limitations were: (i) a contractual expense limitation applicable to specified retail open-end funds, including your fund, of 25 basis points (until September 1, 2016, this limitation was 32 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. However, in the case of your fund, the second of the expense limitations applied during its fiscal year ending in 2016. Putnam Management has agreed to maintain these expense limitations until at least March 30, 2019. In addition, effective through at least March 30, 2019, Putnam Management will waive fees and/or reimburse expenses of your fund to the extent that expenses of the fund (excluding payments under the fund’s distribution plans, brokerage, interest, taxes, investment-related expenses, extraordinary expenses, and acquired fund fees and expenses) would exceed an annual rate of 0.35% of its average net assets. Putnam Management also voluntarily waived certain fees and/or reimbursed certain fund expenses in order to enhance your fund’s annualized net yield during its fiscal year ending in 2016. This fee waiver was voluntary and may be modified or discontinued at any time without notice. Putnam Management’s support for these expense limitation arrangements was an important factor in the Trustees’ decision to approve the continuance of your fund’s management and sub-management 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 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the first 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, 2016. The first quintile represents the least expensive funds and

18 Short-Term Municipal Income Fund

the fifth quintile the most expensive funds. The fee and expense data reported by Broadridge as of December 31, 2016 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 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 Putnam Management’s revenues, expenses and profitability, 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 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 and Putnam Management of such economies of scale as may exist in the management of the Putnam funds at that time.

The information examined by the Trustees in connection with their annual contract review for the Putnam funds included information regarding fees charged by Putnam Management and its affiliates to institutional clients, including defined benefit pension and profit-sharing plans, charities, college endowments, foundations, sub-advised third-party mutual funds, state, local and non-U.S. government entities, and corporations. This information included, in cases where an institutional 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 different types of 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 markets. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to its 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 represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the investment oversight committees of the Trustees, which meet on a regular basis with the funds’ portfolio teams and with the Chief Investment Officers and other senior members of Putnam Management’s Investment Division throughout the year. In addition, in response to a request from the Independent Trustees, Putnam Management provided the Trustees with in-depth presentations regarding each of the equity and fixed income investment teams, including the operation of the teams and their investment approaches. The Trustees concluded that Putnam Management generally provides 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 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.

The Trustees considered that 2016 was a challenging year for the performance of the Putnam funds, with generally disappointing results for the international and global equity funds and taxable fixed income funds, mixed results for small-cap equity, Spectrum, global asset allocation, equity research and tax exempt fixed income funds, but generally strong results for U.S. equity funds. The Trustees noted, however, that they were encouraged by the positive performance trend since mid-year 2016 across most Putnam Funds. In particular, from May 1, 2016 through April 30, 2017, 51% of Putnam Fund assets were in the top quartile and

Short-Term Municipal Income Fund 19

87% were above the median of the Putnam Funds’ competitive industry rankings. They noted that the longer-term performance of the Putnam funds generally continued to be strong, exemplified by the fact that the Putnam funds were ranked by the Barron’s/Lipper Fund Families survey as the 5th-best performing mutual fund complex out of 54 complexes for the five-year period ended December 31, 2016. In addition, while the survey ranked the Putnam Funds 52nd out of 61 mutual fund complexes for the one-year period ended 2016, the Putnam Funds have ranked 1st or 2nd in the survey for the one-year period three times since 2009 (most recently in 2013). They also noted, however, the disappointing investment performance of some funds for periods ended December 31, 2016 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, in most cases, comparisons of those returns with the returns of selected investment benchmarks. In the case of your fund, which commenced operations on March 18, 2013, the Trustees considered that its class A share cumulative total return performance at net asset value was in the following quartiles of its Lipper Inc. (“Lipper”) peer group (Lipper Short Municipal Debt Funds) for the one-year and three-year periods ended December 31, 2016 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds):


One-year period	3rd
Three-year period	3rd

Over the one-year and three-year periods ended December 31, 2016, there were 108 and 97 funds, respectively, in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.) The Trustees also 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 continued to strengthen its fundamental research capabilities by adding new investment personnel.

Brokerage and soft-dollar allocations; investor servicing

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract 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 Putnam Management 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 Putnam Management’s investment capabilities and supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft dollars continues to be used to pay fund expenses. The Trustees indicated their continued intent to monitor regulatory and industry developments in this area with the assistance of their Brokerage Committee, including any developments with respect to the European Union’s updated Markets in Financial Instruments Directive and its potential impact on PIL’s use of client commissions to obtain investment research. The Trustees also 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.


20 Short-Term Municipal Income Fund

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-management contracts, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“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 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.

Short-Term Municipal Income Fund 21

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 financial statements.

The fund’s 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.

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.)

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.

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 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.

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 Short-Term Municipal Income Fund

Report of Independent Registered Public Accounting Firm

The Board of Trustees and Shareholders
Putnam Funds Trust:

We have audited the accompanying statement of assets and liabilities of Putnam Short-Term Municipal Income Fund (the fund), a series of Putnam Funds Trust, including the fund’s portfolio, as of November 30, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period then ended and the period from March 18, 2013 (commencement of operations) through November 30, 2013. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Short-Term Municipal Income Fund as of November 30, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the four-year period then ended and the period from March 18, 2013 (commencement of operations) through November 30, 2013, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
January 10, 2017

Short-Term Municipal Income Fund 23

The fund’s portfolio 11/30/17


Key to holding’s abbreviations

AGM Assured Guaranty Municipal Corporation	PSFG Permanent School Fund Guaranteed

BAM Build America Mutual	Q-SBLF Qualified School Board Loan Fund

COP Certificates of Participation	VRDN Variable Rate Demand Notes, which are floating-
	rate securities with long-term maturities that carry
FHA Insd. Federal Housing Administration Insured	coupons that reset and are payable upon demand
	either daily, weekly or monthly. The rate shown is the
FRN Floating Rate Notes: the rate shown is the current	current interest rate at the close of the reporting
interest rate or yield at the close of the reporting period.	period. Rates are set by remarketing agents and may
Rates may be subject to a cap or floor. For certain	take into consideration market supply and demand,
securities, the rate may represent a fixed rate currently	credit quality and the current SIFMA Municipal Swap
in place at the close of the reporting period.	Index rate, which was 0.97% as of the close of the
	reporting period.
G.O. Bonds General Obligation Bonds

NATL National Public Finance Guarantee Corp.


MUNICIPAL BONDS AND NOTES (105.2%)*	Rating**	Principal amount	Value
Alabama (0.7%)
Jefferson, Cnty. Rev. Bonds (Warrants),
5.00%, 9/15/22	AA	$100,000	$113,122
			113,122
Arizona (1.3%)
AZ State Indl. Dev. Auth. Ed. 144A Rev. Bonds
(BASIS Schools, Inc.), Ser. A, 4.00%, 7/1/21	BB	50,000	51,340
Glendale, Indl. Dev. Auth. Sr. Living Fac. Rev. Bonds
(Royal Oaks Life Care Cmnty.), 4.00%, 5/15/22	A/F	100,000	108,602
Phoenix, Indl. Dev. Auth. Ed. Rev. Bonds
(Great Hearts Academies), 3.75%, 7/1/24	BBB–	25,000	26,248
Phoenix, Indl. Dev. Auth. Ed. 144A Rev. Bonds
(BASIS Schools, Inc.), 3.00%, 7/1/20	BB	25,000	25,055
			211,245
California (8.6%)
CA State Charter School Fin. Auth. 144A Rev. Bonds
(Summit Pub. Schools), 5.00%, 6/1/22	Baa3	105,000	117,509
CA State Dept. of Wtr. Resources FRN Mandatory Put
Bonds (12/1/20) (Central Valley Wtr. Syst.), Ser. AU,
1.19%, 12/1/35	AAA	175,000	175,065
CA State Infrastructure & Econ. Dev. Bank FRN
(J. Paul Getty Trust (The)), Ser. A-2, 1.46%, 10/1/47	Aaa	300,000	301,818
CA State Poll. Control Fin. Auth. Solid Waste Disp.
144A Mandatory Put Bonds (2/1/18) (Republic
Svcs., Inc.), Ser. A, 1.22%, 8/1/23	A–2	150,000	149,981
CA Statewide Cmnty. Dev. Auth. Mandatory
Put Bonds (4/2/18) (Southern CA Edison Co.),
1.375%, 4/1/28	Aa3	75,000	75,020
Irvine, Special Tax Bonds (Cmnty. Fac. Dist.
No. 2005), Ser. 2, 4.00%, 9/1/18	BBB+	75,000	76,354
Los Angeles, Dept. of Arpt. Rev. Bonds (Los Angeles
Intl. Arpt.), Ser. A, 5.25%, 5/15/24	AA	20,000	20,363
Metro. Wtr. Dist. of Southern CA FRN, Ser. C,
1.02%, 7/1/47	A-1+	200,000	200,000


24 Short-Term Municipal Income Fund


MUNICIPAL BONDS AND NOTES (105.2%)* cont.	Rating**	Principal amount	Value
California cont.
Riverside, Wtr. FRN Mandatory Put Bonds (1/15/20),
Ser. A-17, 1.60%, 10/1/35	VMIG1	$195,000	$195,027
Roseville, Special Tax Bonds (Westpark Cmnty. Pub.
Fac. Dist. No. 1), 4.00%, 9/1/19	BBB–/P	40,000	41,320
			1,352,457
Colorado (4.9%)
CO State Hlth. Fac. Auth. Hosp. Rev. Bonds
(Evangelical Lutheran Good Samaritan Society),
5.00%, 6/1/20	BBB	100,000	108,043
Denver City & Cnty., Arpt. FRN Mandatory Put
Bonds (11/15/19) (Denver Intl. Arpt.), Ser. B,
1.729%, 11/15/31	A1	195,000	195,647
E-470 CO Pub. Hwy. Auth. FRN Mandatory Put Bonds
(9/1/19) (Sr. Libor Index), Ser. A, 1.819%, 9/1/39	A3	100,000	100,307
High Plains Co. Metro. Dist. G.O. Bonds, NATL,
4.00%, 12/1/21	A	150,000	160,323
Southlands, Metro. Dist. No. 1 G.O. Bonds, Ser. A-1,
3.00%, 12/1/22 ^##	Ba1	100,000	99,770
U. of CO Hosp. Auth. Mandatory Put Bonds (3/1/22)
(UCHA Oblig. Group.), Ser. C-2, 5.00%, 11/15/38	Aa3	100,000	110,875
			774,965
Connecticut (2.5%)
CT State Hlth. & Edl. Fac. Auth.
Mandatory Put Bonds (2/3/20) (Yale U.) Ser. A,
1.30%, 7/1/48	VMIG1	250,000	248,145
Mandatory Put Bonds( 2/6/19) (Yale U.) Ser. U1,
1.00%, 7/1/33	VMIG1	140,000	138,915
			387,060
Florida (3.7%)
Citizens Property Insurance Corp. Rev. Bonds,
Ser. A1, 5.00%, 6/1/18	A1	180,000	180,000
Escambia Cnty., Hlth. Fac. Auth. Rev. Bonds
(Baptist Hlth. Care Corp. Oblig. Grp.), Ser. A,
5.125%, 8/15/20	A3	30,000	32,413
(Baptist Hosp., Inc.), 5.00%, 8/15/18	A3	60,000	61,458
Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds
(Acts Retirement-Life Cmnty.), 4.00%, 11/15/19	A–/F	100,000	105,016
Pasco Cnty., School Board COP, Ser. A, 5.00%, 8/1/18	A1	200,000	204,658
			583,545
Georgia (3.4%)
Burke Cnty., Dev. Auth. Poll. Control Mandatory
Put Bonds (4/3/18) (GA Pwr. Co. Plant Vogle), Ser. 5,
1.80%, 10/1/32	A3	200,000	200,022
Gainesville & Hall Cnty., Dev. Auth. Edl. Fac. Rev.
Bonds (Riverside Military Academy), 5.00%, 3/1/27	BBB–/F	40,000	44,617
Main St. Natural Gas, Inc. Rev. Bonds
Ser. B, 5.00%, 3/15/20	Baa1	85,000	90,930
Ser. A, 5.00%, 3/15/18	A3	200,000	202,060
			537,629

Short-Term Municipal Income Fund 25


MUNICIPAL BONDS AND NOTES (105.2%)* cont.	Rating**	Principal amount	Value
Illinois (7.8%)
Chicago, G.O. Bonds, Ser. A
5.00%, 1/1/21	BBB+	$50,000	$53,401
5.00%, 1/1/19	BBB+	50,000	51,279
Chicago, Board of Ed. G.O. Bonds
Ser. E, 5.00%, 12/1/21	B	100,000	104,632
(School Reform), Ser. B-1, NATL, zero %, 12/1/17	A	185,000	185,000
Chicago, O’Hare Intl. Arpt. Rev. Bonds, Ser. D, AGM,
4.00%, 1/1/18	AA	75,000	75,156
Chicago, Transit Auth. Rev. Bonds (Federal Transit
Administration Section 5307), 5.00%, 6/1/18	A	100,000	101,643
Chicago, Waste Wtr. Transmission Rev. Bonds,
Ser. C, 5.00%, 1/1/19	A	100,000	103,358
IL State G.O. Bonds
Ser. A, 5.00%, 4/1/21	Baa3	100,000	105,695
5.00%, 2/1/18	Baa3	150,000	150,719
IL State Fin. Auth. Rev. Bonds
(Presbyterian Homes Oblig. Group), Ser. A,
5.00%, 11/1/23	A–/F	75,000	86,754
(Riverside Hlth. Syst.), 5.00%, 11/15/19	A+	100,000	105,977
Metro. Pier & Exposition Auth. Rev. Bonds
(McCormick Place Expansion), Ser. A, NATL, zero %,
6/15/18 (Prerefunded 12/19/17)	A	100,000	98,628
			1,222,242
Indiana (0.6%)
IN State Fin. Auth. Econ. Dev. Mandatory Put Bonds
(3/1/18) (Republic Svcs., Inc.), Ser. B, 1.25%, 5/1/28	A–2	100,000	100,000
			100,000
Kentucky (1.3%)
KY State Econ. Dev. Fin. Auth. Rev. Bonds
(Owensboro Hlth.), Ser. A, 5.00%, 6/1/20	Baa3	45,000	47,656
KY State Property & Bldg. Comm. Rev. Bonds
(No. 117), Ser. D, 5.00%, 5/1/21	A1	150,000	164,390
			212,046
Maryland (0.6%)
MD Econ. Dev. Corp. Rev. Bonds (Towson U. Sr.
Student Hsg.), 4.00%, 7/1/20	BBB	85,000	89,882
			89,882
Massachusetts (1.5%)
MA State Dev. Fin. Agcy. Rev. Bonds
(UMass Memorial Hlth. Care Oblig. Group), Ser. I,
5.00%, 7/1/19	BBB+	100,000	104,389
MA State Hsg. Fin. Agcy. Rev. Bonds, Ser. SF-169,
4.00%, 12/1/44	Aa1	130,000	135,071
			239,460
Michigan (2.1%)
Great Lakes, Wtr. Auth. Supply Syst. Rev. Bonds,
Ser. D, 5.00%, 7/1/24	Baa1	100,000	115,266
MI State Fin. Auth. Rev. Bonds (Henry Ford Hlth.
Syst.), 5.00%, 11/15/19	A	100,000	105,977
Ypsilanti, School Dist. G.O. Bonds, Ser. A, Q-SBLF,
4.00%, 5/1/18	AA–	100,000	100,988
			322,231


26 Short-Term Municipal Income Fund


MUNICIPAL BONDS AND NOTES (105.2%)* cont.	Rating**	Principal amount	Value
Minnesota (1.1%)
Minneapolis, Hlth. Care Syst. Rev. Bonds (Fairview
Hlth. Svcs. Oblig. Group), Ser. A, 4.00%, 11/15/18	A+	$100,000	$102,437
MN State Res. Hsg. Fin. Agcy. Rev. Bonds, Ser. A,
4.00%, 7/1/38	Aa1	70,000	73,282
			175,719
Missouri (1.9%)
MO State Hlth. & Edl. Fac. Auth. VRDN (WA U. (The)),
Ser. C, 0.92%, 9/1/30	VMIG1	300,000	300,000
			300,000
Montana (0.4%)
MT State Board of Hsg. Rev. Bonds, Ser. A-2, FHA
Insd., 3.00%, 12/1/43	Aa1	60,000	61,382
			61,382
Nebraska (0.7%)
Central Plains, Energy Rev. Bonds (NE Gas No. 1),
Ser. A, 5.25%, 12/1/18	A3	100,000	103,305
			103,305
Nevada (0.7%)
Las Vegas, Redev. Agcy. Tax Alloc. Bonds,
5.00%, 6/15/22	BBB+	100,000	112,378
			112,378
New Jersey (9.5%)
Atlantic City, G.O. Bonds (Tax Appeal), Ser. B, AGM,
5.00%, 3/1/20	AA	200,000	212,402
Hudson Cnty., Impt. Auth. Rev. Notes, Ser. C-1,
2.25%, 10/18/18	SP-1+	500,000	504,385
NJ State Econ. Dev. Auth. Rev. Bonds
Ser. B, 5.00%, 11/1/21	Baa1	100,000	108,746
(Biomedical Research Fac.), Ser. A, 5.00%, 7/15/19	Baa1	100,000	104,025
Ser. AAA, 5.00%, 6/15/19	Baa1	100,000	103,838
NJ State Hlth. Care Fac. Fin. Auth. Rev. Bonds
(Princeton HealthCare Syst.), Ser. A, 5.00%, 7/1/19	Baa2	100,000	104,468
NJ State Tpk. Auth. FRN Mandatory Put Bonds
(1/1/21), Ser. C-5, 1.329%, 1/1/28	A+	150,000	149,328
NJ State Trans. Trust Fund Auth. Rev. Bonds
(Federal Hwy. Reimbursement Notes),
5.00%, 6/15/19	A+	200,000	207,676
			1,494,868
New Mexico (1.6%)
Farmington, Poll. Mandatory Put Bonds (6/1/22)
(Pub. Svcs. Co. of NM), Ser. B, 2.125%, 6/1/40	BBB+	100,000	100,277
Farmington, Poll. Mandatory Put Bonds (4/1/20)
(Southern CA Edison Co.), Ser. A, 1.875%, 4/1/29	Aa3	150,000	149,744
			250,021
New York (13.3%)
Metro. Trans. Auth. Rev. Bonds, Ser. D,
5.00%, 11/15/20	AA–	250,000	273,465
Metro. Trans. Auth. Dedicated Tax Fund
Mandatory Put Bonds (6/1/22), Ser. A-2A,
1.42%, 11/1/26	AA	195,000	194,474
Monroe Cnty., G.O. Bonds, BAM, 4.00%, 6/1/19	AA	100,000	103,134

Short-Term Municipal Income Fund 27


MUNICIPAL BONDS AND NOTES (105.2%)* cont.	Rating**	Principal amount	Value
New York cont.
MTA Hudson Rail Yards Trust Oblig. Rev. Bonds,
Ser. A, 5.00%, 11/15/46	A2	$150,000	$157,844
Niagara, Frontier Trans. Auth. Rev. Bonds
(Buffalo Niagara Intl. Arpt.), Ser. B, 5.00%, 4/1/19	Baa1	150,000	156,990
NY State Dorm. Auth. Non-Supported Debt Rev.
Bonds (Culinary Inst. of America), 5.00%, 7/1/19	Baa2	100,000	104,675
NY State Energy Research & Dev. Auth. Gas Fac. FRN
(Brooklyn Union Gas), Ser. A-1, NATL, 1.68%, 12/1/20	A2	200,000	197,598
NY State Mtge. Agcy. Rev. Bonds (Homeowner),
Ser. 186, 2.00%, 4/1/19	Aa1	500,000	500,640
Triborough, Bridge & Tunnel Auth. FRN Mandatory
Put Bonds (12/3/19), Ser. B-2, 1.182%, 1/1/33	Aa3	300,000	299,007
TSASC, Inc. Rev. Bonds, Ser. A, 4.00%, 6/1/19	A	100,000	103,674
			2,091,501
Ohio (2.8%)
OH State G.O. Bonds
Ser. A, 5.00%, 9/15/21	Aa1	100,000	111,798
(Job Ready Site Dev.), Ser. A, 4.50%, 5/1/21	Aa1	300,000	327,282
			439,080
Oregon (0.5%)
Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza, Inc.), 3.00%, 12/1/18	BBB/F	75,000	76,193
			76,193
Pennsylvania (5.2%)
Bethlehem, Area School Dist. Auth. FRN Mandatory
Put Bonds (11/1/21), 1.435%, 1/1/30	A1	150,000	148,937
Montgomery Cnty., Indl. Dev. Auth. Rev. Bonds
(Foulkeways at Gwynedd), 3.00%, 12/1/18	BBB	100,000	101,481
PA State Tpk. Comm. FRN, Ser. A-2, 1.62%, 12/1/18	A1	300,000	300,627
Philadelphia, Auth for Indl. Dev. City Agreement Rev.
Bonds (Cultural & Coml. Corridors Program), Ser. A,
4.00%, 12/1/18	A+	100,000	102,502
Philadelphia, School Dist. G.O. Bonds, Ser. D,
5.00%, 9/1/20	A2	50,000	53,621
State Public School Bldg. Auth. Palease Rev. Bonds
(Philadelphia School Dist.), 5.00%, 6/1/23	A2	100,000	112,263
			819,431
Puerto Rico (0.8%)
Cmnwlth. of PR, G.O. Bonds (Pub. Impt.), Ser. A,
NATL, 5.50%, 7/1/19	A	125,000	128,544
			128,544
Rhode Island (0.7%)
RI Hlth. & Edl. Bldg. Corp. Rev. Bonds
(Lifespan Oblig. Group-Hosp. Fin.), 5.00%,
5/15/22	BBB+	100,000	111,038
			111,038


28 Short-Term Municipal Income Fund


MUNICIPAL BONDS AND NOTES (105.2%)* cont.	Rating**	Principal amount	Value
South Carolina (2.1%)
Myrtle Beach, Tax Allocation Bonds (Myrtle Beach
Air Force Base), 5.00%, 10/1/19	A2	$100,000	$105,792
SC State Pub. Svcs. Auth. Rev. Bonds
(Santee Cooper)
Ser. D, 5.00%, 12/1/22	A1	100,000	112,277
Ser. B, 4.00%, 12/1/19	A1	100,000	104,045
			322,114
Texas (15.4%)
Alvin, Indpt. School Dist. G.O. Bonds (Schoolhouse),
Ser. C, PSFG, 5.00%, 2/15/22	Aaa	265,000	298,554
Cypress-Fairbanks, Indpt. School Dist. Mandatory
Put Bonds (8/17/20), Ser. B-2, PSFG, 1.40%, 2/15/40	Aaa	200,000	198,944
Dallas, Indpt. School Dist. Mandatory Put Bonds
(2/15/19) (Multi-modal School Bldg.), Ser. B-3, PSFG,
5.00%, 2/15/36	Aaa	210,000	218,070
Fort Bend Indpt. School Dist. Mandatory Put Bonds
(8/1/21), Ser. D, PSFG, 1.50%, 8/1/42	AAA	500,000	498,221
Harris Cnty., Cultural Ed. Fac. Fin. Corp. VRDN
(The Methodist Hosp.), Ser. C-1, 0.96%, 12/1/24	A-1+	315,000	315,000
North Texas State Muni. Wtr. Dist. Rev. Bonds
(Upper East Fork Waste Wtr. Interceptor Syst.),
5.00%, 6/1/19	AAA	100,000	105,098
SA Energy Acquisition Pub. Fac. Corp. Rev. Bonds
(Gas Supply), 5.50%, 8/1/25	A3	75,000	90,302
San Antonio, Elec. & Gas Syst.
Mandatory Put Bonds (12/1/19) Ser. A,
2.25%, 2/1/33	Aa2	200,000	201,752
Mandatory Put Bonds (12/1/21) Ser. B,
2.00%, 2/1/33	Aa2	100,000	100,674
San Antonio, Wtr. Mandatory Put Bonds (11/1/22),
Ser. B, 2.00%, 5/1/44	Aa2	200,000	198,240
Tomball, Mandatory Put Bonds (8/15/19) (Indpt.
School Bldg. & Dist.), Ser. B-3, PSFG, 1.10%, 2/15/43	Aaa	200,000	197,768
			2,422,623
Vermont (0.6%)
VT State Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds
(U. of VT Med. Ctr. (UVM)), Ser. A, 3.00%, 12/1/18	A3	100,000	101,451
			101,451
Virginia (3.6%)
Louisa, Indl. Dev. Auth. Poll. Control Mandatory
Put Bonds (5/16/19) (VA Elec. Pwr. Co.), Ser. C,
1.85%, 11/1/35	A2	150,000	150,642
VA State College Bldg. Auth. Edl. Fac. Rev. Bonds
(Pub. Higher Ed. Fin.), Ser. PG-B, 5.00%, 9/1/19	Aa1	400,000	423,188
			573,830
Washington (3.2%)
Grant Cnty., Pub. Util. Dist. No. 2 Mandatory Put
Bonds (12/2/20) (Elec. Syst.), 2.00%, 1/1/44	AA	400,000	400,740
WA State Hlth. Care Fac. Auth. FRN Mandatory Put
Bonds (7/1/22) (Fred Hutchinson Cancer Research
Ctr.), Ser. B, 2.004%, 1/1/42	A	100,000	99,560
			500,300

Short-Term Municipal Income Fund 29


MUNICIPAL BONDS AND NOTES (105.2%)* cont.	Rating**	Principal amount	Value
West Virginia (0.8%)
WV State Econ. Dev. Auth. Poll Control Rev.
Bonds (Appalachian Pwr. Co. — Amos), Ser. C,
3.25%, 5/1/19	A–	$50,000	$50,705
WV State Econ. Dev. Auth. Solid Waste Disp. Fac.
Mandatory Put Bonds (4/1/19) (Appalachian
Pwr. Co. — Amos), Ser. A, 1.90%, 3/1/40	A–	75,000	75,087
			125,792
Wisconsin (1.3%)
Pub. Fin. Auth. Solid Waste Disp. Mandatory
Put Bonds (2/1/18) (Waste Mgt., Inc.), Ser. A-2,
1.25%, 10/1/25	A–2	200,000	199,902
			199,902

TOTAL INVESTMENTS
Total investments (cost $16,583,607)			$16,555,356

Notes to the fund’s portfolio

Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from December 1, 2016 through November 30, 2017 (the reporting period). Within the following notes to the portfolio, references to “ASC 820” represent Accounting Standards Codification 820 Fair Value Measurements and Disclosures, 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.

* Percentages indicated are based on net assets of $15,738,890.

^**The Moody’s, Standard & Poor’s or Fitch ratings indicated are believed to be the most recent ratings available at the close of the reporting period for the securities listed. Ratings are generally ascribed to securities at the time of issuance. While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings do not necessarily represent what the agencies would ascribe to these securities at the close of the reporting period. Securities rated by Fitch are indicated by “/F.” Securities rated by Putnam are indicated by “/P.” The Putnam rating categories are comparable to the Standard & Poor’s classifications. If a security is insured, it will usually be rated by the ratings organizations based on the financial strength of the insurer. Ratings are not covered by the Report of Independent Registered Public Accounting Firm. For further details regarding security ratings, please see the Statement of Additional Information.

^##Forward commitment, in part or in entirety (Note 1).

144A after the name of an issuer represents securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

On Mandatory Put Bonds, the rates shown are the current interest rates at the close of the reporting period and the dates shown represent the next mandatory put dates.

The dates shown parenthetically on prerefunded bonds represent the next prerefunding dates.

The dates shown on debt obligations are the original maturity dates.

The fund had the following sector concentrations greater than 10% at the close of the reporting period (as a percentage of net assets):


Local debt	22.3%
Utilities	19.1
Health care	12.6
Transportation	11.0


30 Short-Term Municipal Income Fund

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
Municipal bonds and notes	$—	$16,555,356	$—
Totals by level	$—	$16,555,356	$—

During the reporting period, transfers within the fair value hierarchy, if any, did not represent, in the aggregate, more than 1% of the fund’s net assets measured as of the end of the period. Transfers are accounted for using the end of period pricing valuation method.

The accompanying notes are an integral part of these financial statements.

Short-Term Municipal Income Fund 31

Statement of assets and liabilities 11/30/17


ASSETS
Investment in securities, at value (Note 1):
Unaffiliated issuers (identified cost $16,583,607)	$16,555,356
Cash	262,404
Interest and other receivables	124,748
Receivable for shares of the fund sold	30
Receivable for investments sold	462,482
Receivable from Manager (Note 2)	22,455
Prepaid assets	15,668
Total assets	17,443,143

LIABILITIES
Payable for investments purchased	1,541,565
Payable for purchases of delayed delivery securities (Note 1)	100,000
Payable for shares of the fund repurchased	2,579
Payable for custodian fees (Note 2)	1,900
Payable for investor servicing fees (Note 2)	1,876
Payable for Trustee compensation and expenses (Note 2)	1,394
Payable for administrative services (Note 2)	58
Payable for distribution fees (Note 2)	3,797
Distributions payable to shareholders	447
Other accrued expenses	50,637
Total liabilities	1,704,253

Net assets	$15,738,890

REPRESENTED BY
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)	$15,785,073
Undistributed net investment income (Note 1)	1,522
Accumulated net realized loss on investments (Note 1)	(19,454)
Net unrealized depreciation of investments	(28,251)
Total — Representing net assets applicable to capital shares outstanding	$15,738,890

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per class A share ($8,067,440 divided by 808,805 shares)	$9.97
Offering price per class A share (100/99.00 of $9.97)^*	$10.07
Net asset value and offering price per class B share ($62,806 divided by 6,299 shares)^**	$9.97
Net asset value and offering price per class C share ($314,401 divided by 31,536 shares)^**	$9.97
Net asset value and redemption price per class M share ($71,570 divided by 7,177 shares)	$9.97
Offering price per class M share (100/99.25 of $9.97)^*	$10.05
Net asset value, offering price and redemption price per class Y share
($7,222,673 divided by 724,332 shares)	$9.97

^*On single retail sales of less than $500,000.

^**Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.

The accompanying notes are an integral part of these financial statements.


32 Short-Term Municipal Income Fund

Statement of operations Year ended 11/30/17


INVESTMENT INCOME
Interest income	$239,746
Total investment income	239,746

EXPENSES
Compensation of Manager (Note 2)	55,089
Investor servicing fees (Note 2)	11,546
Custodian fees (Note 2)	7,814
Trustee compensation and expenses (Note 2)	940
Distribution fees (Note 2)	26,960
Administrative services (Note 2)	505
Reports to shareholders	16,586
Auditing and tax fees	54,399
Blue sky expense	73,477
Other	3,262
Fees waived and reimbursed by Manager (Note 2)	(167,620)
Total expenses	82,958
Expense reduction (Note 2)	(4,575)
Net expenses	78,383

Net investment income	161,363

Net realized loss on securities from unaffiliated issuers (Notes 1 and 3)	(12,502)
Net unrealized appreciation of securities in unaffiliated issuers during the year	112,757
Net gain on investments	100,255

Net increase in net assets resulting from operations	$261,618

The accompanying notes are an integral part of these financial statements.

Short-Term Municipal Income Fund 33

Statement of changes in net assets


INCREASE (DECREASE) IN NET ASSETS	Year ended 11/30/17	Year ended 11/30/16
Operations
Net investment income	$161,363	$107,873
Net realized loss on investments	(12,502)	(2,599)
Net unrealized appreciation (depreciation) of investments	112,757	(187,206)
Net increase (decrease) in net assets resulting
from operations	261,618	(81,932)
Distributions to shareholders (Note 1):
From tax-exempt net investment income
Class A	(85,604)	(60,019)
Class B	(524)	(307)
Class C	(663)	(21)
Class M	(633)	(371)
Class Y	(71,932)	(47,907)
Increase (decrease) from capital share transactions (Note 4)	(5,644,710)	7,454,937
Total increase (decrease) in net assets	(5,542,448)	7,264,380

NET ASSETS
Beginning of year	21,281,338	14,016,958
End of year (including undistributed net investment
income of $1,522 and distributions in excess of net
investment income of $31, respectively)	$15,738,890	$21,281,338

The accompanying notes are an integral part of these financial statements.


34 Short-Term Municipal Income Fund

Financial highlights (For a common share outstanding throughout the period)

INVESTMENT OPERATIONS

LESS DISTRIBUTIONS

RATIOS AND SUPPLEMENTAL DATA

Ratio

Net realized

of net investment

Net asset value,

and unrealized

Total from

From

Total return

Net assets,

Ratio of expenses

income (loss)

beginning

Net investment

gain (loss)

investment

net investment

Total

Net asset value,

at net asset value

end of period

to average

Portfolio

Period ended

of period

income (loss)

on investments

operations

income

distributions

end of period

(%) ^a

(in thousands)

net assets (%) ^b,c,d

net assets (%) ^c,d

turnover (%)

Class A

November 30, 2017

$9.92

.09

.05

.14

(.09)

(.09)

$9.97

1.45

$8,067

.60

.93

156

November 30, 2016

10.01

.06

(.09)

(.03)

(.06)

(.06)

9.92

(.33)

10,217

.60

.56

November 30, 2015

10.04

.05

(.03)

.02

(.05)

(.05)

10.01

.23

10,151

.60

.52

November 30, 2014

10.02

.04

.02

.06

(.04)

(.04)

10.04

.61

9,405

.60

.38

November 30, 2013^†

10.00

.02

.04

(.02)

(.02)

10.02

.41^*

14,756

.41^*

.21^*

— ^*f

Class B

November 30, 2017

$9.91

.07

.06

.13

(.07)

(.07)

$9.97

1.35

$63

.80

.74

156

November 30, 2016

10.01

.04

(.10)

(.06)

(.04)

(.04)

9.91

(.63)

.80

.36

November 30, 2015

10.04

.03

(.03)

—^e

(.03)

(.03)

10.01

.02

.80

.33

November 30, 2014

10.02

.02

.04

(.02)

(.02)

10.04

.42

.79

.24

November 30, 2013^†

10.00

.01

.02

.03

(.01)

(.01)

10.02

.28^*

.55^*

.09^*

— ^*f

Class C

November 30, 2017

$9.91

.02

.06

.08

(.02)

(.02)

$9.97

.81

$314

1.33

.22

156

November 30, 2016

10.01

—^e

(.10)

(.10)

—^e

9.91

(.99)

311

1.16

—^f

November 30, 2015

10.04

—^e

(.03)

(.03)

—^e

10.01

(.28)

141

1.11

.03

November 30, 2014

10.02

—^e

.02

.02

—^e

10.04

.21

116

.99

.01

November 30, 2013^†

10.00

—^e

.02

.02

—^e

10.02

.21^*

175

.62^*

— ^*f

Class M

November 30, 2017

$9.91

.09

.06

.15

(.09)

(.09)

$9.97

1.50

$72

.65

.89

156

November 30, 2016

10.01

.05

(.10)

(.05)

(.05)

(.05)

9.91

(.48)

.65

.51

November 30, 2015

10.04

.05

(.03)

.02

(.05)

(.05)

10.01

.18

.65

.48

November 30, 2014

10.02

.04

.02

.06

(.04)

(.04)

10.04

.56

.65

.36

November 30, 2013^†

10.00

.02

.04

(.02)

(.02)

10.02

.38^*

.45^*

.22^*

— ^*f

Class Y

November 30, 2017

$9.91

.12

.06

.18

(.12)

(.12)

$9.97

1.81

$7,223

.35

1.18

156

November 30, 2016

10.01

.08

(.10)

(.02)

(.08)

(.08)

9.91

(.18)

10,606

.35

.81

November 30, 2015

10.04

.08

(.03)

.05

(.08)

(.08)

10.01

.48

3,575

.35

.75

November 30, 2014

10.02

.07

.02

.09

(.07)

(.07)

10.04

.86

3,024

.35

.65

November 30, 2013^†

10.00

.04

.02

.06

(.04)

(.04)

10.02

.57^*

3,519

.24^*

.43^*

— ^*f

See notes to financial highlights at the end of this section.

The accompanying notes are an integral part of these financial statements.


36 Short-Term Municipal Income Fund	Short-Term Municipal Income Fund 37

Financial highlights cont.

^*Not annualized.

^†For the period March 18, 2013 (commencement of operations) to November 30, 2013.

^aTotal return assumes dividend reinvestment and does not reflect the effect of sales charges.

^bIncludes amounts paid through expense offset and brokerage/service arrangements, if any (Note 2). Also excludes acquired fund fees and expenses, if any.

^cReflects an involuntary contractual expense limitations in effect during the period. As a result of such limitations, the expenses of each class reflect a reduction of the following amount (Note 2):


	Percentage of average net assets
November 30, 2017	1.05%
November 30, 2016	1.02
November 30, 2015	0.94
November 30, 2014	1.02
November 30, 2013	1.10

^dReflects a voluntary waiver of certain fund expenses in effect during the period relating to the enhancement of certain annualized net yields for the fund. As a result of such waivers, the expenses of each class reflect a reduction of the following amounts as a percentage of average net assets (Note 2).


	11/30/17	11/30/16	11/30/15	11/30/14	11/30/13
Class A	N/A	N/A	N/A	N/A	0.01%
Class B	N/A	N/A	N/A	0.01%	0.02
Class C	0.02%	0.19%	0.24%	0.36	0.33
Class M	N/A	N/A	N/A	N/A	0.01
Class Y	N/A	N/A	N/A	N/A	0.01

^eAmount represents less than $0.01 per share.

^fAmount represents less than 0.01%.

The accompanying notes are an integral part of these financial statements.


38 Short-Term Municipal Income Fund

Notes to financial statements 11/30/17

Within the following Notes to 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 December 1, 2016 through November 30, 2017.

Putnam Short-Term Municipal Income Fund (the fund) is a diversified series of Putnam Funds Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The goal of the fund is to seek as high a level of current income exempt from federal income tax as Putnam Management believes is consistent with preservation of capital. The fund invests mainly in bonds that pay interest that is exempt from federal income tax (but that may be subject to federal alternative minimum tax (AMT)) and that have short-term maturities (i.e., three years or less). The bonds the fund invests in are mainly investment-grade in quality. Under normal circumstances, Putnam Management invests at least 80% of the fund’s net assets in tax-exempt investments, which for purposes of this policy include investments paying interest subject to the federal AMT for individuals. This investment policy cannot be changed without the approval of the fund’s shareholders. Putnam Management may consider, among other factors, credit, interest rate and prepayment risks, as well as general market conditions, when deciding whether to buy or sell investments.

The fund offers class A, class B, class C, class M and class Y shares. The fund registered class T shares in February 2017, however, as of the date of this report, class T shares had not commenced operations and are not available for purchase. Effective April 1, 2017, 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 rein-vestment. Class A and class M shares are sold with a maximum front-end sales charge of 1.00% and 0.75%, respectively. Class A shares generally are not subject to a contingent deferred sales charge, and class M and class Y shares are 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 two years of purchase. Class C shares are subject to a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. The expenses for class A, class B, class C and class M shares may differ based on the distribution fee of each class, which is identified in Note 2. 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 M shares, but do not bear a distribution fee. 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 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 financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.

Short-Term Municipal Income Fund 39

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.

Tax-exempt bonds and notes are generally valued on the basis of valuations provided by an independent pricing service approved by the Trustees. Such services use information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. These securities will generally be categorized as Level 2.

Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. 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. 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. 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 is recorded on the accrual basis. All premiums/discounts are amortized/accreted on a yield-to-maturity basis. The premium in excess of the call price, if any, is amortized to the call date; thereafter, any remaining premium is amortized to maturity.

Securities purchased or sold on a forward commitment or delayed delivery basis may be settled at a future date beyond customary settlement time; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the fair value of the underlying securities or if the counterparty does not perform under the contract.

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 plus a $25,000 flat fee 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

40 Short-Term Municipal Income Fund

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 income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code.

The fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.

Under the Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred for an unlimited period and the carry forwards will retain their character as either short-term or long-term capital losses. At November 30, 2017 , the fund had a capital loss carryover of $19,908 available to the extent allowed by the Code to offset future net capital gain, if any.


	Loss carryover
Short-term	Long-term	Total
$3,966	$15,942	$19,908

Distributions to shareholders Income dividends are recorded daily by the fund and are paid monthly. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. For the reporting period, there were no material temporary or permanent differences. 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 $454 to decrease undistributed net investment income and $454 to decrease 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	$28,848
Unrealized depreciation	(56,645)
Net unrealized depreciation	(27,797)
Undistributed tax-exempt income	1,967
Capital loss carryforward	(19,908)
Cost for federal income tax purposes	$16,583,153

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 average of the aggregate net assets of all open-end

Short-Term Municipal Income Fund 41

mutual funds sponsored by Putnam Management (excluding net assets of funds that are invested in, or that are invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets). Such annual rates may vary as follows:


0.500%	of the first $5 billion,	0.300%	of the next $50 billion,
0.450%	of the next $5 billion,	0.280%	of the next $50 billion,
0.400%	of the next $10 billion,	0.270%	of the next $100 billion and
0.350%	of the next $10 billion,	0.265%	of any excess thereafter.

For the reporting period, the management fee represented an effective rate (excluding the impact from any expense waivers in effect) of 0.345% of the fund’s average net assets.

Putnam Management has contractually agreed to waive fees (and, to the extent necessary, bear other expenses) of the fund through March 30, 2019, to the extent that total expenses of the fund (excluding brokerage, interest, taxes, investment-related expenses, payments under distribution plans, extraordinary expenses and acquired fund fees and expenses) would exceed an annual rate of 0.35% of the fund’s average net assets. During the reporting period, the fund’s expenses were reduced by $42,680 as a result of this limit.

Putnam Management has also contractually agreed, through March 30, 2019, to waive fees 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 $124,880 as a result of this limit.

Putnam Management may from time to time voluntarily undertake to waive fees and/or reimburse certain fund expenses in order to enhance the annualized net yield for the fund. Any such waiver or reimbursement would be voluntary and may be modified or discontinued by Putnam Management at any time without notice. During the reporting period, the fund’s expenses were reduced by $60 as a result of this limit. This includes the following amounts per class of class specific distribution fees from the fund:


	Distribution fee waived
Class A	$—
Class B	—
Class C	60
Class M	—
Class Y	—
Total	$60

Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. PIL did not manage any portion of the assets of the fund during the reporting period. If Putnam Management were to engage the services of PIL, Putnam Management would pay a quarterly sub-management fee to PIL for its services at an annual rate of 0.25% of the average net assets of the portion of the fund managed by PIL.

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 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


42 Short-Term Municipal Income Fund

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.

During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:


Class A	$6,758	Class M	52
Class B	52	Class Y	4,458
Class C	226	Total	$11,546

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 $4,575 under the expense offset arrangements.

Each Independent Trustee of the fund receives an annual Trustee fee, of which $12, 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 Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

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:


	Maximum %	Approved %	Amount
Class A	0.35%	0.25%	$23,347
Class B	1.00%	0.45%	322
Class C	1.00%	1.00%	3,077
Class M	1.00%	0.30%	214
Total			$26,960

For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $5 and no monies from the sale of class A and class M shares, respectively, and received $129 and no monies in contingent deferred sales charges from redemptions of class B and class C shares, respectively.

A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A redemptions.

Short-Term Municipal Income Fund 43

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)	$23,988,000	$27,022,593
U.S. government securities (Long-term)	—	—
Total	$23,988,000	$27,022,593

The fund may purchase or sell investments from or to other Putnam funds in the ordinary course of business, which can reduce the fund’s transaction costs, at prices determined in accordance with SEC requirements and policies approved by the Trustees. During the reporting period, purchases or sales of long-term securities from or to other Putnam funds, if any, did not represent more than 5% of the fund’s total cost of purchases and/or total proceeds from sales.

Note 4: Capital shares

At the close of the reporting period, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:


	YEAR ENDED 11/30/17		YEAR ENDED 11/30/16
Class A	Shares	Amount	Shares	Amount
Shares sold	983,788	$9,795,054	390,293	$3,912,530
Shares issued in connection with
reinvestment of distributions	8,092	80,860	5,628	56,395
	991,880	9,875,914	395,921	3,968,925
Shares repurchased	(1,213,416)	(12,094,536)	(379,567)	(3,804,450)
Net increase (decrease)	(221,536)	$(2,218,622)	16,354	$164,475

	YEAR ENDED 11/30/17		YEAR ENDED 11/30/16
Class B	Shares	Amount	Shares	Amount
Shares sold	—	$—	694	$6,979
Shares issued in connection with
reinvestment of distributions	52	518	31	307
	52	518	725	7,286
Shares repurchased	(1,514)	(15,088)	(860)	(8,585)
Net decrease	(1,462)	$(14,570)	(135)	$(1,299)

	YEAR ENDED 11/30/17		YEAR ENDED 11/30/16
Class C	Shares	Amount	Shares	Amount
Shares sold	7,101	$70,739	26,264	$263,443
Shares issued in connection with
reinvestment of distributions	66	655	2	21
	7,167	71,394	26,266	263,464
Shares repurchased	(7,000)	(69,742)	(8,993)	(90,083)
Net increase	167	$1,652	17,273	$173,381


44 Short-Term Municipal Income Fund


	YEAR ENDED 11/30/17		YEAR ENDED 11/30/16
Class M	Shares	Amount	Shares	Amount
Shares sold	—	$—	—	$—
Shares issued in connection with
reinvestment of distributions	63	633	37	371
	63	633	37	371
Shares repurchased	—	—	—	—
Net increase	63	$633	37	$371

	YEAR ENDED 11/30/17		YEAR ENDED 11/30/16
Class Y	Shares	Amount	Shares	Amount
Shares sold	435,185	$4,350,929	956,945	$9,563,370
Shares issued in connection with
reinvestment of distributions	7,147	71,381	4,777	47,833
	442,332	4,422,310	961,722	9,611,203
Shares repurchased	(787,813)	(7,836,113)	(249,060)	(2,493,194)
Net increase (decrease)	(345,481)	$(3,413,803)	712,662	$7,118,009

At the close of the reporting period, Putnam Investments, LLC owned the following shares of the fund:


	Shares owned	Percentage of ownership	Value
Class B	1,017	16.1%	$10,139
Class M	1,024	14.3	10,209

At the close of the reporting period, a Trustee of the Fund owned 9.7% of the outstanding shares of the fund.

Note 5: 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.

Short-Term Municipal Income Fund 45

Officers

In addition to Robert L. Reynolds, the other officers of the fund are shown below:


Jonathan S. Horwitz (Born 1955)	Susan G. Malloy (Born 1957)
Executive Vice President, Principal Executive Officer,	Vice President and Assistant Treasurer
and Compliance Liaison	Since 2007
Since 2004	Head of Accounting, Middle Office, & Control Services,
	Putnam Investments and Putnam Management
Robert T. Burns (Born 1961)
Vice President and Chief Legal Officer	Mark C. Trenchard (Born 1962)
Since 2011	Vice President and BSA Compliance Officer
General Counsel, Putnam Investments,	Since 2002
Putnam Management, and Putnam Retail Management	Director of Operational Compliance, Putnam
	Investments and Putnam Retail Management
James F. Clark (Born 1974)
Vice President and Chief Compliance Officer	Nancy E. Florek (Born 1957)
Since 2016	Vice President, Director of Proxy Voting and Corporate
Chief Compliance Officer, Putnam Investments	Governance, Assistant Clerk, and Assistant Treasurer
and Putnam Management	Since 2000

Michael J. Higgins (Born 1976)	Denere P. Poulack (Born 1968)
Vice President, Treasurer, and Clerk	Assistant Vice President, Assistant Clerk,
Since 2010	and Assistant Treasurer
	Since 2004
Janet C. Smith (Born 1965)
Vice President, Principal Financial Officer, Principal
Accounting Officer, and Assistant Treasurer
Since 2007
Head of Fund Administration Services,
Putnam Investments and Putnam 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 One Post Office Square, Boston, MA 02109.

Short-Term Municipal Income Fund 49

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	Value
Capital Opportunities Fund	Convertible Securities Fund
Capital Spectrum Fund	Equity Income Fund
Emerging Markets Equity Fund	International Value Fund
Equity Spectrum Fund	Multi-Cap Value Fund
Europe Equity Fund	Small Cap Value Fund
Global Equity Fund
International Capital Opportunities Fund	Income
International Equity Fund	American Government Income Fund
Investors Fund	Diversified Income Trust
Low Volatility Equity Fund	Emerging Markets Income Fund
Multi-Cap Core Fund	Floating Rate Income Fund
Research Fund	Global Income Trust
	Government Money Market Fund^*
Global Sector	High Yield Fund
Global Consumer Fund	Income Fund
Global Financials Fund	Money Market Fund^†
Global Health Care Fund	Short Duration Income Fund
Global Industrials Fund	U.S. Government Income Trust
Global Natural Resources Fund
Global Sector Fund	Tax-free Income
Global Technology Fund	AMT-Free Municipal Fund
Global Telecommunications Fund	Intermediate-Term Municipal Income Fund
Global Utilities Fund	Short-Term Municipal Income Fund
	Tax Exempt Income Fund
Growth	Tax-Free High Yield Fund
Growth Opportunities Fund
International Growth Fund	State tax-free income funds^‡:
Multi-Cap Growth Fund	California, Massachusetts, Minnesota,
Small Cap Growth Fund	New Jersey, New York, Ohio, and Pennsylvania.


50 Short-Term Municipal Income Fund


Absolute Return	Asset Allocation
Absolute Return 100 Fund^®	George Putnam Balanced Fund
Absolute Return 300 Fund^®
Absolute Return 500 Fund^®	Dynamic Asset Allocation Balanced Fund
Absolute Return 700 Fund^®	Dynamic Asset Allocation Conservative Fund
	Dynamic Asset Allocation Growth Fund
Putnam PanAgora**	Dynamic Risk Allocation Fund
Putnam PanAgora Managed Futures Strategy
Putnam PanAgora Market Neutral Fund	Retirement Income Fund Lifestyle 1
Putnam PanAgora Risk Parity 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.

Short-Term Municipal Income Fund 51

Services for shareholders

Investor services

Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.

Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.

Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.

Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.

Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.

Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.

Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.

Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.

For more information

Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.

Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.

52 Short-Term Municipal Income 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 over 100 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.


Investment Manager	Trustees	Michael J. Higgins
Putnam Investment	Jameson A. Baxter, Chair	Vice President, Treasurer,
Management, LLC	Kenneth R. Leibler, Vice Chair	and Clerk
One Post Office Square	Liaquat Ahamed
Boston, MA 02109	Ravi Akhoury	Janet C. Smith
	Barbara M. Baumann	Vice President,
Investment Sub-Advisor	Katinka Domotorffy	Principal Financial Officer,
Putnam Investments Limited	Catharine Bond Hill	Principal Accounting Officer,
16 St James’s Street	Paul L. Joskow	and Assistant Treasurer
London, England SW1A 1ER	Robert E. Patterson
	George Putnam, III	Susan G. Malloy
Marketing Services	Robert L. Reynolds	Vice President and
Putnam Retail Management	Manoj P. Singh	Assistant Treasurer
One Post Office Square
Boston, MA 02109	Officers	Mark C. Trenchard
	Robert L. Reynolds	Vice President and
Custodian	President	BSA Compliance Officer
State Street Bank
and Trust Company	Jonathan S. Horwitz	Nancy E. Florek
	Executive Vice President,	Vice President, Director of
Legal Counsel	Principal Executive Officer,	Proxy Voting and Corporate
Ropes & Gray LLP	and Compliance Liaison	Governance, Assistant Clerk,
		and Assistant Treasurer
Independent Registered	Robert T. Burns
Public Accounting Firm	Vice President and	Denere P. Poulack
KPMG LLP	Chief Legal Officer	Assistant Vice President, Assistant
		Clerk, and Assistant Treasurer
	James F. Clark
	Vice President and
	Chief Compliance Officer

This report is for the information of shareholders of Putnam Short-Term Municipal Income 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.


Fiscal year ended	Audit Fees	Audit-Related Fees	Tax Fees	All Other Fees


November 30, 2017	$48,922	$ —	$5,388	$ —
November 30, 2016	$39,760	$ —	$5,250	$ —


Fiscal year ended	Audit-Related Fees	Tax Fees	All Other Fees	Total Non-Audit Fees


November 30, 2017	$ —	$ —	$ —	$ —

November 30, 2016	$ —	$ —	$ —	$ —


	CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES


	Exact name of registrant as specified in charter:	Putnam Funds Trust


	Address of principal executive offices:	One Post Office Square, Boston, Massachusetts 02109


	Name and address of agent for service:	Robert T. Burns, Vice President One Post Office Square Boston, Massachusetts 02109


	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 reporting period :	December 1, 2016 — November 30, 2017


	The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:


	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:


	For the fiscal years ended November 30, 2017 and November 30, 2016, the fund's independent auditor billed aggregate non-audit fees in the amounts of $5,388 and $5,250 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.


	UNITED STATES SECURITIES AND EXCHANGE COMMISSION


	FORM N-CSR


	Item 1. Report to Stockholders:


	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 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:


	Item 8. Portfolio Managers of Closed-End Investment Companies


	Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:


	Item 10. Submission of Matters to a Vote of Security Holders:


	(b) Changes in internal control over financial reporting: Not applicable


	(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.


	(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.


	(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.


	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.


	/s/ Janet C. Smith Janet C. Smith Principal Accounting Officer


	/s/ Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer