PUTNAM TAX FREE INCOME TRUST /MA/, 485APOS, 1994-09-30

PUTNAM TAX FREE INCOME TRUST /MA/
485APOS, 1994-09-30

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As filed with the Securities and Exchange Commission on
September 30, 1994
Registration No. 2-98790
811-4345
- -----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 11 / X /
and ----
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
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Amendment No. 12 / X /
(Check appropriate box or boxes) ----
---------------
PUTNAM TAX-FREE INCOME TRUST
(Exact name of registrant as specified in charter)

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

Registrant's Telephone Number, including Area Code
(617) 292-1000
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It is proposed that this filing will become effective
(check appropriate box)
----
/ / immediately upon filing pursuant to paragraph (b)
- ----
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/ / on (date) pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph (a)
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/ X / on December 1, 1994 pursuant to paragraph (a) of
Rule
---- 485<PAGE>

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JOHN R. VERANI, Vice President
Putnam Tax-Free Income Trust
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
---------------
Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110

The Registrant has registered an indefinite number or
amount of securities under the Securities Act of 1933 pursuant to
Rule 24f-2. A Rule 24f-2 notice for the fiscal year ended July
31, 1994 was filed on September 27, 1994 .<PAGE>

PUTNAM TAX-FREE INCOME TRUST

CROSS REFERENCE SHEET

(as required by Rule 481(a))

PART A

N-1A ITEM NO. LOCATION

1. Cover Page....................... Cover Page

2. Synopsis......................... Expenses summary

3. Condensed Financial Information.. Financial highlights;
How performance is shown

4. General Description of
Registrant....................... Objective; How objective
is pursued; Organization
and history

5. Management of the Fund.......... Expenses summary; How
the Fund is managed;
About Putnam
Investments, Inc.

5A. Management Discussion of Fund
Performance...................... (Contained in the
Annual
Report of the
Registrant)

6. Capital Stock and Other
Securities....................... Cover Page; Organization
and history; How
distributions are made;
tax information

7. Purchase of Securities Being
Offered.......................... How to buy shares;
Distribution Plans;
How to sell shares; How
to exchange shares; How
the Fund values its
shares

8. Redemption or Repurchase......... How to buy shares; How
to sell shares; How to
exchange shares;
Organization and history

9. Pending Legal Proceedings........ Not Applicable<PAGE>

PART B

N-1A ITEM NO. LOCATION

10. Cover Page....................... Cover Page

11. Table of Contents................ Cover Page

12. General Information and History. Organization and history
(Part A)

13. Investment Objectives and
Policies......................... How objective is pursued
(Part A); Investment
Restrictions of the
Trust; Miscellaneous
Investment Practices

14. Management of the Registrant..... Management of the Fund
(Trustees; Officers);
Additional Officers of
the Trust

15. Control Persons and Principal
Holders of Securities............ Management of the Fund
(Trustees; Officers);
Fund Charges and
Expenses (Ownership of
Trust Shares)

16. Investment Advisory and Other
Services......................... Management of the Fund
(Trustees; Officers; The
Management Contract;
Principal
Underwriter ; Investor
Servicing Agent and
Custodian) ; Fund
Charges and Expenses;
Distribution Plan;
Independent Accountants
and Financial
Statements

17. Brokerage Allocation............ Management of the Fund
(Portfolio
Transactions); Fund
Charges and Expenses
<PAGE>
18. Capital Stock and Other
Securities....................... Organization and history
(Part A); How
distributions are made;
tax information (Part
A); Suspension of
Redemptions

19. Purchase, Redemption and Pricing
of Securities Being Offered...... How to buy shares (Part
A); How to sell shares
(Part A); How to
exchange shares (Part
A); How to Buy Shares;
Determination of Net
Asset Value; Suspension
of Redemptions

20. Tax Status....................... How distributions are
made; tax information
(Part A); Taxes

21. Underwriters..................... Management of the Fund
(Principal Underwriter);
Fund Charges and
Expenses

22. Calculations of Performance Data. How performance is shown
(Part A); Investment
Performance of the
Trust; Standard
Performance Measures

23. Financial Statements............. Independent Accountants
and Financial Statements

PART C

Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.
<PAGE>
PROSPECTUS
DECEMBER 1,

1994

PUTNAM TAX-FREE INSURED FUND
CLASS A AND B SHARES
INVESTMENT STRATEGY: TAX-ADVANTAGED

This Prospectus explains concisely what you should know before
investing in Class A or B shares of Putnam Tax-Free Insured
Fund (the "Fund"), a series of Putnam Tax-Free Income Trust (the
"Trust") . Please read it carefully and keep it for future
reference. You can find more detailed information about the Fund
in the December 1, 1994 Statement of Additional
Information, as amended from time to time. For a free copy of
the Statement or other information , call Putnam Investor
Services at 1-800-225-1581. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY , AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

BOSTON * LONDON * TOKYO<PAGE>

ABOUT THE FUND

Expenses summary
............................................................
Financial highlights
............................................................
Objective
............................................................
How objective is pursued
............................................................
Risk factors
............................................................
How performance is shown
............................................................

How the Fund is managed
............................................................
Organization and history

ABOUT YOUR INVESTMENT

Alternative sales arrangements
............................................................
How to buy shares
............................................................
Distribution Plans
............................................................
How to sell shares
............................................................
How to exchange shares
............................................................
How the Fund values its shares
............................................................
How distributions are made; tax information

ABOUT PUTNAM INVESTMENTS, INC.

ABOUT THE FUND

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes your maximum
transaction costs from investing in the Fund and expenses
incurred by the Fund based on its most recent fiscal year. The
Examples show the cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
<PAGE>
CLASS A CLASS B
SHARES SHARES
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 4.75% NONE*

5.0% in the
first year,
Deferred Sales Charge (as a declining to 1.0%
percentage of the lower of in the sixth year,
original purchase price or and eliminated
redemption proceeds) NONE** thereafter

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

Management Fees 0.59% 0.58%
12b-1 Fees 0.20% 0.85%
Other Expenses 0.10% 0.10%
Total Fund Operating Expenses 0.89% 1.53%

The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses
which the Fund incurs. The information shown in the table for
Class A shares has been annualized.

EXAMPLES

Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years

CLASS A $56 $75 $94 $152
CLASS B $66 $78 $103 $165** *
<PAGE>
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return but no redemption:

1 3 5 10
year years years years

CLASS A $56 $75 $94 $152
CLASS B $16 $48 $83
$165***

The Examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown.
Federal regulations require the Examples to assume a 5% annual
return, but actual annual return has varied.

* Class B shares are sold without a front-end sales
charge, but their 12b-1 fees may cause long-term
shareholders to pay more than the economic equivalent of
the maximum permitted front-end sales charge.

** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of Class A shares that were
purchased without an initial sales charge as part of an
investment of $1 million or more. See "How to buy
shares -- Class A shares."

*** Reflects conversion of Class B shares to Class A shares
(which pay lower ongoing expenses) approximately eight
years after purchase. See "How to buy shares -- Class B
shares -- Conversion of Class B shares."

FINANCIAL HIGHLIGHTS

The table on the following page presents per share financial
information for Class A and B shares .
This information has been audited and reported on by the Trust's
independent accountants. The Report of Independent Accountants
and financial statements included in the Fund's Annual
Report to shareholders for the 1994 fiscal year are
incorporated by reference into this Prospectus. The
Fund's Annual Report, which contains additional unaudited
performance information, is available without charge upon
request.

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<PAGE>
(The table appears on page 5a)

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

FOR THE PERIOD FOR THE PERIOD
SEPTEMBER 20, 1993 SEPTEMBER 9, 1985
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) TO OF OPERATIONS)
JULY 31 YEAR ENDED JULY 31 TO JULY 31
1994 1994 1993 1992 1991 1990 1989 1988 1987 1986
CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 15.88 $ 15.50 $ 15.42 $ 14.38 $ 14.25 $ 14.79 $ 13.85 $ 13.77 $ 13.91 $ 12.57
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .73 .74 .75 .76 .79 .83 .85 .85 .84 .73(A)
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (1.12) (.73) .28 1.14 .14 (.06) .93 .11 (.10) 1.41
TOTAL FROM INVESTMENT OPERATIONS (.39) .01 1.03 1.90 .93 .77 1.78 .96 .74 2.14

LESS DISTRIBUTIONS:
FROM NET INVESTMENT INCOME (.72) (.73) (.75) (.77) (.80) (.83) (.84) (.85) (.84) (.80)
FROM NET REALIZED GAIN
ON INVESTMENTS -- -- (.20) (.09) -- (.48) -- (.03) (.04) --
IN EXCESS OF NET REALIZED GAIN ON
INVESTMENTS (.10) (.10) -- -- --
TOTAL DISTRIBUTIONS (.82) (.83) (.95) (.86) (.80) (1.31) (.84) (.88) (.88) (.80)
NET ASSET VALUE, END OF PERIOD $ 14.67 $ 14.68 $ 15.50 $ 15.42 $ 14.38 $ 14.25 $ 14.79 $ 13.85 $ 13.77 $ 13.91
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(%) (B) (2.49)(C) 0.00 7.00 13.63 6.79 5.49 13.31 7.24 5.31 17.33(C)
NET ASSETS, END OF PERIOD
(IN THOUSANDS) $143,079 $432,895$572,659$466,135 $359,465 $309,050 $293,127$268,004$264,916 $195,386
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%) 0.80(C) 1.53 1.74 1.79 1.68 1.63 1.61 1.58 1.61 1.42(A)(C)
<PAGE>
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS (%) 4.73(C) 4.81 4.88 5.16 5.60 5.81 6.01 6.20 5.83 5.26(A)(C)
PORTFOLIO TURNOVER (%) 47.72 47.72 42.01 66.18 54.69 86.29 201.21 197.29 85.49 125.36(C)

(A) REFLECTS A WAIVER OF A PORTION OF THE DISTRIBUTION PLAN PAYMENTS DURING
THE PERIOD. AS A RESULT OF THIS WAIVER,
EXPENSES OF THE FUND AT JULY 31, 1986 REFLECT A REDUCTION OF $0.01 PER SHARE.
(B) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT AND DOES NOT
REFLECT THE EFFECT OF SALES CHARGES.
(C) NOT ANNUALIZED.

/TABLE
<PAGE>
OBJECTIVE

Putnam Tax-Free Insured Fund seeks high current income exempt
from federal income tax. The Fund is not intended to be a
complete investment program, and there is no assurance it
will achieve its objective.

HOW OBJECTIVE IS PURSUED

BASIC INVESTMENT STRATEGY

Putnam Tax-Free Insured Fund seeks its objective by
following the fundamental investment policy of investing
at least 80% of its net assets in a diversified portfolio
of Tax Exempt Securities (which are described below), except
when investing for defensive purposes during times of adverse
market conditions . The Fund invests in Tax Exempt Securities
which are insured, rated AAA or Aaa (SP-1, Prime-1, A-1+ or MIG-1
in the case of Notes or Commercial Paper), or backed by the U.S.
government. Insurance guarantees payment of principal and
interest, but not market value. The Fund may trade its
portfolio investments seeking short-term profits, which may
result in taxable capital gains and may involve special risks.
See "Portfolio turnover, " below. The Fund may also
invest in taxable obligations, as described below, to the extent
permitted by its investment policies, or hold a portion of
its assets in money market instruments or in cash.
Putnam Investment Management, Inc., the Fund's investment manager
("Putnam Management"), expects the Fund will generally invest in
Tax Exempt Securities of longer maturities (10 years or more),
but the Fund may invest in Tax Exempt Securities having a broad
range of maturities .

At times Putnam Management may judge that
conditions in the markets for Tax Exempt Securities make pursuing
the Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times Putnam Management
may temporarily use alternative strategies, primarily designed to
reduce fluctuations in the value of the Fund's assets. In
implementing these "defensive" strategies, the Fund may invest in
taxable obligations of the U.S. government, its agencies
or instrumentalities, may place up to 25% of its assets in
repurchase agreements with commercial banks and registered
broker-dealers, or may invest in any other securities that
Putnam Management considers consistent with such defensive
strategies. It is impossible to predict when, or for how long,
the Fund will use such alternative strategies.

Tax Exempt Securities will be limited to
securities rated at the time of purchase not
lower than the four highest grades assigned by Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) and Standard &
Poor's Corporation ("S&P") (AAA, AA, A or BBB) , or
unrated securities which Putnam Management determines
are of comparable quality. The rating services'
descriptions of the four highest grades of debt securities
are included in the Statement of Additional Information.

In addition, at the time of purchase and so long as a Tax Exempt
Security is held by the Fund, each such security must be covered
by insurance guaranteeing the timely payment of principal and
interest, except if a security at the time of purchase (i) is
rated AAA or Aaa, in the case of a Bond, or SP-1, MIG-1, Prime-1,
or A-1+, in the case of a Note or Commercial Paper, or (ii) is
backed by the full faith and credit of the U.S. government.
Under normal market conditions it is expected that at least 70%
of the Fund's Tax Exempt Securities will be protected by
insurance. Such insurance may be provided (i) under a "new
issue" insurance policy obtained by the issuer or underwriter of
a security, (ii) under a "secondary market" policy purchased by
the Fund with respect to a security, or (iii) under a portfolio
insurance policy maintained by the Fund. In each case, such
insurance policies guarantee only the timely payment of principal
and interest on the insured Tax Exempt Securities. Market value,
which may fluctuate due to changes in interest rates or factors
affecting the credit of the issuer or the insurer, is not
insured. These forms of insurance, which are more fully
described below under "Insurance," are available from a number of
insurance companies. The Fund will only acquire insurance from,
and purchase Tax Exempt Securities insured by, companies whose
claims paying ability is rated AAA or Aaa at the time of
purchase. Changes in the financial condition of an insurer could
result in a subsequent reduction or withdrawal of such rating.

The Fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist the Fund in meeting the Fund's investment
objective.

Interest income from certain types of Tax Exempt Securities
may be subject to federal alternative minimum tax for individuals
and corporations. It is a fundamental policy of the Fund to
exclude securities the interest from which may be subject to
federal alternative minimum tax from the term "Tax Exempt
Securities" for purposes of determining compliance with the 80%
test described above. More generally, corporate shareholders may
be subject to federal alternative minimum tax on a portion of the
exempt-interest dividends they receive from the Fund.

TAX EXEMPT SECURITIES

TAX EXEMPT SECURITIES INCLUDE OBLIGATIONS ISSUED BY A
STATE (INCLUDING THE DISTRICT OF COLUMBIA), A TERRITORY OR A U.S.
POSSESSION, OR ANY OF THEIR POLITICAL SUBDIVISIONS, AGENCIES,
INSTRUMENTALITIES OR OTHER GOVERNMENTAL UNITS, THE INTEREST
WITH RESPECT TO WHICH , IN THE OPINION OF BOND
COUNSEL, IS EXEMPT FROM FEDERAL INCOME TAX. These
securities are issued to obtain funds for various public
purposes, such as the construction of public facilities, the
payment of general operating expenses or the refunding of
outstanding debts. They may also be issued to finance various
private activities, including the lending of funds to public or
private institutions for the construction of housing,
educational or medical facilities, and may also
include certain types of industrial development bonds, private
activity bonds or notes issued by public authorities to finance
privately owned or operated facilities, or to fund short-term
cash requirements. Short-term Tax Exempt Securities may be
issued as interim financing in anticipation of tax collections,
revenue receipts or bond sales to finance various public
purposes. Tax Exempt Securities may also include obligations
issued by certain other governmental entities , such as U.S.
territories, if such debt obligations generate interest
income which is exempt from federal income tax.

THE TWO PRINCIPAL CLASSIFICATIONS OF TAX EXEMPT SECURITIES ARE
GENERAL OBLIGATION AND SPECIAL OBLIGATION (OR SPECIAL REVENUE
OBLIGATION) SECURITIES. GENERAL OBLIGATION securities involve a
pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their
payment may depend on an appropriation by the issuer's
legislative body. The characteristics and methods of enforcement
of general obligation securities vary according to the law
applicable to the particular issuer. SPECIAL OBLIGATION (or
SPECIAL REVENUE OBLIGATION) securities are payable only from the
revenues derived from a particular facility or class of
facilities, or a specific revenue source, and generally are not
payable from the unrestricted revenues of the issuer.
Industrial development bonds and private activity bonds
are in most cases special obligation securities, the credit
quality of which is directly related to the private user of the
facilities.

The Fund may also invest in securities representing interests in
Tax Exempt Securities, known as "inverse floating obligations" or
"residual interest bonds," which pay interest rates that
vary inversely to changes in the interest rates of specified
short-term tax exempt securities or an index of short-term tax
exempt securities. The interest rates on inverse floating
obligations or residual interest bonds will typically decline as
short-term market interest rates increase and increase as short-
term market rates decline. Such securities have the
effect of providing a degree of investment leverage, since they
will generally increase or decrease in value in response to
changes in market interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate long-term tax
exempt securities increase or decrease in response to such
changes. As a result, the market values of inverse floating
obligations and residual interest bonds will generally be more
volatile than the market values of fixed-rate tax exempt
securities.

PUTNAM MANAGEMENT BUYS AND SELLS SECURITIES FOR THE FUND'S
PORTFOLIO WITH A VIEW TO SEEKING AS HIGH A LEVEL OF CURRENT
INCOME AS IS BELIEVED TO BE CONSISTENT WITH PRESERVATION OF
CAPITAL. As a result, the Fund will not necessarily invest in
the highest yielding Tax Exempt Securities permitted by its
investment policies if Putnam Management determines that market
risks or credit risks associated with such investments would
subject the Fund's portfolio to excessive risk. The potential
for realization of capital gains resulting from possible changes
in interest rates will not be a major consideration. Putnam
Management will be free to take full advantage of the entire
range of maturities offered by Tax Exempt Securities and may
adjust the average maturity of the Fund's portfolio from time to
time, depending on its assessment of the relative yields
available on securities of different maturities and its
expectations of future changes in interest rates. However, it is
anticipated that under normal market conditions the Fund will
invest primarily in long-term Tax Exempt Securities having
maturities greater than ten years and that it will generally hold
short-term Tax Exempt Securities only for liquidity purposes.

The Fund will not generally invest more than 25% of its total
assets in any industry. Governmental issuers of Tax Exempt
Securities are not considered part of any "industry." However,
Tax Exempt Securities backed only by the assets and revenues of
nongovernmental users may for this purpose be deemed to be issued
by such nongovernmental users, and the 25% limitation would apply
to such obligations. It is nonetheless possible that the Fund
may invest more than 25% of its assets in a broader segment of
the Tax Exempt Security market, such as revenue obligations of
hospitals and other health care facilities, housing agency
revenue obligations, or airport revenue obligations. This would
be the case only if Putnam Management determined that the yields
available from obligations in a particular segment of the market
justified the additional risks associated with such
concentration. Although such obligations could be supported by
the credit of governmental users or by the credit of
nongovernmental users engaged in a number of industries,
economic, business, political and other developments generally
affecting the revenues of such users (for example, proposed
legislation or pending court decisions affecting the financing of
such projects and market factors affecting the demand for the
services or products of such issuers) may have a general adverse
effect on all Tax Exempt Securities in such a market segment.

The Fund reserves the right to invest more than 25% of its assets
in industrial development and private activity bonds or in
issuers located in the same state.
<PAGE>
INVESTMENTS IN PREMIUM SECURITIES

During a period of declining interest rates, many of the Fund's
portfolio investments will likely bear coupon rates which are
higher than current market rates, regardless of whether such
securities were originally purchased at a premium. Such
securities would generally carry market values greater than the
principal amounts payable on maturity, which would be reflected
in the net asset value of the Fund's shares. The values of such
"premium" securities tend to approach the principal amount as
they approach maturity (or call price in the case of securities
approaching their first call date). As a result, an investor who
purchases shares of the Fund during such periods would initially
receive higher monthly distributions (derived from the higher
coupon rates payable on the Fund's investments) than might be
available from alternative investments bearing current market
interest rates, but may face an increased risk of capital loss as
these higher coupon securities approach maturity (or first call
date). In evaluating the potential performance of an investment
in the Fund, investors may find it useful to compare the Fund's
current dividend rate with the Fund's "yield," which is computed
on a yield-to-maturity basis in accordance with SEC regulations
and which reflects amortization of market premiums. See "How
performance is shown."

RISK FACTORS

The values of Tax Exempt Securities fluctuate in response
to changes in interest rates . Thus, a decrease in
interest rates will generally result in an increase in the
value of the Fund's assets . Conversely, during periods of
rising interest rates, the value of the Fund's assets will
generally decline. Changes by recognized rating services
in their ratings of Tax Exempt Securities, the ratings of
insurers' claim paying abilities and in the ability of an issuer
to make payments of interest and principal may also affect
the value of these investments. The portfolio insurance
covering Tax Exempt Securities purchased by the Fund does not
insure against changes in market value. Changes in the value of
portfolio securities generally will not affect income
derived from such securities , but will affect the
Fund's net asset value.

Certain securities held by the Fund may permit the issuer at
its option to "call," or redeem, its securities. If an issuer
were to redeem securities held by the Fund during a time of
declining interest rates, the Fund may not be able to reinvest
the proceeds in securities providing the same investment return
as the securities redeemed.

The Fund believes that, in general, the secondary market
for Tax Exempt Securities is less liquid than that for taxable
fixed-income securities, particularly in the lower rating
categories. The ability of the Fund to buy and sell
securities may be limited, at any particular time and with
respect to any particular securities.

INSURANCE

The three types of insurance are "new issue" insurance, portfolio
insurance and "secondary market" insurance. The Fund may obtain
a portfolio insurance policy which would guarantee payment of
principal and interest on eligible Tax Exempt Securities owned by
the Fund which are not otherwise insured by "new issue" insurance
or "secondary market" insurance and which would therefore require
insurance coverage under the Fund's investment policies. Under a
portfolio insurance policy, the insurer may from time to time
establish criteria for determining Tax Exempt Securities eligible
for insurance. The Fund will not purchase a Tax Exempt Security
which is not eligible for coverage under a portfolio policy
unless the security is otherwise insured or is exempt from the
Fund's insurance requirements.

Unlike Tax Exempt Securities covered by "new issue" insurance,
which continues in force for the life of the security, a Tax
Exempt Security will be entitled to the benefit of insurance
under a portfolio policy only so long as the Fund owns the
security. If the Fund sells the security, the insurance
protection ends. As a result, the Fund will generally not
attribute any value to portfolio insurance in valuing its
investments. However, if any Tax Exempt Security is in default
or presents a material risk of default, the Fund intends to
continue to hold the security in its portfolio and to place a
value on the insurance protection. Thus, Putnam Management's
ability to manage the portfolio of the Fund or to obtain
portfolio insurance from other insurers may be limited to the
extent that it holds defaulted securities. Portfolio insurance
cannot be cancelled by the insurer with respect to any Tax Exempt
Security already held by the Fund except for non-payment of
premiums. However, there is no assurance that portfolio
insurance will be available at reasonable premium rates.

The Fund may at times purchase "secondary market" insurance on
Tax Exempt Securities which it holds or acquires. Like "new
issue" insurance, this insurance continues in force for the life
of the security for the benefit of any holder of the security.
The purchase of secondary market insurance would be reflected in
the market value of the security and, if available, may enable
the Fund to dispose of a defaulted security at a price similar to
that of comparable, undefaulted securities.
Insurance premiums paid by the Fund for portfolio insurance would
be treated as an expense of the Fund, reducing the Fund's net
investment income. While the amount of premiums depends on the
composition of the Fund's portfolio, Putnam Management estimates
that, at current rates, the Fund's annual premium expense for
portfolio insurance, if purchased, would range from 0.1% to 0.5%
of that portion of the Fund's assets covered by such insurance.
Premiums paid for secondary market insurance, however, would be
treated as capital costs, increasing the Fund's cost basis in its
investments and reducing its effective yield. During fiscal
1994 the Fund did not pay any insurance premiums.

PORTFOLIO TURNOVER

The length of time the Fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the Fund is known as "portfolio turnover."
As a result of the Fund's investment policies, under certain
market conditions the Fund's portfolio turnover rate may be
higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
Portfolio turnover rates for the life of the Fund are shown in
the section "Financial highlights."

FINANCIAL FUTURES AND OPTIONS

THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS FOR
HEDGING PURPOSES. Futures contracts on a Municipal Bond Index
are traded on the Chicago Board of Trade. This Index is intended
to represent a numerical measure of market performance for long-
term tax exempt bonds. An "index future" is a contract
to buy or sell units of a particular securities index at an
agreed price on a specified future date. Depending on the change
in value of the index between the time when the Fund enters into
and terminates an index futures contract, the Fund realizes a
gain or loss. The Fund may purchase and sell futures contracts
on the Index (or any other tax-exempt bond index approved for
trading by the Commodity Futures Trading Commission) to hedge
against general changes in market values of Tax Exempt Securities
which the Fund owns or expects to purchase. The Fund may also
purchase and sell put and call options on index futures or on the
indices directly, in addition to or as an alternative to
purchasing and selling index futures.

In addition, the Fund may purchase put and call options on, or
warrants to purchase, Tax Exempt Securities, either directly or
through custodial arrangements in which a Fund and other
investors own an interest in one or more options on Tax Exempt
Securities.

The Fund may also, for hedging purposes, purchase and sell
futures contracts and related options with respect to U.S.
Treasury securities, including U.S. Treasury bills, notes and
bonds ("U.S. Government Securities") and options directly on U.S.
Government Securities. U.S. Government Securities futures and
options would be used in a way similar to the Fund's use of index
futures and options.

THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS AND
MAY RESULT IN REALIZATION OF TAXABLE INCOME OR CAPITAL GAINS.
FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN
LOSSES. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of
financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or of the Tax
Exempt Securities which are the subject of the hedge. The
successful use of futures and options further depends on Putnam
Management's ability to forecast interest rate movements
correctly. Other risks arise from the Fund's potential inability
to close out its futures or related options positions, and there
can be no assurance that a liquid secondary market will exist for
any futures contract or option at a particular time. Certain
provisions of the Internal Revenue Code and certain regulatory
requirements may limit the Fund's ability to engage in futures
and options transactions.

A MORE DETAILED EXPLANATION OF FINANCIAL FUTURES AND OPTIONS
TRANSACTIONS AND THE RISKS ASSOCIATED WITH THEM IS INCLUDED IN
THE STATEMENT OF ADDITIONAL INFORMATION.

OTHER INVESTMENT PRACTICES

THE FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING
INVESTMENT PRACTICES, EACH OF WHICH MAY RESULT IN TAXABLE INCOME
OR CAPITAL GAINS AND INVOLVES CERTAIN SPECIAL RISKS. THE
STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE DETAILED
INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS DESIGNED
TO REDUCE THESE RISKS.

REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. When utilizing
the alternative investment strategies described above, the Fund
may enter into repurchase agreements on up to 25% of its assets.
These transactions must be fully collateralized at all times.
The Fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to the
Fund if the other party should default on its obligation and the
Fund is delayed or prevented from recovering the collateral or
completing the transaction.

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM INVESTING MORE THAN: (a) 5% of its total assets in
securities of any one issuer (other than U.S. government
obligations) (insurance policies of which the Fund is a
beneficiary are not considered securities for purposes of this
restriction);* (b) 5% of its net assets in securities of issuers
(other than U.S. government obligations and Tax Exempt Securities
backed by the credit of a governmental entity) that, together
with any predecessors, controlling persons, general partners and
guarantors, have been in operation less than three years; (c) 15%
of its net assets in securities restricted as to resale
(excluding securities determined by the Trust's Trustees (or the
person designated by them to make such determinations) to be
readily marketable)*; or (d) 15% of its net assets in any
combination of securities that are not readily marketable, in
securities restricted as to resale (excluding securities
determined by the Trust's Trustees (or the person designated by
them to make such determinations) to be readily marketable), and
in repurchase agreements maturing in more than seven days.

Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the Statement of
Additional Information for the full text of these policies and
the Trust's other fundamental investment policies. Except
for investment policies designated as fundamental in this
Prospectus or the Statement, the investment policies described in
this Prospectus and in the Statement are not fundamental
policies. The Trustees may change any non-fundamental investment
policies without shareholder approval. As a matter of policy,
the Trustees would not materially change the Fund's investment
objective without shareholder approval.

HOW PERFORMANCE IS SHOWN

THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" for each
class of shares is calculated by dividing the annualized net
investment income per share during a recent 30-day period
by the maximum public offering price per share of such class on
the last day of that period. For this purpose, net investment
income is calculated in accordance with SEC regulations and may
differ from net investment income as determined for
financial reporting purposes. SEC regulations require that net
investment income be calculated on a "yield-to-maturity" basis,
which has the effect of amortizing any premiums or discounts in
the current market value of fixed-income securities. The
current dividend rate is based on net investment income
as determined for financial statement purposes, which may not
reflect amortization in the same manner. See "How objective is
pursued -- Investments in premium securities." Yield
reflects the deduction of the maximum initial sales charge in the
case of Class A shares, but does not reflect the deduction of any
contingent deferred sales charge in the case of Class B shares.
"Tax-equivalent" yield for each class of shares shows the effect
on performance of the tax-exempt status of distributions received
from the Fund . It reflects the approximate yield that a
taxable investment must earn for shareholders at stated income
levels to produce an after-tax yield equivalent to a
class's tax-exempt yield .

"Total return" for the one- , five - and ten -year
periods (or for the life of a class, if shorter)
through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in
the Fund invested at the maximum public offering price (in the
case of Class A shares) or reflecting the deduction of any
applicable contingent deferred sales charge (in the case of
Class B shares). Total return may also be presented for other
periods or based on investment at reduced sales charge levels
. Any quotation of investment performance not
reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales
charge were used.

All data is based on the Fund's past investment results and does
not predict future performance. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objectives and policies. These factors should
be considered when comparing the Fund's investment results to
those of other mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The Fund's performance may be
compared to various indices. See the Statement of Additional
Information.

HOW THE FUND IS MANAGED

THE TRUSTEES OF THE TRUST ARE RESPONSIBLE FOR GENERALLY
OVERSEEING THE CONDUCT OF THE FUND'S BUSINESS. Subject to such
policies as the Trustees may determine, Putnam Management
furnishes a continuing investment program for the Fund and makes
investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the Fund's other
affairs and business. Richard P. Wyke, Senior Vice President of
Putnam Management and Vice President of the Trust, has had
primary responsibility for the day-to-day management of the
Fund's portfolio since November, 1988. Mr. Wyke has been
employed by Putnam Management since January, 1987.

The Trust pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments
under its Distribution Plans (which are in turn allocated to the
relevant class of shares). Expenses of the Trust directly
charged or attributable to the Fund will be paid from the assets
of the Fund. General expenses of the Trust will be allocated
among and charged to the assets of the Fund and any other
portfolio of the Trust on a basis that the Trustees deem fair and
equitable, which may be based on the relative assets of the Fund
or the nature of the services performed and relative
applicability to the Fund. The Trust also reimburses Putnam
Management for the compensation and related expenses of certain
officers of the Trust and their staff who provide administrative
services to the Trust. The total reimbursement is determined
annually by the Trustees.

Putnam Management places all orders for purchases and sales of
the Fund's securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of shares of the Fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of broker-
dealers.

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized on June 28,
1985. A copy of the Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of
State of The Commonwealth of Massachusetts.

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without
shareholder approval, be divided into two or more series of such
shares and are currently divided into two series of shares: the
Fund and Putnam Tax-Free High Yield Fund. Any such series
of shares may be further divided without shareholder approval
into two or more classes of shares having such preferences and
special or relative rights and privileges as the Trustees
determine. The Fund's shares are currently divided into two
classes.

Each share has one vote, with fractional shares voting
proportionally. Shares vote by individual series on all
matters except (i) when required by the Investment Company Act of
1940, shares of all series shall be voted in the aggregate and
(ii) when the Trustees have determined that the matter affects
only the interests of one or more series, in which case only
shareholders of such series shall be entitled to vote.
Shares of each class will vote together as a single class except
when required by law or as determined by the Trustees. Shares of
the Fund are freely transferable, are entitled to dividends from
the assets of the Fund as declared by the Trustees, and, if the
Trust were liquidated, would receive the net assets of the Fund.
The Trust may suspend the sale of shares of the Fund at any time
and may refuse any order to purchase shares. Although the Trust
is not required to hold annual meetings of its shareholders,
shareholders holding at least 10% of the outstanding shares
entitled to vote have the right to call a meeting to elect or
remove Trustees or to take other actions as provided in the
Agreement and Declaration of Trust.

If you own fewer shares than a minimum amount set
by the Trustees (presently 20 shares), the Fund may choose to
redeem your shares and pay you for them. You will receive at
least 30 days' written notice before the Fund redeems your
shares, and you may purchase additional shares at any time to
avoid a redemption. The Fund may also redeem shares if you own
shares above a maximum amount set by the Trustees. There is
presently no maximum, but the Trustees may establish one at any
time, which could apply to both present and future shareholders.

THE TRUST'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, M.I.T.; JAMESON ADKINS BAXTER, President, Baxter
Associates, Inc.; HANS H. ESTIN, Vice Chairman, North American
Management; JOHN A. HILL, Principal and Managing Director, First
Reserve Corporation; ELIZABETH T. KENNAN, President, Mount
Holyoke College; LAWRENCE J. LASSER,* Vice President of the
Putnam funds. President, Chief Executive Officer and Director of
Putnam Investments, Inc. and Putnam Management. Director, Marsh
& McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President, Cabot Partners Limited Partnership; DONALD S. PERKINS,
Director of various corporations, including AT&T, K mart
Corporation and Time Warner Inc.; GEORGE PUTNAM, III,*
President, New Generation Research, Inc.; A.J.C. SMITH,*
Chairman, Chief Executive Officer and Director, Marsh & McLennan
Companies, Inc.; and W. NICHOLAS THORNDIKE, Director of various
corporations and charitable organizations, including Providence
Journal Co. Also, Trustee of Massachusetts General
Hospital and Trustee of Eastern Utilities Associates. The
Trust's Trustees are also Trustees of the other Putnam funds.
Those marked with an asterisk (*) are "interested persons" of the
Trust, Putnam Management or Putnam Mutual Funds.
<PAGE>
ABOUT YOUR INVESTMENT

ALTERNATIVE SALES ARRANGEMENTS

This Prospectus offers investors two classes of shares
which bear sales charges in different forms and amounts and which
bear different levels of expenses:

CLASS B SHARES . Class B shares are sold without an
initial sales charge, but are subject to a contingent deferred
sales charge of up to 5% if redeemed within six years. Class B
shares also bear a higher 12b-1 fee than Class A shares,
currently at the annual rate of 0.85% of the Fund's average net
assets attributable to Class B shares. Class B shares will
automatically convert into Class A shares, based on relative net
asset value, approximately eight years after purchase. Class B
shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made,
but (until conversion) will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher 12b-1 fee.
See "How to buy shares -- Class B shares."

WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge
might consider Class B shares. Orders for Class B shares for
$250,000 or more will be treated as orders for Class A shares or
declined. For more information about these sales arrangements,
consult your investment dealer or Putnam Investor Services.
Sales personnel may receive different compensation depending on
which class of shares they sell. Shares may only be exchanged
for shares of the same class of another Putnam fund. See "How
to exchange shares."

HOW TO BUY SHARES

You can open a Fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy Fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.

BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order
form and return it with a check payable to the Fund to Putnam
Mutual Funds, which will act as your agent in purchasing shares
through your designated investment dealer.

BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking account. Application forms are available
from your investment dealer or through Putnam Investor Services.

Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.

CLASS A SHARES

The public offering price of Class A shares is the net asset
value plus a sales charge. The Fund receives the net asset
value. The sales charge varies depending on the size of your
purchase and is allocated between your investment dealer and
Putnam Mutual Funds. The current sales charges are:
<PAGE>
<TABLE>
<CAPTION>

SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE
AT OFFERING PRICE INVESTED PRICE OF OFFERING PRICE*
- -----------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 25,000 4.99% 4.75% 4.50%
$ 25,000 but less than 100,000 4.71 4.50 4.25
100,000 but less than 250,000 3.90 3.75 3.50
250,000 but less than 500,000 3.09 3.00 2.75
500,000 but less than 1,000,000 2.04 2.00 1.85
- -----------------------------------------------------------------------------------
/TABLE
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers.
The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.

There is no initial sales charge on purchases of Class A shares
of $1 million or more. However, a contingent deferred sales
charge ("CDSC") of 1.00% or 0.50%, respectively, is imposed on
redemptions of such shares within the first or second year after
purchase, based on the lower of the shares' cost and current
net asset value . Any shares acquired by reinvestment of
distributions will be redeemed without a CDSC. In addition,
shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph are not subject to the CDSC. In determining
whether a CDSC is payable, the Fund will first redeem shares not
subject to any charge. Putnam Mutual Funds receives the entire
amount of any CDSC you pay. See the Statement of Additional
Information for more information about the CDSC.

Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases
during the one-year period beginning with the date of the initial
purchase at net asset value and each subsequent one-year period
beginning with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales at the
rate of 0.15%.

YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AT REDUCED SALES
CHARGES. Consult your investment dealer or Putnam Mutual Funds
for details about Putnam's Combined Purchase Privilege,
Cumulative Quantity Discount, Statement of Intention, Group Sales
Plan, Employee Benefit Plans and other plans. Descriptions are
also included in the order form and in the Statement of
Additional Information. Shares may be sold at net asset value to
certain categories of investors, and the CDSC may be waived under
certain circumstances. See "How to buy shares -- General" below.

CLASS B SHARES

Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within six years of
purchase. The following types of shares may be redeemed without
charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as
described in "How to buy shares-General" below. For
other shares , the amount of the charge is determined as a
percentage of the lesser of the current market value or the cost
of the shares being redeemed. The amount of the CDSC
will depend on the number of years since you invested and the
dollar amount being redeemed, according to the following table:

CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
YEARS SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- -------------------

0-1. . . . . . . . . . . . . . . . . .5.0%
1-2. . . . . . . . . . . . . . . . . .4.0%
2-3. . . . . . . . . . . . . . . . . .3.0%
3-4. . . . . . . . . . . . . . . . . .3.0%
4-5. . . . . . . . . . . . . . . . . .2.0%
5-6. . . . . . . . . . . . . . . . . .1.0%
6 and thereafter. . . . . . . . . . . . . . .NONE

In determining whether a CDSC is payable on any redemption, the
Fund will first redeem shares not subject to any charge, and then
shares held longest during the six-year period. For this
purpose, the amount of any increase in a share's value above its
initial purchase price is not regarded as a share exempt from the
CDSC. Thus, when a share that has appreciated in value is
redeemed during the six-year period, a CDSC is assessed on its
initial purchase price. For information on how sales charges
are calculated if you exchange your shares, see "How to exchange
shares." Putnam Mutual Funds receives the entire amount of any
CDSC you pay. The CDSC applicable to shares of the Fund issued
prior to August 23, 1993 is calculated in a different manner than
the CDSC described above. For further information consult your
dealer or Putnam Investor Services.

CONVERSION OF CLASS B SHARES. Class B shares will automatically
convert into Class A shares at the end of the month eight years
after the purchase date, except as noted below. Class B shares
acquired by exchanging Class B shares of another Putnam
fund will convert into Class A shares based on the time of the
initial purchase. Class B shares acquired through reinvestment
of distributions will convert into Class A shares based on the
date of the initial purchase to which such shares relate. For
this purpose, Class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of Class
B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of Class B shares to
Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel
that such conversions will not constitute taxable events for
Federal tax purposes. There can be no assurance that such ruling
or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion
is not available. In such event, Class B shares would continue
to be subject to higher expenses than Class A shares for an
indefinite period.

GENERAL

The Fund may sell Class A and Class B shares at net asset value
without an initial sales charge or a CDSC to the Trust's current
and retired Trustees (and their families), current and retired
employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of Fund shares), financial
institution trust departments investing an aggregate of $1
million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, employee benefit plans of
companies with more than 750 employees, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds, and investors meeting certain requirements who sold
shares of certain Putnam closed-end funds pursuant to a tender
offer by the closed-end fund. In addition, the Fund may sell
shares at net asset value without an initial sales charge or a
CDSC in connection with the acquisition by the Fund of assets of
an investment company or personal holding company, and the CDSC
will be waived on redemptions of shares arising out of death or
disability or in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of Class B shares
subject to a Systematic Withdrawal Plan may also be redeemed each
year without a CDSC. See the Statement of Additional
Information.

Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the Fund at net asset value.
<PAGE>
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise the Fund
may delay payment until the purchase price of those shares has
been collected or, if you redeem by telephone, until 15 calendar
days after the purchase date.

To eliminate the need for safekeeping, the Fund will not issue
certificates for your shares unless you request them. Putnam
Mutual Funds may, at its expense, provide additional promotional
incentives or payments to dealers that sell shares of the Putnam
funds. In some instances, these incentives or payments may be
offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.

DISTRIBUTION PLANS

CLASS A DISTRIBUTION PLAN. The Class A Plan provides for
payments by the Fund to Putnam Mutual Funds at the annual rate of
up to 0.35% of the Fund's average net assets attributable to
Class A shares . The Trustees currently limit
payments under the Class A Plan to the annual rate of
0.20% of such assets . Should the Trustees decide in the
future to approve payments in excess of this amount, shareholders
will be notified and this Prospectus will be revised.

In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset
value of Class A shares of the Fund which are attributable to
shareholders for whom the dealers are designated as the dealer of
record. This calculation excludes until one year after purchase
shares purchased at net asset value by shareholders
investing $1 million or more and by participant-directed
qualified retirement plans sponsored by employers with more than
750 employees ("NAV Shares"), except for shares owned by certain
investors investing $1 million or more that have made
arrangements with Putnam Mutual Funds and whose dealer of record
waived the sales commission. Except as stated below, Putnam
Mutual Funds makes such payments at the annual rate of 0.20% of
such average net asset value of Class A shares. For participant-
directed qualified retirement plans initially investing less than
$20 million in Putnam funds and other investments managed by
Putnam Management or its affiliates, Putnam Mutual Funds'
payments to qualifying dealers on NAV Shares are 100% of the rate
stated above if average plan assets in Putnam funds (excluding
money market funds) during the quarter are less than $20 million,
60% of the stated rate if average plan assets are at least $20
million but less than $30 million, and 40% of the stated rate if
average plan assets are $30 million or more. For all other
participant-directed qualified retirement plans purchasing NAV
Shares, Putnam Mutual Funds makes quarterly payments to
qualifying dealers at the annual rate of 0.10% of the average net
asset value of such shares.

CLASS B DISTRIBUTION PLAN. The Class B Plan provides for
payments by the Fund to Putnam Mutual Funds at the annual rate of
up to 1.00% of the Fund's average net assets attributable to
Class B shares . The Trustees currently limit payments
under the Class B Plan to the annual rate of 0.85% of such
assets. Should the Trustees decide in the future to approve
payments in excess of this amount, shareholders will be notified
and this Prospectus will be revised.

GENERAL. Payments under the Plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's shares, including
the payments to dealers mentioned above. Putnam Mutual Funds
may suspend or modify the payments made to dealers . Such
payments are also subject to the continuation of the
relevant Distribution Plan , the terms of Service
Agreements between dealers and Putnam Mutual Funds, and any
applicable limits imposed by the National Association of
Securities Dealers, Inc.
<PAGE>
HOW TO SELL SHARES

You can sell your shares to the Fund any day the New York Stock
Exchange is open, either directly to the Fund or through your
investment dealer. The Fund will only redeem shares for
which it has received payment.

SELLING SHARES DIRECTLY TO THE FUND. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the Fund receives your request in proper form
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange. If you sell shares having a net asset value of
$100,000 or more, the signatures of registered owners or their
legal representatives must be guaranteed by a bank, broker-dealer
or certain other financial institutions. See the Statement of
Additional Information for more information about where to obtain
a signature guarantee. Stock power forms are available from your
investment dealer, Putnam Investor Services and many commercial
banks. If you want your redemption proceeds sent to an address
other than your address as it appears on Putnam's records, a
signature guarantee is required. Putnam Investor Services
usually requires additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving
joint owner. Contact Putnam Investor Services for details.

THE FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend redemptions , or postpone payment for
more than seven days, as permitted by federal securities law.

You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
Account Application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records. Putnam Investor
Services will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, Putnam Investor
Services may be liable for any losses due to unauthorized or
fraudulent instructions. For information, consult Putnam
Investor Services. During periods of unusual market changes and
shareholder activity, you may experience delays in contacting
Putnam Investor Services by telephone in which case you may wish
to submit a written redemption request, as described above, or
contact your investment dealer, as described below. The
Telephone Redemption Privilege is not available if you were
issued certificates for your shares which remain outstanding.
The Telephone Redemption Privilege may be modified or terminated
without notice.

SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset
value. Your dealer will be responsible for furnishing all
necessary documentation to Putnam Investor Services, and may
charge for its services.

HOW TO EXCHANGE SHARES

You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value beginning 15 days
after purchase. If you exchange shares subject to a CDSC,
the transaction will not be subject to the CDSC. However, when
you redeem the shares acquired through the exchange, the
redemption may be subject to the CDSC, depending upon when you
originally purchased the shares and using the schedule of any
fund into or from which you have exchanged your shares that would
result in your paying the highest CDSC applicable to your class
of shares. For purposes of computing the CDSC, the length of
time you have owned your shares will be measured from the date of
original purchase and will not be affected by any exchange.

To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
Exchange Authorization Forms are available by calling or writing
Putnam Investor Services. For federal income tax purposes, an
exchange is treated as a sale of shares and generally results in
a capital gain or loss. A Telephone Exchange Privilege is
currently available for amounts up to $500,000. Putnam Investor
Services' procedures for telephonic transactions are described
above under "How to sell shares." The Telephone Exchange
Privilege is not available if you were issued certificates for
shares which remain outstanding. Ask your investment dealer or
Putnam Investor Services for prospectuses of other Putnam funds.
Shares of certain Putnam funds are not available to residents of
all states.

The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the
Trustees believe doing so would be in the best interests of
the Fund, the Fund reserves the right to revise or terminate the
exchange privilege, limit the amount or number of exchanges or
reject any exchange. Shareholders would be notified of any such
action to the extent required by law. Consult Putnam Investor
Services before requesting an exchange. See the Statement of
Additional Information to find out more about the exchange
privilege.

HOW THE FUND VALUES ITS SHARES

THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN. Tax Exempt Securities are stated on
the basis of valuations provided by a pricing service approved by
the Trustees, which uses information with respect to transactions
in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between
securities in determining value. The Fund believes that reliable
market quotations generally are not readily
available for purposes of valuing its portfolio securities. As a
result, it is likely that most of the valuations provided by such
pricing service will be based upon fair value determined on the
basis of the factors listed above. Non-tax-exempt securities for
which market quotations are readily available are stated at
market value. Short-term investments that will mature in 60 days
or less are stated at amortized cost, which approximates market
value. All other securities and assets are valued at their fair
value following procedures approved by the Trustees.

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

The Fund declares all of its net interest income as a
distribution on each day it is open for business. Net interest
income consists of interest accrued on portfolio investments,
less accrued expenses, computed in each case since the most
recent determination of net asset value. Normally, the Fund pays
distributions of net interest income monthly. The Fund will
distribute at least annually all net realized capital gains, if
any, after applying any available capital loss carryovers.
Distributions paid by the Fund with respect to Class A
shares will generally be greater than those paid with respect to
Class B shares because expenses attributable to Class B shares
will generally be higher.

You begin earning distributions on the business day after
Putnam Mutual Funds receives payment for your shares. It is your
responsibility to see that your dealer forwards payment
promptly.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions in additional Fund shares without a sales charge;
(2) receive distributions from net investment income in
cash while reinvesting capital gains distributions in additional
shares without a sales charge; or (3) receive all distributions
in cash. You can change your distribution option by notifying
Putnam Investor Services in writing. If you do not select an
option when you open your account, all distributions will be
reinvested. All distributions not paid in cash will be
reinvested in shares of the class on which the distribution is
paid. You will receive a statement confirming reinvestment of
distributions in additional Fund shares (or in shares of other
Putnam funds for Dividends Plus accounts) promptly following the
quarter in which the reinvestment occurs.

If a check representing a Fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in the Fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or Putnam Investor Services is
returned as "undeliverable," Fund distributions will
automatically be reinvested in the Fund or in another Putnam
fund.

The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of
federal taxes on income and gains it distributes to shareholders.
The Fund will distribute substantially all of its ordinary income
and capital gain net income on a current basis.

Distributions designated by the Fund as "exempt-interest
dividends" are not generally subject to federal income tax.
However, if you receive Social Security or railroad retirement
benefits, you should consult your tax adviser to determine what
effect, if any, an investment in the Fund may have on the
taxation of your benefits. In addition, an investment in the
Fund may result in liability for federal alternative minimum tax
and for state and local taxes, both for individual and corporate
shareholders.

The Fund may at times purchase Tax Exempt Securities at a
discount from the price at which they were originally issued,
especially during periods of rising interest rates . For
federal income tax purposes, some or all of this market
discount will be included in the Fund's ordinary income and will
be taxable to shareholders as such when it is distributed
to them.

All Fund distributions other than exempt-interest dividends will
be taxable to you as ordinary income, except that any
distributions of net long-term capital gains will be
taxable as such, regardless of how long you have held
the shares. Distributions will be taxable as described
above whether received in cash or in shares through the
reinvestment of distributions.

Early in each year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding
year.

The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your
tax adviser to determine the precise effect of an investment in
the Fund on your particular tax situation (including possible
liability for alternative minimum tax and state and local
taxes).

ABOUT PUTNAM INVESTMENTS, INC.

PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the Fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
Fund's custodian. Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, is the Fund's investor servicing and
transfer agent.

Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary
Trust Company are subsidiaries of Putnam Investments, Inc., which
is wholly-owned by Marsh & McLennan Companies, Inc., a publicly
owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>

PUTNAM TAX-FREE INSURED FUND

One Post Office Square
Boston, MA 02109

FUND INFORMATION:
INVESTMENT MANAGER

Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109

MARKETING SERVICES

Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109

INVESTOR SERVICING AGENT

Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203

CUSTODIAN

Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109

LEGAL COUNSEL

Ropes & Gray
One International Place
Boston, MA 02110

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP
160 Federal Street
Boston, MA 02110

PUTNAMINVESTMENTS

One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
PROSPECTUS
DECEMBER 1, 1994

PUTNAM TAX-FREE HIGH YIELD FUND
CLASS A , B AND M SHARES
INVESTMENT STRATEGY: TAX-ADVANTAGED

This Prospectus explains concisely what you should know before
investing in Class A , B or M shares of Putnam
Tax-Free High Yield Fund (the "Fund"), a series of Putnam Tax-
Free Income Trust (the "Trust") . Please read it carefully
and keep it for future reference. You can find more detailed
information about the Fund in the December 1, 1994
Statement of Additional Information, as amended from time to
time. For a free copy of the Statement or other
information , call Putnam Investor Services at 1-800-225-1581.
The Statement has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference.

PUTNAM TAX-FREE HIGH YIELD FUND INVESTS PRIMARILY IN LOWER-RATED
BONDS, COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS OF THIS TYPE
ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-
PAYMENT OF INTEREST. PURCHASERS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. See page
7 .

BOSTON * LONDON * TOKYO<PAGE>

ABOUT THE FUND

Expenses summary
..........................................................
..
Financial highlights
..........................................................
..
Objective
..........................................................
..
How objective is pursued
..........................................................
..
Risk factors
..........................................................
..
How performance is shown
..........................................................
..
How the Fund is managed
..........................................................
..
Organization and history

ABOUT YOUR INVESTMENT

Alternative sales arrangements
..........................................................
..
How to buy shares
..........................................................
..
Distribution Plans
..........................................................
..
How to sell shares
..........................................................
..
How to exchange shares
..........................................................
..
How the Fund values its shares
..........................................................
..
How distributions are made; tax information

ABOUT PUTNAM INVESTMENTS, INC.

APPENDIX

Securities ratings

ABOUT THE FUND

EXPENSES SUMMARY

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 4.75% NONE* 3.25%*

5.0% in the
first year,
Deferred Sales Charge (as a declining to 1.0%
percentage of the lower of in the sixth year
original purchase price or and eliminated,
redemption proceeds) NONE** thereafter NONE

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

Management Fees 0.65% 0.57% 0.57%
12b-1 Fees 0.20% 0.85% 0.50%
Other Expenses 0.13% 0.13% 0.13%
Total Fund Operating Expenses 0.98% 1.55% 1.20%

The table is provided to help you understand the expenses of investing in the
Fund and your share of the operating expenses which the Fund incurs.
The management fees shown in the table reflect an increase in
the management fees payable to Putnam Investment Management,
Inc., the Fund's investment manager ("Putnam Management"). The 12b-1 fe
shown in the table for each class of shares reflect the amou
currently limit payments under each class's Distribution Plan. For Clas

management fees and "Other expenses" are based on the operating expenses for
the Fund's Class B shares. The information shown in the table for the
Class A shares has been annualized. Actual management fees,
12b-1 fees and total Fund operating expenses for the Class A
shares were 0.48%, 0.20% and 0.81%, respectively. Actual management fee
fees and total Fund operating expenses for the Class B shares were 0.48%,
0.84% and 1.45%, respectively.

EXAMPLES

Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years

CLASS A $57 $77 $99 $162
CLASS B $66 $79 $104 $169***
CLASS M $44 $69 $96 $173

Your investment of $1,000 would incur the following expenses,
assuming 5% annual return but no redemption:

1 3 5 10
year years years years

CLASS A $57 $77 $99 $162
CLASS B $16 $49 $84 $169***
CLASS M $44 $69 $96 $173

* The 12b-1 fees borne by Class B and Class M
shares may cause long-term shareholders to pay more
than the economic equivalent of the maximum permitted
front-end sales charge on Class A shares .

FINANCIAL HIGHLIGHTS

The table on the following page presents per share financial
information for the Class A and B shares. No Class
M shares were outstanding during these periods. This
information has been audited and reported on by the Trust's
independent accountants. The Report of Independent Accountants
and financial statements included in the Fund's Annual
Report to shareholders for the 1994 fiscal year are
incorporated by reference into this Prospectus. The
Fund's Annual Report, which contains additional unaudited
performance information, is available without charge upon
request.

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<PAGE>
<TABLE>
<CAPTION>

Financial Highlights
(For a share outstanding throughout the period)

For the period For the period
September 20, 1993 September 9, 1985
(commencement (commencement
of operations) to of operations)
July 31 Year ended July 31 to July 31
1994 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Class B

Net asset value beginning
of period $15.34 $15.01 $14.64 $13.79 $13.87 $14.30 $13.72 $13.77 $13.91 $12.57

Investment operations
Net investment income .83 .86 .95 .99 .99 1.00 .98 .96 .98 .94(a)

Net realized and unrealized
Gain (loss) on investments (.98) (.65) .41 .94 (.07) (.43) .56 (.05) .04 1.41

Total from investment
operations (.15) .21 1.36 1.93 .92 .57 1.54 .91 1.02 2.35

Less distributions:
From net investment income (.83) (.85) (.95) (.99) (1.00) (1.00) (.96) (.96) (.98) (1.01)

In excess of net investment
income (.02) (.03) -- -- -- -- -- -- -- --

From net realized gain on
investments (.05) (.05) (.04) (.09) -- -- -- -- (.18) --

Total distributions (.95) (.98) (.99) (1.08) (1.00) (1.00) (.96) (.96) (1.16) (1.01)
<PAGE>
Net asset value,
end of period $14.24 $14.24 $15.01 $14.64 $13.79 $13.87 $14.30 $13.72 $13.77 $13.91

Total investment return at
Net asset value (%)(b) (.99)(c) 1.36 9.68 14.60 6.98 4.20 11.71 6.96 7.48 19.24(c)

Net assets, end of period
(in thousands) $361,593 $1,522,955$1,501,535$1,015,866 $738,113 $651,152$635,899 $586,721 $582,023 $251,736

Ratio of expenses to average
Net assets (%) .71(c) 1.45 1.38 1.45 1.52 1.66 1.75 1.77 1.78 1.51(a)(c)

Ratio of net investment income
to average net assets (%) 5.58(c) 5.76 6.39 7.03 7.26 7.12 7.02 7.11 6.71 6.79(a)(c)

Portfolio turnover (%) 44.41 44.41 52.29 82.31 49.83 46.66 96.97 101.02 132.87 148.70

(a) Reflects a waiver of a portion of the distribution plan payments during the period. As a result of this waiver,
expenses of the fund for the period ended July 31, 1986 reflect a reduction of $0.02 per share.

(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.

OBJECTIVE

Putnam Tax-Free High Yield Fund seeks high current income exempt
from federal income tax. The Fund is not intended to be a
complete investment program, and there is no assurance it
will achieve its objective.

HOW OBJECTIVE IS PURSUED

BASIC INVESTMENT STRATEGY

PUTNAM TAX-FREE HIGH YIELD FUND SEEKS ITS OBJECTIVE
BY FOLLOWING THE FUNDAMENTAL INVESTMENT POLICY OF
INVESTING AT LEAST 80% OF ITS NET ASSETS IN A DIVERSIFIED
PORTFOLIO OF TAX EXEMPT SECURITIES (WHICH ARE DESCRIBED BELOW),
EXCEPT WHEN INVESTING FOR DEFENSIVE PURPOSES DURING TIMES OF
ADVERSE MARKET CONDITIONS . The Fund may trade its portfolio
investments seeking short-term profits, which may result in
taxable capital gains and may involve special risks. See
"Portfolio turnover, " below. The Fund may also invest
in taxable obligations, as described below, to the extent
permitted by its investment policies, or hold its
assets in money market instruments or in cash .

THE FUND INVESTS PRIMARILY IN HIGH YIELDING, HIGHER RISK, LOWER-
RATED TAX EXEMPT SECURITIES CONSTITUTING A PORTFOLIO WHICH PUTNAM
MANAGEMENT BELIEVES DOES NOT INVOLVE UNDUE RISK TO INCOME OR
PRINCIPAL. Differing yields on Tax Exempt Securities of the same
maturity are a function of several factors, including the
relative financial strength of the issuers. High yields are
generally available from securities in the lower categories of
recognized rating agencies (Baa or MIG-4 or lower by Moody's
Investors Service, Inc. ("Moody's") and BBB or SP-3 or lower by
Standard & Poor's Corporation ("S&P") or from unrated
securities of comparable quality. The lowest rating category in
which the Fund will invest is Ca (Moody's) or CC (S&P) , or
in unrated securities judged by Putnam Management to be of
comparable quality. Such securities are speculative in a high
degree and may be in default. The characteristics of securities
in the lower rating categories are described in the Appendix to
this Prospectus. There is no limit on the portion of the Fund's
assets which may be invested in any rating category.

At times Putnam Management may judge that conditions in the
markets for Tax Exempt Securities make pursuing the Fund's basic
investment strategy inconsistent with the best interests of its
shareholders. At such times Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing
these "defensive" strategies, the Fund may invest in taxable
obligations of the U.S. government, its agencies or
instrumentalities, may place up to 25% of its assets in
repurchase agreements with commercial banks and registered
broker-dealers, or may invest in any other securities that Putnam
Management considers consistent with such defensive strategies.
It is impossible to predict when, or for how long, the Fund will
use such alternative strategies.

TAX EXEMPT SECURITIES

The Fund will not generally invest more than 25% of its total
assets in any industry. Governmental issuers of Tax Exempt
Securities are not considered part of any "industry". However,
Tax Exempt Securities backed only by the assets and revenues of
nongovernmental users may for this purpose be deemed to be issued
by such nongovernmental users, and the 25% limitation would apply
to such obligations. It is nonetheless possible that the Fund
may invest more than 25% of its assets in a broader segment of
the Tax Exempt Security market, such as revenue obligations of
hospitals and other health care facilities, housing agency
revenue obligations, or airport revenue obligations. This would
be the case only if Putnam Management determined that the yields
available from obligations in a particular segment of the market
justified the additional risks associated with such
concentration. Although such obligations could be supported by
the credit of governmental users or by the credit of
nongovernmental users engaged in a number of industries,
economic, business, political and other developments generally
affecting the revenues of such users (for example, proposed
legislation or pending court decisions affecting the financing of
such projects and market factors affecting the demand for the
services or products of such issuers) may have a general adverse
effect on all Tax Exempt Securities in such a market segment.

The Fund reserves the right to invest more than 25% of its assets
in industrial development and private activity bonds or in
issuers located in the same state.

INVESTMENTS IN PREMIUM SECURITIES

RISK FACTORS

THE VALUES OF TAX EXEMPT SECURITIES FLUCTUATE IN RESPONSE TO
CHANGES IN INTEREST RATES. Thus, a decrease in interest rates
will generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the
value of the Fund's assets will generally decline. In addition,
the values of such securities are affected by changes in general
economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments.
Changes in the value of portfolio securities generally will not
affect income derived from such securities, but will affect the
Fund's net asset value. The Fund will not necessarily dispose of
a security when its rating is reduced below its rating at the
time of purchase, although Putnam Management will monitor the
investment to determine whether continued investment in the
security will assist in meeting the Fund's investment objective.

INVESTORS SHOULD CAREFULLY CONSIDER THEIR ABILITY TO ASSUME THE
RISKS OF OWNING SHARES OF A MUTUAL FUND WHICH INVESTS IN LOWER-
RATED SECURITIES BEFORE MAKING AN INVESTMENT IN THE FUND. The
lower ratings of certain securities held by the Fund reflect a
greater possibility that adverse changes in the financial
condition of the issuer, or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal.
The inability (or perceived inability) of issuers to make timely
payments of interest and principal would likely make the values
of securities held by the Fund more volatile and could limit the
Fund's ability to sell its securities at prices approximating the
values the Fund had placed on such securities. In the absence of
a liquid trading market for securities held by it, the Fund may
be unable at times to establish the fair value of such
securities. The rating assigned to a security by Moody's or S&P
does not reflect an assessment of the volatility of the
security's market value or of the liquidity of an investment in
the security. For more information about the rating services'
descriptions of lower-rated Tax Exempt Securities, see the
Appendix to this Prospectus.

The table below shows the percentages of the Fund's net assets
invested during fiscal 1994 in securities assigned to the various
rating categories by Moody's and S&P and in unrated securities
determined by Putnam Management to be of comparable quality:

UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES, QUALITY,
AS PERCENTAGE OF AS PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- -------------------------------------------------------------
"AAA"/"Aaa" 29.10% 0.34%
- -------------------------------------------------------------
"AA"/"Aa" 2.12% ---
- -------------------------------------------------------------
"A"/"A" 5.01% 0.31%
- -------------------------------------------------------------
"BBB"/"Baa" 21.16% 4.64%
- -------------------------------------------------------------
"BB"/"Ba" 4.75% 13.35%
- -------------------------------------------------------------
"B"/"B" 3.69% 14.73%
- -------------------------------------------------------------
Not Rated 0.80% ---
- -------------------------------------------------------------
Total 66.63% 33.37%
- -------------------------------------------------------------

Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis.
However, the amount of information about the financial condition
of an issuer of Tax Exempt Securities may not be as extensive as
that which is made available by corporations whose securities are
publicly traded. When the Fund invests in Tax Exempt Securities
in the lower rating categories, the achievement of the Fund's
goals is more dependent on Putnam Management's ability than would
be the case if the Fund were investing in Tax Exempt Securities
in the higher rating categories.

At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the
issuer, the Fund could find it more difficult to sell such
securities when Putnam Management believes it advisable to do so
or may be able to sell such securities only at prices lower than
if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing the
Fund's net asset value. In order to enforce its rights in the
event of a default under such securities, the Fund may be
required to take possession of and manage assets securing the
issuer's obligations on such securities, which may increase the
Fund's operating expenses and adversely affect the Fund's net
asset value. Any income derived from the Fund's ownership or
operation of such assets would not be tax-exempt.

Certain securities held by the Fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.

Certain investment grade securities in which the Fund may invest
share some of the risk factors discussed above with respect to
lower-rated securities.

The Fund may invest in so-called "zero-coupon" bonds whose values
are subject to greater fluctuation in response to changes in
market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals
during the life of the security. Zero-coupon bonds allow an
issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently. The Fund is
required to accrue and distribute income from zero-coupon bonds
on a current basis, even though it does not receive that income
currently in cash. Thus the Fund may have to sell other
investments to obtain cash needed to make income distributions.

The secondary market for Tax Exempt Securities is generally less
liquid than that for taxable fixed-income securities,
particularly in the lower rating categories. Thus, the ability
of the Fund to buy and sell certain securities may be limited
from time to time.

FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTMENT BY THE FUND IN SECURITIES IN THE LOWER RATING
CATEGORIES, SEE THE STATEMENT OF ADDITIONAL INFORMATION.

PORTFOLIO TURNOVER

UNDER CERTAIN MARKET CONDITIONS, THE FUND MAY SEEK PROFITS BY
SHORT-TERM TRADING. The length of time the Fund has held a
particular security is not generally a consideration in
investment decisions. A change in the securities owned by the
Fund is known as "portfolio turnover." To the extent short-term
trading strategies are used, the Fund's portfolio turnover rate
may be higher than that of other mutual funds. Portfolio
turnover generally involves some expense to the Fund, including
brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other
securities. Such transactions may result in realization of
taxable capital gains. Portfolio turnover rates for the life of
the Fund are shown in the section "Financial highlights."

FINANCIAL FUTURES AND OPTIONS

In addition, the Fund may purchase put and call options on, or
warrants to purchase, Tax Exempt Securities, either directly or
though custodial arrangements in which a Fund and other investors
own an interest in one or more options on Tax Exempt
Securities.

A MORE DETAILED EXPLANATION OF FINANCIAL FUTURES AND OPTIONS
TRANSACTIONS AND THE RISKS ASSOCIATED WITH THEM IS INCLUDED IN
THE STATEMENT OF ADDITIONAL INFORMATION.

OTHER INVESTMENT PRACTICES

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM INVESTING MORE THAN: (a) 5% of its total assets in
securities of any one issuer (other than U.S. government
obligations);* (b) 5% of its net assets in securities of issuers
(other than U.S. government obligations and Tax Exempt Securities
backed by the credit of a governmental entity) that, together
with any predecessors, controlling persons, general partners and
guarantors, have been in operation less than three years; (c) 15%
of its net assets in securities restricted as to resale
(excluding securities determined by the Trust's Trustees (or the
person designated by them to make such determinations) to be
readily marketable)*; or (d) 15% of its net assets in any
combination of securities that are not readily marketable, in
securities restricted as to resale (excluding securities
determined by the Trust's Trustees (or the person designated by
them to make such determinations) to be readily marketable), and
in repurchase agreements maturing in more than seven days.

HOW PERFORMANCE IS SHOWN

THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" for each
class of shares is calculated by dividing the annualized net
investment income per share during a recent 30-day period by the
maximum public offering price per share of such class on the last
day of that period. For this purpose, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for financial
reporting purposes. SEC regulations require that net investment
income be calculated on a "yield-to-maturity" basis, which has
the effect of amortizing any premiums or discounts in the current
market value of fixed-income securities. The current
dividend rate is based on net investment income as
determined for financial statement purposes, which may not
reflect amortization in the same manner. See "How objective is
pursued -- Investments in premium securities." Yield
reflects the deduction of the maximum initial sales charge in the
case of Class A shares and Class M shares , but does not
reflect the deduction of any contingent deferred sales charge in
the case of Class B shares. "Tax-equivalent" yield for each
class of shares shows the effect on performance of the tax-exempt
status of distributions received from the Fund. It reflects the
approximate yield that a taxable investment must earn for
shareholders at stated income levels to produce an after-tax
yield equivalent to a class's tax-exempt yield.

"Total return" for the one- , five - and ten -year
periods (or for the life of a class, if shorter)
through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in
the Fund invested at the maximum public offering price (in the
case of Class A and Class M shares) or reflecting the
deduction of any applicable contingent deferred sales charge (in
the case of Class B shares). Total return may also be presented
for other periods or based on investment at reduced sales charge
levels . Any quotation of investment performance
not reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales
charge were used.

HOW THE FUND IS MANAGED

THE TRUSTEES OF THE TRUST ARE RESPONSIBLE FOR GENERALLY
OVERSEEING THE CONDUCT OF THE FUND'S BUSINESS. Subject to such
policies as the Trustees may determine, Putnam Management
furnishes a continuing investment program for the Fund and makes
investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the Fund's other
affairs and business. Triet M. Nguyen, Senior Vice President of
Putnam Management and Vice President of the Trust, has had
primary responsibility for the day-to-day management of the
Fund's portfolio since January, 1988. Mr. Nguyen has been
employed by Putnam Management since October, 1985.

ORGANIZATION AND HISTORY

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without
shareholder approval, be divided into two or more series of such
shares and are currently divided into two series of shares: the
Fund and Putnam Tax-Free Insured Fund. Any such series
of shares may be further divided without shareholder approval
into two or more classes of shares having such preferences and
special or relative rights and privileges as the Trustees
determine. The Fund's shares are currently divided into
three classes.

ABOUT YOUR INVESTMENT

ALTERNATIVE SALES ARRANGEMENTS

This Prospectus offers investors three classes of
shares which bear sales charges in different forms and amounts
and which bear different levels of expenses:

CLASS A SHARES . An investor who purchases Class A shares
pays a sales charge at the time of purchase. As a result, Class
A shares are not subject to any charges when they are redeemed
(except for sales at net asset value in excess of $1 million
which are subject to a contingent deferred sales charge).
Certain purchases of Class A shares qualify for reduced sales
charges. Class A shares currently bear a 12b-1 fee at the annual
rate of 0.20% of the Fund's average net assets attributable to
Class A shares. See "How to buy shares -- Class A shares."
<PAGE>
CLASS B SHARES . Class B shares are sold without an
initial sales charge, but are subject to a contingent deferred
sales charge of up to 5% if redeemed within six years. Class B
shares also bear a higher 12b-1 fee than Class A shares,
currently at the annual rate of 0.85% of the Fund's average net
assets attributable to Class B shares. Class B shares will
automatically convert into Class A shares, based on relative net
asset value, approximately eight years after purchase. Class B
shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made,
but (until conversion) will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher 12b-1 fee.
See "How to buy shares --Class B shares."

CLASS M SHARES. An investor who purchases Class M shares pays
a sales charge at the time of purchase which is lower than the
sales charge applicable to Class A shares. Class M shares are
not subject to any contingent deferred sales charge when they are
redeemed. Certain purchases of Class M shares qualify for
reduced sales charges. Class M shares currently bear a 12b-1 fee
at the annual rate of 0.50% of a Fund's average net assets
attributable to Class M shares. See "How to buy shares -- Class
M shares."

WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider Class A
shares or Class M shares . Investors who prefer not to pay
an initial sales charge might consider Class B shares. Orders
for Class B shares for $250,000 or more and orders for Class M
shares for $1 million or more will be treated as orders for
Class A shares or declined. For more information about these
sales arrangements, consult your investment dealer or Putnam
Investor Services. Sales personnel may receive different
compensation depending on which class of shares they sell.
Shares may only be exchanged for shares of the same class of
another Putnam fund. See "How to exchange shares."

HOW TO BUY SHARES

CLASS A SHARES

SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE
AT OFFERING PRICE INVESTED PRICE OF OFFERING PRICE*
- -----------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 25,000 4.99% 4.75% 4.50%
$ 25,000 but less than 100,000 4.71 4.50 4.25
100,000 but less than 250,000 3.90 3.75 3.50
250,000 but less than 500,000 3.09 3.00 2.75
500,000 but less than 1,000,000 2.04 2.00 1.85
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers.
The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.

Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases
during the one-year period beginning with the date of the initial
purchase at net asset value and each subsequent one-year period
beginning with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales at the
rate of 0.15%.

CLASS B SHARES

Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within six years of
purchase. The following types of shares may be redeemed without
charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as
described below in "How to buy shares-General" below. For
other shares , the amount of the charge is determined as a
percentage of the lesser of the current market value or the cost
of the shares being redeemed. The amount of the CDSC
will depend on the number of years since you invested and the
dollar amount being redeemed, according to the following table:

CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
YEARS SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- -------------------

CLASS M SHARES

The public offering price of Class M shares is the net asset
value plus a sales charge. The Fund receives the net asset
value. The sales charge varies depending on the size of your
purchase and is allocated between your investment dealer and
Putnam Mutual Funds. The current sales charges are:
<PAGE>
<TABLE>
<CAPTION>

SALES CHARGE
AS A PERCENTAGE OF: AMOUNT OF SALES
------------------- CHARGE REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE OFFERING PRICE*
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 50,000 3.36% 3.25% 3.00%
$ 50,000 but less than 100,000 2.30 2.50 2.00
100,000 but less than 250,000 1.52 1.50 1.25
250,000 but less than 500,000 1.01 1.00 1.00
500,000 but less that 1,000,000 None None None
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers.
The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.

Class M shares do not convert into any other class of shares.

GENERAL

YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AND CLASS M SHARES
AT REDUCED SALES CHARGES. Consult your investment dealer or
Putnam Mutual Funds for details about Putnam's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention,
Group Sales Plan, Employee Benefit Plans and other plans.
Descriptions are also included in the order form and in the
Statement of Additional Information. In addition, sales charges
will not apply to Class M shares purchased with redemption
proceeds received within the prior ninety days from non-Putnam
mutual funds on which the investor paid a front-end or contingent
deferred sales charge.

The Fund may sell Class A , Class B and Class M
shares at net asset value without an initial sales charge or a
CDSC to the Trust's current and retired Trustees (and their
families), current and retired employees (and their families) of
Putnam Management and affiliates, registered representatives and
other employees (and their families) of broker-dealers having
sales agreements with Putnam Mutual Funds, employees (and their
families) of financial institutions having sales agreements with
Putnam Mutual Funds (or otherwise having an arrangement with a
broker-dealer or financial institution with respect to sales of
Fund shares), financial institution trust departments investing
an aggregate of $1 million or more in Putnam funds, clients of
certain administrators of tax-qualified plans, employee benefit
plans of companies with more than 750 employees, tax-qualified
plans when proceeds from repayments of loans to participants are
invested (or reinvested) in Putnam funds, "wrap accounts" for the
benefit of clients of broker-dealers, financial institutions or
financial planners adhering to certain standards established by
Putnam Mutual Funds, and investors meeting certain requirements
who sold shares of certain Putnam closed-end funds pursuant to a
tender offer by the closed-end fund. In addition, the Fund may
sell shares at net asset value without an initial sales charge or
a CDSC in connection with the acquisition by the Fund of assets
of an investment company or personal holding company, and the
CDSC will be waived on redemptions of shares arising out of death
or disability or in connection with certain withdrawals from IRA
or other retirement plans. Up to 12% of the value of Class B
shares subject to a Systematic Withdrawal Plan may also be
redeemed each year without a CDSC. See the Statement of
Additional Information.

Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the Fund at net asset value.

If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise the Fund
may delay payment until the purchase price of those shares has
been collected or, if you redeem by telephone, until 15 calendar
days after the purchase date.

DISTRIBUTION PLANS

CLASS B AND CLASS M DISTRIBUTION PLANS . The Class
B and Class M Plans provide for payments by the Fund to
Putnam Mutual Funds at the annual rate of up to 1.00% of the
Fund's average net assets attributable to Class B shares and
Class M shares, as the case may be. At present, the Trustees
have approved payments under the Class M Plan at the
annual rate of 0.50% . The Trustees currently limit payments
under the Class B Plan to the annual rate of 0.85% of such
assets. Should the Trustees decide in the future to approve
payments in excess of this amount, shareholders will be notified
and this Prospectus will be revised.

Although Class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested (including a prepaid service fee of 0.25% of the
amount invested) to dealers who sell Class B shares. These
commissions are not paid on exchanges from other Putnam funds and
sales to investors exempt from the CDSC. The amount paid to
dealers at the time of the sale of Class M shares is set forther
above under "How to buy shares -- Class M shares." In
addition, in order to further compensate dealers (including, for
this purpose, certain financial institutions) for services
provided in connection with sales of Class B shares and Class
M shares and the maintenance of shareholder accounts, Putnam
Mutual Funds makes quarterly payments to qualifying dealers based
on the average net asset value of Class B shares and Class
M shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record, except for the
first year's service fees, which are prepaid as described above.
Putnam Mutual Funds makes such payments at an annual rate
of 0.20% of such average net asset value for shares outstanding
as of March 31, 1990 and 0.25% of such average net asset value of
Class B shares acquired after that date and at the
annual rate of 0.25% of such average net asset value of Class M
shares (including shares acquired through reinvestment of
dividends). In addition, Putnam Mutual Funds also pays to
dealers, as additional compensation with respect to the sale of
Class M shares, 0.20% of such average net asset value of Class M
shares. For Class M shares, the total annual payment to dealers
equals 0.45% of such average net asset value.

GENERAL. Payments under the Plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's shares, including
the payments to dealers mentioned above. Putnam Mutual Funds
may suspend or modify the payments made to dealers described
above, and such payments are subject to the continuation of the
relevant Distribution Plan , the terms of Service
Agreements between dealers and Putnam Mutual Funds, and any
applicable limits imposed by the National Association of
Securities Dealers, Inc.

HOW TO SELL SHARES

You can sell your shares to the Fund any day the New York
Stock Exchange is open, either directly to the Fund or through
your investment dealer. The Fund will only redeem shares
for which it has received payment.

HOW TO EXCHANGE SHARES

You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value beginning 15 days
after purchase. Not all Putnam funds offer all classes of
shares. If you exchange shares subject to a CDSC, the
transaction will not be subject to the CDSC. However, when you
redeem the shares acquired through the exchange, the redemption
may be subject to the CDSC, depending upon when you originally
purchased the shares and using the schedule of any fund into or
from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares.
For purposes of computing the CDSC, the length of time you have
owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.

HOW THE FUND VALUES ITS SHARES

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

The Fund declares all of its net interest income as a
distribution on each day it is open for business. Net interest
income consists of interest accrued on portfolio investments,
less accrued expenses, computed in each case since the most
recent determination of net asset value. Normally, the Fund pays
distributions of net interest income monthly. The Fund will
distribute at least annually all net realized capital gains, if
any, after applying any available capital loss carryovers.
Distributions paid by the Fund with respect to Class A shares
will generally be greater than those paid with respect to Class B
and Class M shares because expenses attributable to Class B and
Class M shares will generally be higher.

You begin earning distributions on the business day after
Putnam Mutual Funds receives payment for your shares. It is your
responsibility to see that your dealer forwards payment promptly.

YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions in additional Fund shares without a sales charge;
(2) receive distributions from net investment income in
cash while reinvesting capital gains distributions in additional
shares without a sales charge; or (3) receive all distributions
in cash. You can change your distribution option by notifying
Putnam Investor Services in writing. If you do not select an
option when you open your account, all distributions will be
reinvested. All distributions not paid in cash will be
reinvested in shares of the class on which the distribution is
paid. You will receive a statement confirming reinvestment of
distributions in additional Fund shares (or in shares of other
Putnam funds for Dividends Plus accounts) promptly following the
quarter in which the reinvestment occurs.

Early in each year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding
year.

ABOUT PUTNAM INVESTMENTS, INC.

PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the
Fund and of other Putnam funds. Putnam Fiduciary Trust Company
is the Fund's custodian. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the Fund's investor servicing
and transfer agent.

SECURITIES RATINGS

THE FOLLOWING RATING SERVICES DESCRIBE RATED
SECURITIES AS FOLLOWS :

MOODY'S INVESTORS SERVICE, INC.

BONDS

Aaa -- Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt - edge". Interest
payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of
such issues.

Aa -- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high - grade bonds.
They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the
long - term risks appear somewhat larger than in Aaa
securities.

A -- Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in
the future.

(THE FUND WILL INVEST PRINCIPALLY IN SECURITIES IN THE FOLLOWING
RATING CATEGORIES:)

Baa -- Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.

Ba -- Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.

Caa -- Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of
danger with respect to principal or interest.

Ca -- Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

NOTES

MIG 1/VMIG 1 -- This designation denotes best quality.
There is present strong protection by established cash flows,
superior liquidity support or demonstrated broad - based
access to the market for refinancing.

MIG 2/VMIG 2 -- This designation denotes high quality.
Margins of protection are ample although not so large as in the
preceding group.

MIG 3/VMIG 3 - This designation denotes favorable quality. All
security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing
is likely to be less well established.

MIG 4/VMIG 4 - This designation denotes adequate quality.
Protection commonly regarded as required of an investment
security is present and although not distinctly or predominantly
speculative, there is no specific risk.

COMMERCIAL PAPER

Issuers rated PRIME - 1 (or related supporting institutions)
have a superior capacity for repayment of short - term
promissory obligations. Prime - 1 repayment capacity will
normally be evidenced by the following characteristics:

--
Leading market positions in well established industries.
--
High rates of return on funds employed.
--
Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
--
Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
--
Well established access to a range of financial markets
and assured sources of alternate liquidity.

Issuers rated PRIME - 2 (or related supporting institutions)
have a strong capacity for repayment of short - term
promissory obligations. This will normally be evidenced by many
of the characteristics cited above to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.

Issuers rated PRIME-3 (or related supporting institutions) have
an acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.

STANDARD & POOR'S CORPORATION

BONDS

AAA -- Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.

AA -- Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in small degree.

A -- Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

(THE FUND WILL INVEST PRINCIPALLY IN SECURITIES IN THE FOLLOWING
RATING CATEGORIES:)

BBB -- Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated
categories.

BB-B-CCC-CC- C -- Debt rated BB,B,CCC ,CC and
C is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.

D - Bonds rated D are in payment default. The D
rating category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D
rating also will be used on the filing of a bankruptcy petition
if debt service payments are jeopardized.

NOTES

SP - 1 -- Very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a (+)
.

SP - 2 -- Satisfactory capacity to pay principal and
interest.

SP-3 - Speculative capacity to pay principal and interest.

COMMERCIAL PAPER

A - 2 -- Capacity for timely payment on issues with
this designation is strong. However, the relative degree of
safety is not as high as for issues designated "A - 1".

A-3 - Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations.

B - Issues rated "B" are regarded as having only an adequate
capacity for timely payment. However, such capacity may be
damaged by changing conditions or short-term adversities.

C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.<PAGE>

PUTNAM TAX-FREE HIGH YIELD FUND

One Post Office Square
Boston, MA 02109

FUND INFORMATION:
INVESTMENT MANAGER

Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109

MARKETING SERVICES

Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109

INVESTOR SERVICING AGENT

Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203

CUSTODIAN

Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109

LEGAL COUNSEL

Ropes & Gray
One International Place
Boston, MA 02110

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP
160 Federal Street
Boston, MA 02110

PUTNAMINVESTMENTS

One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581<PAGE>
PUTNAM TAX-FREE INCOME TRUST

FORM N-1A
PART B

STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1994

This Statement of Additional Information is not a Prospectus and
is only authorized for distribution when accompanied or preceded
by the Prospectus of Putnam Tax-Free Income Trust (the "Trust")
dated December 1, 1994 , as revised from time to time,
relating to the series of shares of the Trust the investor is
considering purchasing (the "Prospectus"). This Statement
contains information which may be useful to investors but which
is not included in the Prospectus. This Statement of Additional
Information relates to the shares of Putnam Tax-Free Insured Fund
and Putnam Tax-Free High Yield Fund (each a "Fund" and referred
to collectively herein as the "Funds"). The Statement
should be read together with the applicable Prospectus.
Investors may obtain a free copy of the applicable Prospectus
from Putnam Investor Services, Mailing address: P. O. Box 41203,
Providence, RI 02940-1203.

Part I of this Statement contains specific information about the
Trust. Part II includes information about the Trust and the
other Putnam funds.
<PAGE>
TABLE OF CONTENTS
PART I PAGE

TAX EXEMPT SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . .I-3

SECURITIES RATINGS. . . . . . . . . . . . . . . . . . . . . . . .I-5

INVESTMENT RESTRICTIONS OF THE TRUST . . . . . . . . . . . . . . . . . .I-9

FUND CHARGES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . I-12

INVESTMENT PERFORMANCE OF THE TRUST. . . . . . . . . . . . . . . . . . I-14

EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES. . . . .I- 25

ADDITIONAL OFFICERS OF THE TRUST . . . . . . . . . . . . . . . .I- 27

INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .I- 28

PART II

MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . II- 22

MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . II- 27

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . II- 36

HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38

DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . II- 49

INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . II- 50

SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . II- 56

SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . II- 56

SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-57

STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . II- 57

COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . II- 58

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . II- 63

<PAGE>
PUTNAM TAX-FREE INCOME TRUST

STATEMENT OF ADDITIONAL INFORMATION
PART I

TAX EXEMPT SECURITIES

GENERAL DESCRIPTION. As used in the Prospectus and in this
Statement, the term "Tax Exempt Securities" includes debt
obligations the interest from which is, in the opinion of bond
counsel, exempt from federal income tax. Tax Exempt Securities
include debt obligations of a state (including the District of
Columbia), a territory, or a possession of the United States, or
any political subdivision thereof (for example, counties, cities,
towns, villages, districts and authorities) issued to
obtain funds for various public purposes, including the
construction of a wide range of public facilities, such as
airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works.
Other public purposes for which Tax Exempt Securities may be
issued include the refunding of outstanding obligations or
obtaining funds for general operating expenses. Short-term Tax
Exempt Securities are generally issued by state and local
governments and public authorities as interim financing in
anticipation of tax collections, revenue receipts, or bond sales
to finance such public purposes. In addition, certain types of
"private activity" bonds may be issued by public authorities to
finance such projects as privately operated housing
facilities and certain local facilities for water supply,
gas, electricity or sewage or solid waste disposal, student
loans, or the obtaining of funds to lend to public or private
institutions for the construction of facilities such as
educational, hospital and housing facilities. Such obligations
are included within the term Tax Exempt Securities if the
interest paid thereon is, in the opinion of bond counsel, exempt
from federal income tax (such interest may, however, be subject
to federal alternative minimum tax). Other types of private
activity bonds, the proceeds of which are used for the
construction, repair or improvement of, or to obtain equipment
for, privately operated industrial or commercial facilities, may
constitute Tax Exempt Securities, although the current federal
tax laws place substantial limitations on the size of such
issues. Tax Exempt Securities also include short-term discount
notes (tax-exempt commercial paper), which are promissory notes
issued by municipalities to enhance their cash flows.

Tax Exempt Securities which are bonds are long-term obligations
generally having maturities in excess of ten years. Tax Exempt
Securities which are Notes are short-term obligations having
maturities of less than one year or providing for adjustment of
the interest rate payable to approximate current market rates not
less frequently than annually.

STAND-BY COMMITMENTS. When a Fund purchases Tax Exempt
Securities, it has the authority to acquire stand-by commitments
from banks and broker-dealers with respect to those Tax Exempt
Securities. A stand-by commitment may be considered a security
independent of the Tax Exempt Security to which it relates. The
amount payable by a bank or dealer during the time a stand-by
commitment is exercisable, absent unusual circumstances, would be
substantially the same as the market value of the underlying Tax
Exempt Security to a third party at any time. The Funds expect
that stand-by commitments generally will be available without the
payment of direct or indirect consideration. The Funds do not
expect to assign any value to stand-by commitments.

YIELDS. The yields on Tax Exempt Securities depend on a variety
of factors, including general money market conditions, effective
marginal tax rates, the financial condition of the issuer,
general conditions of the Tax Exempt Security market, the size of
a particular offering, the maturity of the obligation and the
rating of the issue. The ratings of Moody's Investors Service,
Inc. and Standard & Poor's Corporation represent
their opinions as to the quality of the Tax Exempt Securities
which they undertake to rate. It should be emphasized, however,
that ratings are general and are not absolute standards of
quality. Consequently, Tax Exempt Securities with the same
maturity and interest rate but with different ratings may have
the same yield. Yield disparities may occur for reasons not
directly related to the investment quality of particular issues
or the general movement of interest rates, due to such factors as
changes in the overall demand or supply of various types of Tax
Exempt Securities or changes in the investment objectives of
investors. Subsequent to purchase by a Fund, an issue of Tax
Exempt Securities or other investments may cease to be rated or
its rating may be reduced below the minimum rating required for
purchase by the Fund. Neither event will require the elimination
of an investment from the Fund's portfolio, but Putnam Management
will consider such an event in its determination of whether the
Fund should continue to hold an investment in its portfolio.

"MORAL OBLIGATION" BONDS. The Funds do not currently intend to
invest in so-called "moral obligation" bonds, where repayment is
backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the
"moral obligation," meets the investment criteria established for
investments by the Funds.

ADDITIONAL RISKS. Securities in which the Funds may invest,
including Tax Exempt Securities, are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code, and
laws, if any, which may be enacted by Congress or state
legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a
result of litigation or other conditions the power or ability of
issuers to meet their obligations for the payment of
interest and principal on their Tax Exempt Securities may
be materially affected.

From time to time, proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income
tax exemption for interest on debt obligations issued by states
and their political subdivisions. Federal tax laws limit the
types and amounts of tax-exempt bonds issuable for certain
purposes, especially for industrial development bonds and
private activity bonds . Such limits may affect the future
supply and yields of these types of Tax Exempt Securities.
Further proposals limiting the issuance of tax-exempt bonds may
well be introduced in the future. If it appeared that the
availability of Tax Exempt Securities for investment by a Fund
and the value of a Fund's portfolio could be materially affected
by such changes in law, the Trustees of the Trust would
reevaluate the Fund's investment objective and policies and
consider changes in the structure of the Fund or its dissolution.

SECURITIES RATINGS

The following rating services describe rated
securities as follows :

MOODY'S INVESTORS SERVICE, INC.

BONDS

Aaa - - Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge". Interest payments
are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.

Aa - - Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.

A - - Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in
the future.

Baa - - Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.

Ba - - Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - - Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.

Caa - - Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of
danger with respect to principal or interest.

Ca - - Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C -- Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.

NOTES

MIG 1/VMIG 1 - This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.

MIG 2/VMIG 2 - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.

COMMERCIAL PAPER

Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:

-- Leading market positions in well established
industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
-- Well established access to a range of financial markets
and assured sources of alternate liquidity.

Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.

STANDARD & POOR'S CORPORATION

BONDS

AAA - - Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
<PAGE>
AA - - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in small degree.

A - - Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

BBB - - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.

BB-B-CCC-CC- C -- Debt rated BB, B, CCC , CC and
C is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.

D - - Bonds rated D are in payment default. The D
rating category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D
rating also will be used on the filing of a bankruptcy petition
if debt service payments are jeopardized.

NOTES

SP-1 - - Very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming
safety characteristics will be given a (+) .

SP-2 - - Satisfactory capacity to pay principal and
interest.

SP-3 - - Speculative capacity to pay principal and
interest.

COMMERCIAL PAPER

A-1 - - This designation indicates that the degree of
safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety
characteristics are denoted with a (+) .
<PAGE>
A-2 - - Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is
not as high as for issues designated "A-1".

A-3 - - Issues carrying this designation have a
satisfactory capacity for timely payment. They are, however,
somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

B - - Issues rated "B" are regarded as having only an
adequate capacity for timely payment. However, such capacity may
be damaged by changing conditions or short-term adversities.

C - - This rating is assigned to short-term debt
obligations with a doubtful capacity for payment.

INVESTMENT RESTRICTIONS OF THE TRUST

WITHOUT A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING SECURITIES
OF A FUND CREATED UNDER THE TRUST, THE TRUST SHALL NOT TAKE ANY
OF THE FOLLOWING ACTIONS WITH RESPECT TO SUCH FUND:

(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
purchased.

(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 15% of the Fund's total assets (taken at
cost) in connection with borrowings permitted by restriction 1
above.

(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and
sales of securities, and except that it may make margin payments
in connection with financial futures contracts and related
options.

(4) Make short sales of securities or maintain a short
position for the account of a Fund unless at all times when a
short position is open such Fund owns an equal amount of such
securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short.

(5) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter
under federal securities laws.

(6) Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real
estate.

(7) Purchase or sell commodities or commodity contracts,
except that it may purchase and sell financial futures contracts
and related options.

(8) Make loans, except by purchase of debt obligations in
which the Fund may invest consistent with its investment policies
and by entering into repurchase agreements with respect to not
more than 25% of the Fund's total assets (taken at current
value).

(9) Invest in securities of any issuer if, to the knowledge of
the Trust, officers and Trustees of the Trust and officers and
directors of Putnam Management who beneficially own more than
0.5% of the securities of that issuer together beneficially own
more than 5%.

(10) Invest in securities of any issuer if, immediately after
such investment, more than 5% of the total assets of the Fund
(taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to
obligations issued or guaranteed as to interest and principal by
the U.S. government or its agencies or instrumentalities and that
insurers of Tax Exempt Securities are not considered issuers of
securities for this purpose. (Insurance policies of which the
Trust is a beneficiary are not considered securities for purposes
of this restriction.)

(11) Acquire more than 10% of the voting securities of any
issuer, both with respect to any Fund and to the Trust in the
aggregate.

(12) Invest more than 25% of the value of the total assets of
any Fund in any one industry. (Securities of the U.S.
government, its agencies or instrumentalities and Tax Exempt
Securities backed by the credit of a governmental entity are not
considered to represent industries.)

(13) Purchase securities the disposition of which is restricted
under federal securities laws if, as a result, such investments
would exceed 15% of the value of the Fund's net assets, excluding
restricted securities that have been determined by the Trustees
of the Trust (or the person designated by them to make such
determinations) to be readily marketable.

(14) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.

(15) Make investments for the purpose of gaining control of a
company's management.

(16) Issue any class of securities which is senior to a Fund's
shares of beneficial interest.

(17) Invest less than 80% of a Fund's net assets in Tax Exempt
Securities, except when investing for defensive purposes.

IT IS CONTRARY TO THE TRUST'S PRESENT POLICY WITH RESPECT TO ANY
FUND CREATED UNDER THE TRUST, WHICH MAY BE CHANGED BY THE
TRUSTEES WITHOUT SHAREHOLDER APPROVAL, TO TAKE ANY OF THE
FOLLOWING ACTIONS WITH RESPECT TO SUCH FUND:

(1) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted
as to resale (excluding securities determined by the Trustees of
the Trust (or the person designated by the Trustees of the Trust
to make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a
result, more than 15% of a Fund's net assets (taken at current
value) would be invested in the aggregate in securities described
in (a), (b) and (c) above.

(2) Engage in puts, calls, straddles, spreads or any
combination thereof, except that a Fund may buy and sell put and
call options (and any combination thereof) on securities, on
financial futures contracts, and on securities indices;

(3) Invest in securities of an issuer, which, together with
any predecessors, controlling persons, general partners and
guarantors, have a record of less than three years' continuous
business operation or relevant business experience if, as a
result, the aggregate of such investments would exceed 5% of the
value of the Fund's net assets; provided, however, that this
restriction shall not apply to any obligation of the U.S.
government or its instrumentalities or agencies or any Tax Exempt
Bond or Note backed by the credit of a governmental entity.

(4) Invest in securities of other registered open-end
investment companies, except by purchase in the open market
involving only customary brokers' commissions.

Although certain of the Trust's fundamental investment
restrictions permit the Funds to borrow money to a limited
extent, the Fund does not currently intend to do so and did not
do so last year.

------------------------

All percentage limitations on investments will apply at the time
of the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.

The Investment Company Act of 1940 provides that a "vote of a
majority of the outstanding voting securities" of the Trust or a
Fund means the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of a Fund or the Trust, as the case
may be, or (2) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.

FUND CHARGES AND EXPENSES

MANAGEMENT FEES

Under a Management Contract dated July 26, 1985, as amended
through July 1, 1994 , the Trust pays a monthly fee to
Putnam Management for each Fund based on the average net assets
of each Fund, as determined at the close of each business day
during the month, at the following annual rates: Putnam Tax-Free
Insured Fund -- 0.60% of the first $500 million of average net
assets, 0.50% of the next $500 million, 0.45% of the next $500
million and 0.40% of any amount over $1.5 billion; Putnam Tax-
Free High Yield Fund -- 0.65% of the first $500 million of
average net assets, 0.55% of the next $500 million, 0.50% of the
next $500 million, and 0.45% of any amount over $1.5 billion.
Prior to the July 1, 1994 amendment to the Management Contract,
the management fee payable to Putnam Management for Putnam Tax-
Free High Yield Fund was paid at the annual rate of 0.70% of
the first $100 million of average net assets, 0.60% of the next
$100 million, 0.50% of the next $300 million, 0.45% of the next
$500 million and 0.425% of any amount over $1 billion. For
fiscal 1992, 1993 and 1994 , Putnam Tax-Free Insured Fund
incurred fees to Putnam Management of $2,406,251 ,
$3,060,616 and $3,451,352 , respectively, and Putnam Tax-
Free High Yield Fund incurred fees of $4,317,379 ,
$6,015,521 and $8,498,843 , respectively.

BROKERAGE COMMISSIONS

During fiscal 1992, 1993 and 1994, Putnam Tax-Free Insured
Fund incurred brokerage commissions aggregating $20,599, $75,610
and $123,791, respectively, on agency transactions and incurred
underwriting commissions aggregating $766,428, $911,063 and
$121,729, respectively, on underwritten transactions.

In fiscal 1994, Putnam Management, on behalf of Putnam Tax-Free
Insured Fund, placed underwritten transactions having an
approximate aggregate dollar value of $7,669,104 (7.95% of the
Fund's underwritten transactions, on which approximately $43,375
of commissions were incurred) with brokers and dealers to
recognize research, statistical and quotation services Putnam
Management considered to be particularly useful to it and its
affiliates.

During its 1992 fiscal year, Putnam Tax-Free High
Yield Fund incurred no brokerage commissions on agency
transactions and incurred underwriting commissions aggregating
$2,364,780 on underwritten transactions. During its
1993 and 1994 fiscal years, Putnam Tax-Free
High Yield Fund incurred brokerage commissions aggregating
$436,683 and $183,921 , respectively, on agency
transactions and incurred underwriting commissions aggregating
$2,084,563 and $4,543,986 , respectively, on underwritten
transactions.

In fiscal 1994 , Putnam Management, on behalf of Putnam
Tax-Free High Yield Fund, placed underwritten transactions having
an approximate aggregate dollar value of $1,322,700 (4.93%
of the Fund's underwritten transactions, on which approximately
$233,063 of commissions were incurred) with brokers and
dealers to recognize research, statistical and quotation services
Putnam Management considered to be particularly useful to it and
its affiliates.

ADMINISTRATIVE EXPENSE REIMBURSEMENT

The Trust reimbursed Putnam Management $46,026 for
administrative services in fiscal 1994, including
$43,326 for certain officers of the Trust and their staff
and contributions to the Putnam Investments, Inc. Profit Sharing
Retirement Plan for their benefit.

TRUSTEE FEES

Each Trustee of the Trust receives an annual fee of $3,990
and an additional fee for each Trustees' meeting attended.
Trustees who are not interested persons of Putnam Management and
who serve on committees of the Trustees receive additional fees
for attendance at certain committee meetings. The Trust paid
Trustees' fees aggregating $67,692 in fiscal 1994 .

OWNERSHIP OF TRUST SHARES

At August 31, 1994 , the officers and Trustees of the Trust
as a group owned less than 1% of the outstanding shares
of any class of either Fund, and to the knowledge of the
Trust no person owned of record or beneficially 5% or more
of the outstanding shares of any class of either
Fund. No Class M shares were outstanding for Putnam Tax-Free
High Yield Fund as of August 31, 1994.

CLASS A SALES CHARGES, CONTINGENT DEFERRED SALES CHARGES AND
12B-1 FEES

During fiscal 1994, Putnam Mutual Funds received $423,423 in
sales charges on sales of Class A shares of Putnam Tax-
Free Insured Fund, of which it retained $34,822 after allowance
of dealer concessions. During fiscal 1994, Putnam Mutual Funds
did not receive any contingent deferred sales charges upon
redemptions of Class A shares of the Fund. During fiscal 1994,
the Fund incurred $294,037 in 12b-1 fees to Putnam Mutual Funds
pursuant to the Fund's Class A Distribution Plan.

During fiscal 1994, Putnam Mutual Funds received $1,826,603 in
sales charges on sales of Class A shares of Putnam Tax-Free High
Yield Fund, of which it retained $115,146 after allowance of
dealer concessions. During fiscal 1994, Putnam Mutual Funds
received $6,066 in contingent deferred sales charges upon
redemptions of Class A shares of the Fund. During fiscal 1994,
the Fund incurred $582,923 in 12b-1 fees to Putnam Mutual Funds
pursuant to the Fund's Class A Distribution Plan.

CLASS B CONTINGENT DEFERRED SALES CHARGES AND 12B-1 FEES

During fiscal 1992 , 1993 and 1994 , Putnam
Mutual Funds received $565,112 , $632,749 and
$795,020 , respectively, in contingent deferred sales charges
upon redemptions of Class B shares of Putnam Tax-Free Insured
Fund. During fiscal 1994 , the Fund incurred
$3,910,073 in 12b-1 fees to Putnam Mutual Funds pursuant
to the Fund's Class B Distribution Plan.

During fiscal 1992 , 1993 and 1994 , Putnam
Mutual Funds received $1,015,973 , $1,304,639
and $2,264,594 , respectively, in contingent deferred sales
charges upon redemptions of Class B shares of Putnam Tax-Free
High Yield Fund. During fiscal 1994 , the Trust incurred
$12,537,981 in 12b-1 fees to Putnam Mutual Funds pursuant
to the Fund's Class B Distribution Plan.

INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES

During the 1994 fiscal year, the Trust incurred
$1,921,196 in fees and out-of-pocket expenses for investor
servicing and custody services provided by Putnam Fiduciary Trust
Company.

INVESTMENT PERFORMANCE OF THE TRUST

STANDARD PERFORMANCE MEASURES

Putnam Tax-Free Insured Fund's tax-exempt yield for Class A
shares for the thirty-day period ended July 31, 1994 was 5.27%.
Putnam Tax-Free High Yield Fund's tax-exempt yield for Class A
shares for that period was 6.10%. A shareholder of Putnam Tax-
Free Insured Fund in a 39.6% federal tax bracket would have to
earn 8.73% from a taxable investment to produce an after-tax
yield equal to a tax-exempt yield of 5.27%. Similarly, a
shareholder of Putnam Tax-Free High Yield Fund in that bracket
would have to earn 10.10% from a taxable investment to produce an
after-tax yield equal to a tax-exempt yield of 6.10%. Putnam
Tax-Free Insured Fund's cumulative total return for Class A
shares for the life of the class (beginning on September 20,
1993) through July 31, 1994 was -7.11%, adjusted to reflect the
deduction of the maximum sales charge of 4.75%. Putnam Tax-Free
High Yield Fund's cumulative total return for Class A shares for
that same period was -5.67%, adjusted to reflect the deduction of
the maximum sales charge.

Putnam Tax-Free Insured Fund's tax-exempt yield for Class B
shares for the thirty-day period ended July 31, 1994 was
4.89% . Putnam Tax-Free High Yield Fund's tax-exempt yield
for Class B shares for that same period was 5.77% .
A shareholder of Putnam Tax-Free Insured Fund in a 39.6% federal
tax bracket would have to earn 8.10% from a taxable
investment to produce an after-tax yield equal to a tax-exempt
yield of 4.89% . Similarly, a shareholder of Putnam Tax-
Free High Yield Fund in that bracket would have to earn
9.55% from a taxable investment to produce an after-tax
yield equal to a tax-exempt yield of 5.77% . Putnam Tax-
Free Insured Fund's average annual total return (compounded
annually) for Class B shares for the one- and five-year periods
ended July 31, 1994 and for the life of the Fund through
July 31, 1994 was -4.74%, +6.19% and +8.45% ,
respectively, adjusted to reflect the deduction of the applicable
contingent deferred sales charge. Putnam Tax-Free High Yield
Fund's average annual total return (compounded annually) for
Class B shares for the one- and five-year periods ended July 31,
1994 and for the life of the Fund through July 31,
1994 was -3.38%, +6.97% and +9.13% ,
respectively, adjusted to reflect the deduction of the applicable
contingent deferred sales charge. No Class M shares were
outstanding at July 31, 1994. See "Standard Performance
Measures" in Part II of this Statement for information on how the
Funds' tax-exempt yield, total return, and tax-equivalent yield
are calculated.

PERFORMANCE RATINGS

For the 1994 fiscal year, the Class A shares of
Putnam Tax-Free Insured Fund were not ranked or rated.
For the 1994 fiscal year, the Class B shares of Putnam Tax-Free
Insured Fund were ranked 32 of 37 insured municipal debt
funds by Lipper Analytical Services, Inc. and 226 of
273 municipal bond funds by CDA/Wiesenberger's Management
Results. As of the end of the fiscal year, the Class B shares of
the Fund were given a 1 -star rating (out of 5 stars) by
Morningstar, Inc.
<PAGE>
For the 1994 fiscal year, the Class A shares of Putnam
Tax-Free High Yield Fund were not ranked or rated. For
the 1994 fiscal year, the Class B shares of Putnam Tax-Free High
Yield Fund were ranked 19 of 29 high yield municipal debt
funds by Lipper Analytical Services, Inc. and 26 of
42 high yield municipal bond funds by CDA/Wiesenberger's
Management Results. As of the end of the fiscal year, the Class
B shares of the Fund were given a 4 -star rating (out of 5
stars) by Morningstar, Inc. No Class M shares
were outstanding during fiscal 1994 . See "Comparison of
Portfolio Performance" in Part II of this Statement for
information about how these rankings and ratings are
determined. Past performance is no guarantee of future results.

OTHER PERFORMANCE INFORMATION

The tables below show total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment
in one share of each Fund during the life of the Trust. This
was a period of fluctuating security prices. The tables do
not project the future performance of either Fund. No Class
M shares were outstanding during these periods.
<PAGE>
<TABLE>
<CAPTION>

PUTNAM TAX-FREE INSURED FUND (CLASS A SHARES)

CUMULATIVE
MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUE
OFFERING VALUE ---------------------- AT YEAR-END
FISCAL PRICE AT ------------------ FROM FROM WITH ALL
PERIOD BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
ENDED OF PERIOD OF PERIOD PERIOD INCOME GAINS REINVESTED
- ---------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>

1994 (1) $16.67 $15.88 $14.67 $0.725 $0.098 $15.48

------ ------
Total distributions $0.725 $0.98
====== ======

(1) Investment operations began September 20, 1993.

</TABLE><TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING LIFE OF FUND (CLASS A SHARES)

PUTNAM TAX-FREE INSURED FUND

FISCAL MAXIMUM OFFERING NET ASSET LEHMAN BROTHERS CONSUMER
PERIOD PRICE TO NET VALUE TO NET MUNICIPAL PRICE
ENDED ASSET VALUE ASSET VALUE BOND INDEX INDEX
JULY CUMULA- CUMULA- CUMULA- CUMULA-
31 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>

1994 (1) --- -7.11% --- -2.49% --- -1.33% --- 2.27%

(1) Investment operations began September 20, 1993.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

PUTNAM TAX-FREE INSURED FUND (CLASS B SHARES)

1986(1) $12.57 $13.91 $0.798 $ --- $14.75
198713.91 13.77 0.844 0.040 15.53
198813.77 13.85 0.843 0.028 16.66
198913.85 14.79 0.849 --- 18.88
199014.79 14.25 0.826 0.478 19.91
199114.25 14.38 0.803 --- 21.26
199214.38 15.42 0.769 0.085 24.16
199315.42 15.50 0.755 0.195 25.85
1994 15.50 14.68 0.734 0.098 25.86

------ ------
Total distributions $7.221 $0.924
====== ======

(1) Investment operations began September 9, 1985.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING LIFE OF FUND (CLASS B SHARES)

PUTNAM TAX-FREE INSURED FUND

FISCAL NET ASSET LEHMAN BROTHERS
YEAR VALUE TO NET MUNICIPAL CONSUMER
ENDED ASSET VALUE BOND INDEX PRICE INDEX
JULY CUMULA- CUMULA- CUMULA-
31 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1986(1) --- +17.3% --- +17.8% --- +1.4%
1987 +5.3 +23.6 +9.1 +25.5 +3.9 +5.4
1988 +7.2 +32.5 +7.0 +37.5 +4.1 +9.7
1989 +13.3 +50.2 +12.2 +54.3 +5.0 +15.2
1990 +5.5 +58.4 +6.9 +65.0 +4.8 +20.7
1991 +6.8 +69.2 +8.7 +79.4 +4.5 +26.1
1992 +13.6 +92.2 +13.7 +104.0 +3.2 +30.1
1993 +7.0 +105.7 +8.8 +122.1 +2.8 +33.7
1994 --- +105.7 +1.9 +126.2 +2.8 +37.4

(1) Investment operations began September 9, 1985.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

PUTNAM TAX-FREE HIGH YIELD FUND (CLASS A SHARES)

CUMULATIVE
MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUE
OFFERING VALUE --------------------- AT YEAR-END
FISCAL PRICE AT ------------------ FROM FROM WITH ALL
PERIOD BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
ENDED OF PERIOD OF PERIOD PERIOD INCOME GAINS REINVESTED
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>

1994 (1) $16.10 $15.34 $14.24 $0.85 $0.10 $15.19

------- -------
Total distributions $0.85 $0.10
======= =======

(1) Investment operations began September 20, 1993.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING LIFE OF FUND (CLASS A SHARES)

PUTNAM TAX-FREE HIGH YIELD FUND

1994 (1) --- -5.67% --- -0.99% --- -1.33% --- 2.27%

(1) Investment operations began September 20, 1993 .

/TABLE
<PAGE>
<TABLE>
<CAPTION>

PUTNAM TAX-FREE HIGH YIELD FUND (CLASS B SHARES)

CUMULATIVE
NET ASSET DISTRIBUTIONS NET ASSET VALUE
FISCAL VALUE ------------------ AT YEAR-END
YEAR ----------------- FROM FROM WITH ALL
ENDED BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
JULY 31 OF PERIOD PERIOD INCOME GAINS REINVESTED
- -----------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
1986(1) $12.57 $13.91 $1.010 $ --- $14.99
198713.91 13.77 0.981 0.18 16.11
198813.77 13.72 0.954 --- 17.23
198913.72 14.30 0.967 --- 19.25
199014.30 13.87 1.002 --- 20.05
199113.87 13.79 1.001 --- 21.45
199213.79 14.64 0.986 0.088 24.59
199314.64 15.01 0.947 0.043 26.97
199415.01 14.24 0.88 0.10 27.33

------- -------
Total distributions $8.686 $0.411
======= =======

(1) Investment operations began September 9, 1985.

/TABLE
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING LIFE OF FUND (CLASS B SHARES)

PUTNAM TAX-FREE
HIGH YIELD FUND
- ----------------
FISCAL NET ASSET LEHMAN BROTHERS
YEAR VALUE TO NET MUNICIPAL CONSUMER
ENDED ASSET VALUE BOND INDEX PRICE INDEX
JULY CUMULA- CUMULA- CUMULA-
31 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ------------------------------------------------------------------------------ ----
<C> <C> <C> <C> <C> <C> <C>
1986(1) --- +19.2% --- +17.8% --- +1.4%
1987 +7.5 +28.2 +9.1 +28.5 +3.9 +5.4
1988 +7.0 +37.1 +7.0 +37.5 +4.1 +9.7
1989 +11.7 +53.1 +12.2 +54.3 +5.0 +15.2
1990 +4.2 +59.5 +6.9 +65.0 +4.8 +20.7
1991 +7.0 +70.7 +8.7 +79.4 +4.5 +26.1
1992 +14.6 +95.6 +13.7 +104.0 +3.2 +30.1
1993 +9.7 +114.5 +8.8 +122.1 +2.8 +33.7
1994 +1.4 +117.5 +1.9 +126.2 +2.8 +37.4

(1) Investment operations began September 9, 1985.
/TABLE
<PAGE>
The tables are not adjusted for any taxes payable on
reinvested distributions or for any contingent deferred sales
charges which would be applied upon redemption of Class B shares.
The total values for each Fund as of the end of each period
reflect reinvestment of all distributions and all changes in net
asset value.

The Lehman Brothers Municipal Bond Index is an unmanaged list of
approximately 20,000 investment-grade, fixed-rate tax-exempt
bonds. The average quality of bonds held in the index may differ
from the average quality of those bonds in which Putnam Tax-Free
High Yield Fund invests. The index does not include bonds in
certain of the lower-rating classifications in which Putnam Tax-
Free High Yield Fund may invest. The performance figures for the
index reflect changes of market prices and reinvestment of all
interest payments. Because each Fund is a managed portfolio
investing primarily in a wide variety of Tax Exempt Securities,
the securities it owns will not match those in the index.

The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the rate of inflation.
The index shows the average change in the cost of selected
consumer goods and services and does not represent a return on an
investment vehicle.

EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES

The table below shows the effect of the tax status of Tax
Exempt Securities on the effective yield received by their
individual holders under the federal income tax laws currently
in effect for 1994. It gives the approximate yield a
taxable security must earn at various income levels to produce
after-tax yields equivalent to those of Tax Exempt
Securities yielding from 4.0% to 9.0%.<PAGE>
<TABLE>
<CAPTION>

- -----------------------------------------------------------------------------------------
MARGINAL
TAXABLE INCOME* FEDERAL TAX-EXEMPT YIELD
------------------------ INCOME ------------------------------------
TAX
JOINT SINGLE BRACKET** 4% 5% 6% 7% 8% 9%
- -----------------------------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-22,750 $0-38,000 15.0% 4.7% 5.9% 7.1% 8.2% 9.4% 10.6%
22,751-55,100 38,001-91,850 28.0 5.6% 6.9% 8.3% 9.7% 11.1% 12.5%
55,101-115,000 *** 91,851-140,000 *** 31.0 5.8% 7.3% 8.7% 10.1% 11.6% 13.0%
115,001-250,000 *** 140,001 -250,000 *** 36.0 6.3% 7.8% 9.4% 10.9% 12.5%14.1%
250,001 and more ***250,001 and more *** 39.6 6.6% 8.3% 9.9%11.6%13.3%14.9%
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
* This amount represents taxable income as defined in the
Internal Revenue Code of 1986, as amended (the "Code").

** These rates reflect the marginal federal income tax rates
on taxable income currently in effect for 1994 under the
Code.

*** The amount of taxable income in this bracket may be
affected by the phase-out of personal exemptions and the
limitation on itemized deductions under the Code.

Of course, there is no assurance that the Funds will achieve any
specific tax-exempt yield. While it is expected that the Funds
will invest principally in obligations which pay interest exempt
from federal income tax, other income received by the Funds may
be taxable. The table does not take into account any federal
alternative minimum tax or any state or local taxes payable on
Fund distributions.

ADDITIONAL OFFICERS OF THE TRUST

In addition to the persons listed as officers of the Trust in
Part II of this Statement, the following persons are also
officers of the Trust. Officers of Putnam Management hold the
same offices in Putnam Management's parent company, Putnam
Investments, Inc.

GARY N. COBURN, Vice President. Senior Managing Director of
Putnam Management. Director, Putnam Investments, Inc. Vice
President of certain of the Putnam funds.

JAMES E. ERICKSON, Vice President. Managing Director of Putnam
Management. Vice President of certain of the Putnam funds.

RICHARD P. WYKE, Vice President. Senior Vice President of Putnam
Management. Vice President of certain of the Putnam funds.

TRIET M. NGUYEN, Vice President. Senior Vice President of Putnam
Management. Vice President of certain of the Putnam funds.
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS

Price Waterhouse LLP are the Trust's independent
accountants, providing audit services, tax return review and
other tax consulting services and assistance and consultation in
connection with the review of various Securities and Exchange
Commission filings. The Reports of Independent
Accountants and financial statements included in each
Fund's Annual Report for the fiscal year ended July 31,
1994 , filed electronically on September 29, 1994 for
the Putnam Tax-Free Insured Fund and on September 30, 1994 for
the Putnam Tax-Free High Yield Fund (811-4345), are
incorporated by reference into this Statement of Additional
Information. The financial highlights in the
Prospectus and the financial statements incorporated by reference
into the Prospectus and the Statement of Additional Information
have been so included and incorporated in reliance upon the
report of the independent accountants, given on their authority
as experts in auditing and accounting.
<PAGE>
<PAGE>

TABLE OF CONTENTS

MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22

MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . .II-27

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36

HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38

DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49

INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-50

SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-56

SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-56

SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-57

STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-57

COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-58

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-63

<PAGE>

THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION
PART II

The following information applies generally to your Fund and to
the other Putnam funds. In certain cases the discussion applies
to some but not all of the funds or their shareholders, and you
should refer to your Prospectus to determine whether the matter
is applicable to you or your Fund. You will also be referred to
Part I for certain information applicable to your particular
Fund. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which
the matters described below apply to them.

MISCELLANEOUS INVESTMENT PRACTICES

YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT
PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS
AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT
NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.

SHORT-TERM TRADING

In seeking the Fund's objective, Putnam Management will buy or
sell portfolio securities whenever Putnam Management believes it
appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the Fund
has owned the security. From time to time the Fund will buy
securities intending to seek short-term trading profits. A
change in the securities held by the Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the Fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the Fund's portfolio.
<PAGE>
LOWER-RATED SECURITIES

The Fund may invest in lower-rated fixed-income securities
(commonly known as "junk bonds"), to the extent described in the
Prospectus. The lower ratings of certain securities held by the
Fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely
make the values of securities held by the Fund more volatile and
could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities.
In the absence of a liquid trading market for securities held by
it, the Fund may be unable at times to establish the fair value
of such securities. The rating assigned to a security by Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the Prospectus or Part I of this Statement for a
description of security ratings.

Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the
value of the Fund's assets will generally decline. In addition,
the values of such securities are also affected by changes in
general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments.
Changes in the value of portfolio securities generally will not
affect cash income derived from such securities, but will affect
the Fund's net asset value. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether its retention will assist in
meeting the Fund's investment objective.

At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Although Putnam Management generally considers
such securities to be liquid because of the availability of an
institutional market for such securities, it is possible that,
under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the
Fund could find it more difficult to sell such securities when
Putnam Management believes it advisable to do so or may be able
to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such
securities for purposes of computing the Fund's net asset value.
In order to enforce its rights in the event of a default under
such securities, the Fund may be required to take possession of
and manage assets securing the issuer's obligations on such
securities, which may increase the Fund's operating expenses and
adversely affect the Fund's net asset value. In the case of
tax-exempt funds, any income derived from the Fund's ownership or
operation of such assets would not be tax-exempt. In addition,
the Fund's intention to qualify as a "regulated investment
company" under the Internal Revenue Code may limit the extent to
which the Fund may exercise its rights by taking possession of
such assets.

Certain securities held by the Fund may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.

If the Fund's Prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the Fund may
invest without limit in such bonds unless otherwise specified in
the Prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon bonds do not
pay current interest, their value is subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate investments in order to satisfy
its dividend requirements.

The amount of information about the financial condition of an
issuer of tax exempt securities may not be as extensive as that
which is made available by corporations whose securities are
publicly traded. Therefore, to the extent the Fund invests in
tax exempt securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on Putnam
Management's investment analysis than would be the case if the
Fund were investing in securities in the higher rating
categories.

INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES

Unless otherwise specified in the Prospectus or elsewhere in this
Statement of Additional Information, if the Fund may invest in
inverse floating obligations and premium securities, it may do so
without limit. The Fund, however, currently does not intend to
invest more than 15% of its assets in inverse floating
obligations under normal market conditions.

SECURITIES LOANS

The Fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the Fund an
amount equal to any dividends or interest received on securities
lent. The Fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable
notice, and it will do so to enable the Fund to exercise voting
rights on any matters materially affecting the investment. The
Fund may also call such loans in order to sell the securities.

FORWARD COMMITMENTS

The Fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the Fund holds, and maintains until
the settlement date in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase
price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. In the case of to-be-
announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the Fund enters
into a contract, with the actual principal amount being within a
specified range of the estimate. Forward commitments may be
considered securities in themselves, and involve a risk of loss
if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of
decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer
to consummate the sale. The dealer's failure to do so may result
in the loss to the Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or
for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement if
Putnam Management deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward
commitments.

The Fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement
date. During the time a TBA sale commitment is outstanding,
equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction. Unsettled TBA sale
commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Fund
delivers securities under the commitment, the Fund realizes a
gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements up to the limit
specified in the Prospectus. A repurchase agreement is a
contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the
Fund's cost plus interest). It is the Fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the Fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the Fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.

Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.

OPTIONS ON SECURITIES

WRITING COVERED OPTIONS. The Fund may write covered call options
and covered put options on optionable securities held in its
portfolio, when in the opinion of Putnam Management such
transactions are consistent with the Fund's investment objectives
and policies. Call options written by the Fund give the
purchaser the right to buy the underlying securities from the
Fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the Fund at a
stated price.

The Fund may write only covered options, which means that, so
long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the Fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The Fund may write
combinations of covered puts and calls on the same underlying
security.

The Fund will receive a premium from writing a put or call
option, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the Fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.

The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in
which it purchases an offsetting option. The Fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. Because
increases in the market price of a call option generally reflect
increases in the market price of the security underlying the
option, any loss resulting from a closing purchase transaction
may be offset in whole or in part by unrealized appreciation of
the underlying security owned by the Fund.

If the Fund writes a call option but does not own the underlying
security, and when it writes a put option, the Fund may be
required to deposit cash or securities with its broker as
"margin", or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.

PURCHASING PUT OPTIONS. The Fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the Fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the Fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.

PURCHASING CALL OPTIONS. The Fund may purchase call options to
hedge against an increase in the price of securities that the
Fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the Fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.

RISK FACTORS IN OPTIONS TRANSACTIONS

The successful use of the Fund's options strategies depends on
the ability of Putnam Management to forecast correctly interest
rate and market movements. For example, if the Fund were to
write a call option based on Putnam Management's expectation that
the price of the underlying security would fall, but the price
were to rise instead, the Fund could be required to sell the
security upon exercise at a price below the current market price.
Similarly, if the Fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the Fund
could be required to purchase the security upon exercise at a
price higher than the current market price.

When the Fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the Fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying
security, since the Fund will not realize a loss if the
security's price does not change.

The effective use of options also depends on the Fund's ability
to terminate option positions at times when Putnam Management
deems it desirable to do so. There is no assurance that the Fund
will be able to effect closing transactions at any particular
time or at an acceptable price.

If a secondary market in options were to become unavailable, the
Fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt its normal operations.

A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, the Fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the Fund, as option writer, would
remain obligated under the option until expiration or exercise.

Disruptions in the markets for the securities underlying options
purchased or sold by the Fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the Fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The Fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.

Special risks are presented by internationally-traded options.
Because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.

Over-the-counter ("OTC") options purchased by the Fund and assets
held to cover OTC options written by the Fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the Fund's ability to invest in illiquid
securities.

FUTURES CONTRACTS AND RELATED OPTIONS

Subject to applicable law, and unless otherwise specified in the
Prospectus, the Fund may invest without limit in the types of
futures contracts and related options identified in the
Prospectus. A financial futures contract sale creates an
obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery
month for a stated price. A financial futures contract purchase
creates an obligation by the purchaser to take delivery of the
type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.

Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser's entering
into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if
the purchase price exceeds the offsetting sale price, he realizes
a loss. In general 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved
by the CFTC is treated as short-term gain or loss, and 60% is
treated as long-term gain or loss.

Unlike when the Fund purchases or sells a security, no price is
paid or received by the Fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the Fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds to
finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.

Subsequent payments, called "variation margin" or "maintenance
margin", to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when the Fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
Fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the Fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the Fund would be required to make a variation
margin payment to the broker.

The Fund may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or
eliminate a hedge position then currently held by the Fund. The
Fund may close its positions by taking opposite positions which
will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then
made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.

OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. Options on future contracts give
the purchaser the right in return for the premium paid to assume
a position in a futures contract at the specified option exercise
price at any time during the period of the option. The Fund may
use options on futures contracts in lieu of writing or buying
options directly on the underlying securities or purchasing and
selling the underlying futures contracts. For example, to hedge
against a possible decrease in the value of its portfolio
securities, the Fund may purchase put options or write call
options on futures contracts rather than selling futures
contracts. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.

As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.

The Fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
Successful use of futures contracts by the Fund is subject to
Putnam Management's ability to predict movements in the direction
of interest rates and other factors affecting securities markets.
For example, if the Fund has hedged against the possibility of
decline in the values of its investments and the values of its
investments increase instead, the Fund will lose part or all of
the benefit of the increase through payments of daily maintenance
margin. The Fund may have to sell investments at a time when it
may be disadvantageous to do so in order to meet margin
requirements.

Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the Fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.

There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.

To reduce or eliminate a hedge position held by the Fund, the
Fund may seek to close out a position. The ability to establish
and close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.

U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the
Fund invests in tax-exempt securities issued by a governmental
entity, the Fund may purchase and sell futures contracts and
related options on U.S. Treasury securities when, in the opinion
of Putnam Management, price movements in Treasury security
futures and related options will correlate closely with price
movements in the tax-exempt securities which are the subject of
the hedge. U.S. Treasury security futures contracts require the
seller to deliver, or the purchaser to take delivery of, the type
of U.S. Treasury security called for in the contract at a
specified date and price. Options on U.S. Treasury security
futures contracts give the purchaser the right in return for the
premium paid to assume a position in a U.S. Treasury security
futures contract at the specified option exercise price at any
time during the period of the option.

Successful use of U.S. Treasury security futures contracts by the
Fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the Fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect tax-exempt securities held in its
portfolio, and the prices of the Fund's tax-exempt securities
increase instead as a result of a decline in interest rates, the
Fund will lose part or all of the benefit of the increased value
of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements at
a time when it may be disadvantageous to do so.

There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for tax-exempt
securities. For example, if the Fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the Fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio. Putnam
Management will seek to reduce this risk by monitoring movements
in markets for U.S. Treasury security futures and options and for
tax-exempt securities closely. The Fund will only purchase or
sell Treasury security futures or related options when, in the
opinion of Putnam Management, price movements in Treasury
security futures and related options will correlate closely with
price movements in tax-exempt securities in which the Fund
invests.

INDEX FUTURES CONTRACTS. An index futures contract is a contract
to buy or sell units of an index at a specified future date at a
price agreed upon when the contract is made. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The Fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective. The Fund may also purchase and sell options on index
futures contracts.

For example, the Standard & Poor's Composite 500 Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the Fund will
gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the Fund will lose $1,000 (500
units x loss of $2).

There are several risks in connection with the use by the Fund of
index futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the prices of the
index futures and movements in the prices of securities which are
the subject of the hedge. Putnam Management will, however,
attempt to reduce this risk by buying or selling, to the extent
possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the
prices of the securities sought to be hedged.

Successful use of index futures by the Fund for hedging purposes
is also subject to Putnam Management's ability to predict
movements in the direction of the market. It is possible that,
where the Fund has sold futures to hedge its portfolio against a
decline in the market, the index on which the futures are written
may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose
money on the futures and also experience a decline in value in
its portfolio securities. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and
securities prices increase instead, the Fund will lose part or
all of the benefit of the increased value of those securities it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it is
disadvantageous to do so.

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a successful hedging transaction over a short time
period.

OPTIONS ON STOCK INDEX FUTURES. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.

OPTIONS ON INDICES

As an alternative to purchasing call and put options on index
futures, the Fund may purchase and sell call and put options on
the underlying indices themselves. Such options would be used in
a manner identical to the use of options on index futures.

INDEX WARRANTS

The Fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the Fund were not to
exercise an index warrant prior to its expiration, then the Fund
would lose the amount of the purchase price paid by it for the
warrant.

The Fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the
Fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the Fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
Fund's ability to exercise the warrants at such time, or in such
quantities, as the Fund would otherwise wish to do.

FOREIGN SECURITIES

Under its current policy, which may be changed without
shareholder approval, the Fund may invest up to the limit of its
total assets specified in its Prospectus in securities
principally traded in markets outside the United States.
Eurodollar certificates of deposit are excluded for purposes of
this limitation. Foreign investments can be affected favorably
or unfavorably by changes in currency exchange rates and in
exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United
States. Investments in foreign securities can involve other
risks different from those affecting U.S. investments, including
local political or economic developments, expropriation or
nationalization of assets and imposition of withholding taxes on
dividend or interest payments. To hedge against possible
variations in foreign exchange rates, the Fund may purchase and
sell forward foreign currency contracts. These represent
agreements to purchase or sell specified currencies at specified
dates and prices. The Fund will only purchase and sell forward
foreign currency contracts in amounts Putnam Management deems
appropriate to hedge existing or anticipated portfolio positions
and will not use such forward contracts for speculative purposes.
Foreign securities, like other assets of the Fund, will be held
by the Fund's custodian or by a subcustodian.

FOREIGN CURRENCY TRANSACTIONS

Unless otherwise specified in the Prospectus, the Fund may engage
without limit in currency exchange transactions, as well as
foreign currency forward and futures contracts, to protect
against uncertainty in the level of future currency exchange
rates. In addition, the Fund may write covered call and put
options on foreign currencies for the purpose of increasing its
current return.

Generally, the Fund may engage in both "transaction hedging" and
"position hedging". When it engages in transaction hedging, the
Fund enters into foreign currency transactions with respect to
specific receivables or payables, generally arising in connection
with the purchase or sale of portfolio securities. The Fund will
engage in transaction hedging when it desires to "lock in" the
U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the Fund
will attempt to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S.
dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is earned, and the date
on which such payments are made or received.

The Fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in
that foreign currency. The Fund may also enter into contracts to
purchase or sell foreign currencies at a future date ("forward
contracts") and purchase and sell foreign currency futures
contracts.

For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the Fund the right to
assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives the
Fund the right to sell the currency at an exercise price until
the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in
the futures contract until the expiration of the option. A call
option on a currency gives the Fund the right to purchase the
currency at the exercise price until the expiration of the
option.

When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in
the values of the foreign currencies in which its portfolio
securities are denominated (or an increase in the value of
currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments). In connection
with position hedging, the Fund may purchase put or call options
on foreign currency and on foreign currency futures contracts and
buy or sell forward contracts and foreign currency futures
contracts. The Fund may also purchase or sell foreign currency
on a spot basis.

The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved
will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the
dates the currency exchange transactions are entered into and the
dates they mature.

It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.

Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the Fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency.

The Fund may seek to increase its current return or to offset
some of the costs of hedging against fluctuations in current
exchange rates by writing covered call options and covered put
options on foreign currencies. The Fund receives a premium from
writing a call or put option, which increases the Fund's current
return if the option expires unexercised or is closed out at a
net profit. The Fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written.

The Fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the Fund. Cross hedging transactions by the Fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.

CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at
the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on
exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.

Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.

At the maturity of a forward or futures contract, the Fund either
may accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.

Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the Fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the Fund would continue to be required to make
daily cash payments of variation margin.

FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many similar risks. Foreign currency options are
traded primarily in the over-the-counter market, although options
on foreign currencies have recently been listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.

The Fund will only purchase or write foreign currency options
when Putnam Management believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.

The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values
of foreign currency options) may be affected significantly,
fixed, or supported directly or indirectly by U.S. and foreign
government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, since
exchange rates may not be free to fluctuate in response to other
market forces.

The value of a foreign currency option reflects the value of an
exchange rate, which in turn reflects relative values of two
currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may
be involved in the exercise of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot
market for the underlying foreign currencies in connection with
options at prices that are less favorable than for round lots.
Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign
currencies.

There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.

SETTLEMENT PROCEDURES. Settlement procedures relating to the
Fund's investments in foreign securities and to the Fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currency may occur within a foreign country, and the Fund
may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.

FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.

RESTRICTED SECURITIES

The SEC Staff currently takes the view that any designation by
the Trustees of the authority to determine that a restricted
security is readily marketable (as described in the investment
restrictions of the Funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
Funds' Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.

TAXES

TAXATION OF THE FUND. The Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the Fund
must, among other things:

(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;

(b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock or
securities and certain options, futures contracts, forward
contracts and foreign currencies) held for less than three
months;

(c) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and

(d) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items, U.S. Government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the Fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or
businesses.

If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).

If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the Fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.

If the Fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the Fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the Fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.

EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the Fund's taxable year, at least 50% of
the total value of the Fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest
excludable from their gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax
purposes and for state and local purposes. If the Fund intends
to be qualified to pay exempt-interest dividends, the Fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures, and options contracts on financial futures, tax-exempt
bond indices, and other assets.

Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a Fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.

In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.

A Fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the Fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income
that was tax-exempt during the period covered by the
distribution.

HEDGING TRANSACTIONS. If the Fund engages in transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to
special tax rules (including mark-to-market, straddle, wash sale,
and short sale rules), the effect of which may be to accelerate
income to the Fund, defer losses to the Fund, cause adjustments
in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These
rules could therefore affect the amount, timing and character of
distributions to shareholders. The Fund will endeavor to make
any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.

Under the 30% of gross income test described above (see "Taxation
of the Fund"), the Fund will be restricted in selling assets held
or considered under Code rules to have been held for less than
three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in
some circumstances could cause certain Fund assets to be treated
as held for less than three months.

Certain of the Fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the Fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as a
dividend to the extent of the Fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), and thereafter as a return of capital or as gain from
the sale or exchange of a capital asset, as the case may be. If
the Fund's book income is less than its taxable income, the Fund
could be required to make distributions exceeding book income to
qualify as a regulated investment company that is accorded
special tax treatment.

RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.

SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the Fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the Fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.

CAPITAL LOSS CARRYOVER. The amounts and expiration dates of any
capital loss carryovers available to the Fund are shown in Note 1
(Federal income taxes) to the financial statements included in
Part I of this Statement or incorporated by reference into this
Statement.

FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING
TRANSACTIONS. The Fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts, and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.

If more than 50% of the Fund's assets at year end consists of the
debt and equity securities of foreign corporations, the Fund may
elect to permit shareholders to claim a credit or deduction on
their income tax returns for their pro rata portion of qualified
taxes paid by the Fund to foreign countries. In such a case,
shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to
claim a foreign tax credit or deduction in respect of foreign
taxes paid by the Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not
get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.

Investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax or
other charge on the proceeds from the sale of its investment in
such a company; however, this tax can be avoided by making an
election to mark such investments to market annually or to treat
the passive foreign investment company as a "qualified electing
fund."

SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption
of Fund shares may give rise to a gain or loss. In general, any
gain or loss realized upon a taxable disposition of shares will
be treated as long-term capital gain or loss if the shares have
been held for more than 12 months, and otherwise as short-term
capital gain or loss. However, if a shareholder sells shares at
a loss within six months of purchase, any loss will be disallowed
for Federal income tax purposes to the extent of any exempt-
interest dividends received on such shares. In addition, any
loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the
shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares will be disallowed if other Fund
shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.

SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules
apply to investments though defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.

BACKUP WITHHOLDING. The Fund generally is required to withhold
and remit to the U.S. Treasury 31% of the taxable dividends and
other distributions paid to any individual shareholder who fails
to furnish the Fund with a correct taxpayer identification number
(TIN), who has underreported dividends or interest income, or who
fails to certify to the Fund that he or she is not subject to
such withholding. Shareholders who fail to furnish their currect
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.

MANAGEMENT OF THE FUND

TRUSTEES

*+GEORGE PUTNAM, Chairman and President. Chairman and Director
of Putnam Management and Putnam Mutual Funds. Director, The
Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin
Company, Marsh & McLennan Companies, Inc. and Rockefeller Group,
Inc.

+WILLIAM F. POUNDS, Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX,
M/A-COM, Inc., and Sun Company, Inc.

JAMESON A. BAXTER, Trustee. President, Baxter Associates, Inc.
(consultants to management). Director of Avondale Federal Savings
Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman of
the Board of Trustees, Mount Holyoke College.

+HANS H. ESTIN, Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.

ELIZABETH T. KENNAN, Trustee. President of Mount Holyoke
College. Director, the Kentucky Home Life Insurance Companies,
NYNEX Corporation, Northeast Utilities and Talbots and Trustee of
the University of Notre Dame.

*LAWRENCE J. LASSER, Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and Putnam Investment Management, Inc. Director of Marsh &
McLennan Companies, Inc. Vice President of the Putnam funds.

JOHN A. HILL, Trustee. Chairman and Managing Director, First
Reserve Corporation (a registered investment adviser). Director,
Lantana Corporation, Maverick Tube Corporation, Snyder Oil
Corporation and various First Reserve Funds.

+ROBERT E. PATTERSON, Trustee. Executive Vice President, Cabot
Partners Limited Partnership (a registered investment adviser).

DONALD S. PERKINS, Trustee. Director of various corporations,
including American Telephone & Telegraph Company, AON Corp.,
Cummins Engine Company, Inc., Illinois Power Company, Inland
Steel Industries, Inc., K mart Corporation, LaSalle Street Fund,
Inc., Springs Industries, Inc., TBG, Inc. and Time Warner Inc.

*#GEORGE PUTNAM, III, Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information). Director,
World Environment Center.

*A.J.C. SMITH, Trustee. Chairman, Chief Executive Officer and
Director, Marsh & McLennan Companies, Inc.

W. NICHOLAS THORNDIKE, Trustee. Director of various corporations
and charitable organizations, including Courier Corporation and
Providence Journal Co. Also, Trustee and President of
Massachusetts General Hospital and Trustee of Bradley Real Estate
Trust and Eastern Utilities Associates.

OFFICERS

CHARLES E. PORTER, Executive Vice President. Managing Director
of Putnam Investments, Inc. and Putnam Investment Management,
Inc. Executive Vice President of the Putnam funds.

PATRICIA C. FLAHERTY, Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Investment
Management, Inc.

WILLIAM N. SHIEBLER, Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President, Chief
Operating Officer and Director of Putnam Mutual Funds. Vice
President of the Putnam funds.

GORDON H. SILVER, Vice President. Senior Managing Director of
Putnam Investments, Inc. and Putnam Investment Management, Inc.
Director, Putnam Investments, Inc. and Putnam Investment
Management, Inc. Vice President of the Putnam funds.

JOHN R. VERANI, Vice President. Senior Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.

PAUL M. O'NEIL, Vice President. Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.

JOHN D. HUGHES, Vice President and Treasurer. Vice President and
Treasurer of the Putnam funds.

KATHERINE HOWARD, Assistant Vice President. Assistant Vice
President of the Putnam funds.

BEVERLY MARCUS, Clerk and Assistant Treasurer. Clerk and
Assistant Treasurer of the Putnam funds.

*Trustees who are "interested persons" (as defined in the
Investment Company Act of 1940) of the Fund, Putnam Management or
Putnam Mutual Funds.

+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the Fund and may exercise all of the powers of
the Trustees.

#George Putnam, III is the son of George Putnam.

-----------------

Certain other officers of Putnam Management are officers of your
Fund. SEE "ADDITIONAL OFFICERS OF THE FUND" IN PART I OF THIS
STATEMENT. The mailing address of each of the officers and
Trustees is One Post Office Square, Boston, Massachusetts 02109.

Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Also, prior to January, 1992, Ms.
Baxter was Vice President and Principal, Regency Group, Inc. and
Consultant, The First Boston Corporation. Prior to May, 1991,
Mr. Pounds was Senior Advisor to the Rockefeller Family and
Associates, Chairman of Rockefeller Trust Company and Director of
Rockefeller Group, Inc. Prior to November, 1990, Mr. Shiebler
was President and Chief Operating Officer of the Intercapital
Division of Dean Witter Reynolds, Inc., Vice President of the
Dean Witter Funds and Director of Dean Witter Trust Company.

Each Trustee of the Fund receives an annual fee and an additional
fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND, SEE "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT.

The Agreement and Declaration of Trust of the Fund provides that
the Fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
Fund, except if it is determined in the manner specified in the
Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in
the best interests of the Fund or that such indemnification would
relieve any officer or Trustee of any liability to the Fund or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. The
Fund, at its expense, provides liability insurance for the
benefit of its Trustees and officers.

Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.

Trustees and officers of the Fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees (if any), custodian fees and
transfer agency fees paid or allowed by the Fund.

PUTNAM MANAGEMENT

Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the Fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $65 billion in assets
in over 4.0 million shareholder accounts at June 30, 1994. An
affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
June 30, 1994, Putnam Management and its affiliates managed over
$92 billion in assets, including nearly $52 billion in tax exempt
securities and over $32 billion in retirement plan assets.

THE MANAGEMENT CONTRACT

Under a Management Contract between the Fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the Fund and makes
investment decisions on behalf of the Fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
Fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the Fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the Fund's
portfolio securities. Putnam Management may place Fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the Fund and other clients. In so doing, Putnam
Management may cause the Fund to pay greater brokerage
commissions than it might otherwise pay.

FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "FUND CHARGES AND EXPENSES" IN PART I OF
THIS STATEMENT. Putnam Management's compensation under the
Management Contract may be reduced in any year if the Fund's
expenses exceed the limits on investment company expenses imposed
by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are qualified for offer or sale. The
term "expenses" is defined in the statutes or regulations of such
jurisdictions, and generally, excludes brokerage commissions,
taxes, interest, extraordinary expenses and, if the Fund has a
Distribution Plan, payments made under such Plan. The only such
limitation as of the date of this Statement (applicable to any
Fund registered for sale in California) was 2.5% of the first $30
million of average net assets, 2% of the next $70 million and
1.5% of any excess over $100 million.

Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the Fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the Fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and,
if the Fund has a Distribution Plan, payments required under such
Plan. THE TERMS OF ANY EXPENSE LIMITATION FROM TIME TO TIME IN
EFFECT ARE DESCRIBED IN EITHER THE PROSPECTUS OR PART I OF THIS
STATEMENT.

In addition to the fee paid to Putnam Management, the Fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the Fund and their assistants who
provide certain administrative services for the Fund and the
other funds in the Putnam Family, each of which bears an
allocated share of the foregoing costs. The aggregate amount of
all such payments and reimbursements is determined annually by
the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S
MOST RECENT FISCAL YEAR IS INCLUDED IN "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management pays
all other salaries of officers of the Fund. The Fund pays all
expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The Fund pays the cost of
typesetting for its Prospectuses and the cost of printing and
mailing any Prospectuses sent to its shareholders. Putnam Mutual
Funds pays the cost of printing and distributing all other
Prospectuses.

The Management Contract provides that Putnam Management shall not
be subject to any liability to the Fund or to any shareholder of
the Fund for any act or omission in the course of or connected
with rendering services to the Fund in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management.

The Management Contract may be terminated without penalty by vote
of the Trustees or the shareholders of the Fund, or by Putnam
Management, on 30 days' written notice. It may be amended only
by a vote of the shareholders of the Fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
Fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.

PORTFOLIO TRANSACTIONS

INVESTMENT DECISIONS. Investment decisions for the Fund and for
the other investment advisory clients of Putnam Management and
its affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which
in Putnam Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.

BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the
transaction. Transactions in foreign investments often involve
the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION CONCERNING COMMISSIONS
PAID BY THE FUND.

It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research
services (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
Fund's portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The
management fee paid by the Fund is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.

Putnam Management places all orders for the purchase and sale of
portfolio investments for the Fund and buys and sells investments
for the Fund through a substantial number of brokers and dealers.
In so doing, Putnam Management uses its best efforts to obtain
for the Fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable
price and execution, Putnam Management, having in mind the Fund's
best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other
investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.

As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the Fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the Fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the Fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.

The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the Fund, less any direct expenses approved by the
Trustees, shall be recaptured by the Fund through a reduction of
the fee payable by the Fund under the Management Contract.
Putnam Management seeks to recapture for the Fund soliciting
dealer fees on the tender of the Fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.

Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and such other
policies as the Trustees may determine, Putnam Management may
consider sales of shares of the Fund (and, if permitted by law,
of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.

PRINCIPAL UNDERWRITER

Putnam Mutual Funds is the principal underwriter of shares of the
Fund and the other continuously offered Putnam funds. Putnam
Mutual Funds is not obligated to sell any specific amount of
shares of the Fund and will purchase shares for resale only
against orders for shares. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION ON SALES CHARGES AND
OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS.

INVESTOR SERVICING AGENT AND CUSTODIAN

Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the Fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the Fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined by the Trustees taking into account the number of
shareholder accounts and transactions. Putnam Investor Services
has won the DALBAR Quality Tested Service Seal every year since
the award's 1990 inception. Over 10,000 tests of 38 separate
shareholders service components demonstrated that Putnam Investor
Services exceeded the industry standard in all categories.

PFTC is the custodian of the Fund's assets. In carrying out its
duties under its custodian contract, PFTC may employ one or more
subcustodians whose responsibilities will include safeguarding
and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Fund's investments. PFTC and any subcustodians
employed by it have a lien on the securities of the Fund (to the
extent permitted by the Fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the
Fund. The Fund expects that such advances will exist only in
unusual circumstances. Neither PFTC nor any subcustodian
determines the investment policies of the Fund or decides which
securities the Fund will buy or sell. PFTC pays the fees and
other charges of any subcustodians employed by it. The Fund may
from time to time pay custodial expenses in full or in part
through the placement by Putnam Management of the Fund's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
Fund pays PFTC an annual fee based on the Fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.

SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR
INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND
CUSTODY RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS
ALLOWED BY PFTC.

DETERMINATION OF NET ASSET VALUE

The Fund determines the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The Fund determines net
asset value as of the close of regular trading on the Exchange,
currently 4:00 p.m. However, equity options held by the Fund are
priced as of the close of trading at 4:10 p.m., and futures
contracts on U.S. Government securities and index options held by
the Fund are priced as of their close of trading at 4:15 p.m.

Securities for which market quotations are readily available are
valued at prices which, in the opinion of the Trustees or Putnam
Management, most nearly represent the market values of such
securities. Currently, such prices are determined using the last
reported sale price or, if no sales are reported (as in the case
of some securities traded over-the-counter), the last reported
bid price, except that certain U.S. Government securities are
stated at the mean between the last reported bid and asked
prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
Liabilities are deducted from the total, and the resulting amount
is divided by the number of shares of the class outstanding.

Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are stated at fair value on the
basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal,
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders.

If any securities held by the Fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the Fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices
of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the
issuer.

Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the Fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. Government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.

Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.

HOW TO BUY SHARES

General

The Prospectus contains a general description of how investors
may buy shares of the Fund and states whether the Fund offers
more than one class of shares. This Statement contains
additional information which may be of interest to investors.

Class A shares and Class M shares are sold with a sales charge
payable at the time of purchase (except for Class A shares and
Class M shares of money market funds). As used in this Statement
and unless the context requires otherwise, the term "Class A
shares" includes shares of Funds that offer only one class of
shares. The Prospectus contains a table of applicable sales
charges. For information about how to purchase Class A shares of
a Putnam fund at net asset value through an employer's defined
contribution plan, please consult your employer. Certain
purchases of Class A shares and Class M shares may be exempt from
a sales charge or, in the case of Class A shares, may be subject
to a contingent deferred sales charge ("CDSC"). See "General--
Sales without sales charges or contingent deferred sales
charges", "Additional Information About Class A and Class M
Shares", and "Contingent Deferred Sales Charges--Class A shares".

Class B shares and Class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The Prospectus contains a table of applicable CDSCs.

Class Y shares, which are available only to employer-sponsored
defined contribution plans initially investing at least $250
million in a combination of Putnam funds and other investments
managed by Putnam Management or its affiliates, are not subject
to sales charges or a CDSC.

Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.

The Fund is currently making a continuous offering of its shares.
The Fund receives the entire net asset value of shares sold. The
Fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
Class A shares and Class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the Fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.

Initial and subsequent purchases must satisfy the minimums stated
in the Prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your Investing Account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.

As a convenience to investors, shares may be purchased through a
systematic investment plan. Preauthorized monthly bank drafts
for a fixed amount (at least $25) are used to purchase Fund
shares at the applicable public offering price next determined
after Putnam Mutual Funds receives the proceeds from the draft
(normally the 20th of each month, or the next business day
thereafter). Further information and application forms are
available from investment dealers or from Putnam Mutual Funds.

Except for Putnam funds that declare a distribution daily,
distributions to be reinvested are reinvested without a sales
charge in shares of the same class as of the ex-dividend date
using the net asset value determined on that date, and are
credited to a shareholder's account on the payment date.
Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for
Putnam Tax-Free Income Trust and Putnam Corporate Asset Trust are
reinvested without a sales charge as of the last day of the
period for which distributions are paid using the net asset value
determined on that date, and are credited to a shareholder's
account on the payment date. Distributions for all other Putnam
funds that declare a distribution daily are reinvested without a
sales charge as of the next day following the period for which
distributions are paid using the net asset value determined on
that date, and are credited to a shareholder's account on the
payment date.

PAYMENT IN SECURITIES. In addition to cash, the Fund may accept
securities as payment for Fund shares at the applicable net asset
value. Generally, the Fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for
efficient management.

While no minimum has been established, it is expected that the
Fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The Fund may reject in
whole or in part any or all offers to pay for purchases of Fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for Fund shares
at any time without notice. The Fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the Fund. The Fund
will only accept securities which are delivered in proper form.
The Fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
Funds in exchange for Fund shares are subject to additional
requirements. In the case of Putnam Capital Appreciation Fund,
Putnam Europe Growth Fund, Putnam Overseas Growth Fund, Putnam
Intermediate Tax Exempt Fund and Putnam Diversified Equity Trust,
transactions involving the issuance of Fund shares for securities
or assets other than cash will be limited to a bona-fide re-
organization or statutory merger and to other acquisitions of
portfolio securities that meet all the following conditions: (a)
such securities meet the investment objectives and policies of
the Fund; (b) such securities are acquired for investment and not
for resale; (c) such securities are liquid securities which are
not restricted as to transfer either by law or liquidity of
market; and (d) such securities have a value which is readily
ascertainable, as evidenced by a listing on the American Stock
Exchange, the New York Stock Exchange or NASDAQ. In addition,
Putnam Global Governmental Income Trust may accept only
investment grade bonds with prices regularly stated in
publications generally accepted by investors, such as the London
Financial Times and the Association of International Bond Dealers
manual, or securities listed on the New York or American Stock
Exchanges or with NASDAQ, and Putnam Diversified Income Trust may
accept only bonds with prices regularly stated in publications
generally accepted by investors. For federal income tax
purposes, a purchase of Fund shares with securities will be
treated as a sale or exchange of such securities on which the
investor will realize a taxable gain or loss. The processing of
a purchase of Fund shares with securities involves certain delays
while the Fund considers the suitability of such securities and
while other requirements are satisfied. For information
regarding procedures for payment in securities, contact Putnam
Mutual Funds. Investors should not send securities to the Fund
except when authorized to do so and in accordance with specific
instructions received from Putnam Mutual Funds.

SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES.
The Fund may sell shares without a sales charge or CDSC to:

(i) current and retired Trustees of the Fund; officers of
the Fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;

(ii) employee benefit plans, for the repurchase of shares
in connection with repayment of plan loans made to plan
participants (if the sum loaned was obtained by redeeming
shares of a Putnam fund sold with a sales charge) (not
offered by tax-exempt funds);

(iii) clients of administrators of tax-qualified employee
benefit plans which have entered into agreements with
Putnam Mutual Funds (not offered by tax-exempt funds);

(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of Fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);

(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;

(vi) a trust department of any financial institution
purchasing shares of the Fund in its capacity as trustee
of any trust, if the value of the shares of the Fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and

(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.

In addition, the Fund may issue its shares at net asset value in
connection with the acquisition of substantially all of the
securities owned by other investment companies or personal
holding companies.

PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense,
pay concessions in addition to the payments disclosed in the
Prospectus to dealers which satisfy certain criteria established
from time to time by Putnam Mutual Funds relating to increasing
net sales of shares of the Putnam funds over prior periods, and
certain other factors.

ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES

The underwriter's commission is the sales charge shown in the
Prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.

Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of Class A shares and
Class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.

COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
Prospectus by combining into a single transaction the purchase of
Class A shares or Class M shares with other purchases of any
class of shares:

(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);

(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;

(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);

(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including
403(b) plans); and

(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.

A combined purchase currently may also include shares of any
class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.

CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of Class A shares or Class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:

(i) the investor's current purchase; and

(ii) the maximum public offering price (at the close of
business on the previous day) of:

(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and

(b) any shares of money market funds acquired by
exchange from other Putnam funds; and

(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).

To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.

STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for Class A shares or Class M shares shown in the
Prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the Fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of Class A shares
or Class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement. A Statement of Intention may include purchases of
shares made not more than 90 days prior to the date that an
investor signs a Statement; however, the 13-month period during
which the Statement is in effect will begin on the date of the
earliest purchase to be included.

An investor may receive a credit toward the amount indicated in
the Statement equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she
owns on the date of the Statement which are eligible for purchase
under a Statement (plus any shares of money market funds acquired
by exchange of such eligible shares). Investors do not receive
credit for shares purchased by the reinvestment of distributions.
Investors qualifying for the "combined purchase privilege" (see
above) may purchase shares under a single Statement of Intention.

The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount, and must be invested immediately. Class A shares or
Class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.

To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.

To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the Prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.

Statements of Intention are not available for certain employee
benefit plans.

Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.

REDUCED SALES CHARGE FOR GROUP PURCHASES OF CLASS A SHARES.
Members of qualified groups may purchase Class A shares of the
Fund at a group sales charge rate of 4.5% of the public offering
price (4.71% of the net amount invested). The dealer discount on
such sales is 3.75% of the offering price.

To receive the group rate, group members must purchase Class A
shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Mutual Funds, together with payment and
completed application forms. After the initial purchase, a
member may send funds for the purchase of Class A shares directly
to Putnam Investor Services. Purchases of Class A shares are
made at the public offering price based on the net asset value
next determined after Putnam Mutual Funds or Putnam Investor
Services receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only Class A shares are included in calculating the
purchased amount.

Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which at least 10 members
participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some
purpose in addition to the purchase of investment company shares
at a reduced sales charge; (iv) the group's sole organizational
nexus or connection is not that the members are credit card
holders of a company, policy holders of an insurance company,
customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to
provide its designated investment dealer access to the group's
membership by means of written communication or direct
presentation to the membership at a meeting on not less
frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification in form satisfactory to
Putnam Investor Services that the group then has at least 25
members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.

Members of a qualified group include: (i) any group which meets
the requirements stated above and which is a constituent member
of a qualified group; (ii) any individual purchasing for his or
her own account who is carried on the records of the group or on
the records of any constituent member of the group as being a
good standing employee, partner, member or person of like status
of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring Class A shares for the benefit
of any of the foregoing.

A member of a qualified group may, depending upon the value of
Class A shares of the Fund owned or proposed to be purchased by
the member, be entitled to purchase Class A shares of the Fund at
non-group sales charge rates shown in the Prospectus which may be
lower than the group sales charge rate, if the member qualifies
as a person entitled to reduced non-group sales charges. Such a
group member will be entitled to purchase at the lower rate if,
at the time of purchase, the member or his or her investment
dealer furnishes sufficient information for Putnam Mutual Funds
or Putnam Investor Services to verify that the purchase qualifies
for the lower rate.

Interested groups should contact their investment dealer or
Putnam Mutual Funds. The Fund reserves the right to revise the
terms of or to suspend or discontinue group sales at any time.

EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The term
"employee benefit plan" means any plan or arrangement, whether or
not tax-qualified, which provides for the purchase of Class A
shares. The term "affiliated employer" means employers who are
affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) Class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate Investing Account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.

The table of sales charges in the Prospectus applies to sales to
employee benefit plans, except that the Fund may sell Class A
shares at net asset value to employee benefit plans, including
individual account plans, of employers or of affiliated employers
which have at least 750 employees to whom such plan is made
available, in connection with a payroll deduction system of plan
funding (or other system acceptable to Putnam Investor Services)
by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The Fund may
also sell Class A shares at net asset value to employee benefit
plans of employers or of affiliated employers which have at least
750 employees, if such plans are qualified under Section 401 of
the Internal Revenue Code.

Additional information about employee benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.

CONTINGENT DEFERRED SALES CHARGES

CLASS A SHARES. Class A shares purchased at net asset value by
shareholders investing $1 million or more, including purchases
pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase. The Class A CDSC is imposed on the
lower of the cost and the current net asset value of the shares
redeemed. The CDSC does not apply to shares sold without a sales
charge through participant-directed qualified retirement plans
and shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph.

Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases of
such shares, including purchases pursuant to any Combined
Purchase Privilege, Right of Accumulation or Statement of
Intention, during the one-year period beginning with the date of
the initial purchase at net asset value and each subsequent one-
year period beginning with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales (gross
sales minus gross redemptions during the quarter) at the rate of
0.15%. Money market fund shares are excluded from all commission
calculations, except for determining the amount initially
invested by a participant-directed qualified retirement plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.

Different CDSC and commission rates may apply to shares purchased
before April 1, 1994.

CLASS B AND CLASS C SHARES. Investors who set up an Automatic
Cash Withdrawal Plan (ACWP) for a Class B and Class C share
account (see "Plans Available To Shareholders -- Automatic Cash
Withdrawal Plan") may withdraw through the ACWP up to 12% of the
net asset value of the account (calculated as set forth below)
each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions)
will be redeemed first and will count toward the 12% limitation.
If there are insufficient shares not subject to a CDSC, shares
subject to the lowest CDSC liability will be redeemed next until
the 12% limit is reached. The 12% figure is calculated on a pro
rata basis at the time of the first payment made pursuant to a
ACWP and recalculated thereafter on a pro rata basis at the time
of each ACWP payment. Therefore, shareholders who have chosen a
ACWP based on a percentage of the net asset value of their
account of up to 12% will be able to receive ACWP payments
without incurring a CDSC. However, shareholders who have chosen
a specific dollar amount (for example, $100 per month from a fund
that pays income distributions monthly) for their periodic ACWP
payment should be aware that the amount of that payment not
subject to a CDSC may vary over time depending on the net asset
value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder
will receive $100 free of the CDSC (12% of $10,000 divided by 12
monthly payments). However, if at the time of the next payment
the net asset value of the account has fallen to $9,400, the
shareholder will receive $94 free of any CDSC (12% of $9,400
divided by 12 monthly payments) and $6 subject to the lowest
applicable CDSC. This ACWP privilege may be revised or
terminated at any time.

ALL SHARES. No CDSC is imposed on shares of any class subject to
a CDSC ("CDSC Shares") to the extent that the CDSC Shares
redeemed (i) are no longer subject to the holding period
therefor, (ii) resulted from reinvestment of distributions on
CDSC Shares, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or
subsequent exchanges (including shares of a Putnam money market
fund) will continue to remain subject to the CDSC, if applicable,
until the applicable holding period expires. In determining
whether the CDSC applies to each redemption of CDSC Shares, CDSC
Shares not subject to a CDSC are redeemed first.

The Fund will waive any CDSC on redemptions, in the case of
individual or Uniform Transfers to Minors Act accounts, in case
of death or disability or for the purpose of paying benefits
pursuant to tax-qualified retirement plans. Such payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under section 401(a) or section
403(b)(7) (a "403(b) plan") of the Internal Revenue Code of 1986,
as amended (the "Code"), due to death, disability, retirement or
separation from service. The Fund will also waive any CDSC in
the case of the death of one joint tenant. These waivers may be
changed at any time. Additional waivers may apply to IRA
accounts opened prior to February 1, 1994.

DISTRIBUTION PLAN

If the Fund or a class of shares of the Fund has adopted a
Distribution Plan, the Prospectus describes the principal
features of the Plan. This Statement contains additional
information which may be of interest to investors.

Continuance of a Plan is subject to annual approval by a vote of
the Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect
interest in the Plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a Plan must be likewise approved by
the Trustees and the Qualified Trustees. No Plan may be amended
in order to increase materially the costs which the Fund may bear
for distribution pursuant to such Plan without also being
approved by a majority of the outstanding voting securities of
the Fund or the relevant class of the Fund, as the case may be.
A Plan terminates automatically in the event of its assignment
and may be terminated without penalty, at any time, by a vote of
a majority of the Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the Fund or the relevant
class of the Fund, as the case may be.

If Plan payments are made to reimburse Putnam Mutual Funds for
payments to dealers based on the average net asset value of Fund
shares attributable to shareholders for whom the dealers are
designated as the dealer of record, "average net asset value"
attributable to a shareholder account means the product of (i)
the Fund's average daily share balance of the account and (ii)
the Fund's average daily net asset value per share (or the
average daily net asset value per share of the class, if
applicable). For administrative reasons, Putnam Mutual Funds may
enter into agreements with certain dealers providing for the
calculation of "average net asset value" on the basis of assets
of the accounts of the dealer's customers on an established day
in each quarter.

Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.

INVESTOR SERVICES

SHAREHOLDER INFORMATION

Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders will receive a statement
confirming reinvestment of distributions in additional Fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The Fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.

YOUR INVESTING ACCOUNT

The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.

A shareholder may reinvest a recent cash distribution without a
front-end sales charge or without the reinvested shares being
subject to a CDSC, as the case may be, by delivering to Putnam
Investor Services the uncashed distribution check, endorsed to
the order of the Fund. Putnam Investor Services must receive the
properly endorsed check within 30 days after the date of the
check. Upon written notice to shareholders, the Fund may permit
shareholders who receive cash distributions to reinvest amounts
representing returns of capital without a sales charge or without
being subject to the CDSC.

The Investing Account also provides a way to accumulate shares of
the Fund. In most cases, after an initial investment of $500, a
shareholder may send checks to Putnam Investor Services for $50
or more, made payable to the Fund, to purchase additional shares
at the applicable public offering price next determined after
Putnam Investor Services receives the check. For Putnam
Corporate Asset Trust, the minimum initial investment is $25,000
and the minimum subsequent investment is $5,000. Checks must be
drawn on a U.S. bank and must be payable in U.S. dollars.

Putnam Investor Services acts as the shareholder's agent whenever
it receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares
are to be purchased for a shareholder's account, shares will be
purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.

Shares credited to an account are transferable upon written
instructions in good order to Putnam Investor Services and may be
sold to the Fund as described under "How to buy shares, sell
shares and exchange shares" in the Prospectus. Money market
funds and certain other funds will not issue share certificates.
A shareholder may send any certificates which have been
previously issued to Putnam Investor Services for safekeeping at
no charge to the shareholder.

Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.

Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact
Putnam Investor Services for details.

The Fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.
<PAGE>
REINSTATEMENT PRIVILEGE

CLASS A SHARES AND CLASS M SHARES

An investor who has sold shares to the Fund may reinvest (within
90 days) the proceeds of such sale in shares of the Fund, or may
be able to reinvest (within 90 days) the proceeds in shares of
the other continuously offered Putnam funds (through the Exchange
Privilege described in the Prospectus and below). Any such
reinvestment would be at the net asset value of the shares of the
fund(s) the investor selects, next determined after Putnam Mutual
Funds receives a Reinstatement Authorization and will not be
subject to any sales charge, including a CDSC.

CLASS B SHARES AND CLASS C SHARES

An investor who has sold Class B and Class C shares to the Fund
may reinvest (within 90 days) the proceeds of such sale in Class
B and Class C shares of the Fund, or may be able to reinvest
(within 90 days) the proceeds in Class B and Class C shares of
other Putnam funds (through the Exchange Privilege described in
the Prospectus and below). Upon such reinvestment, the investor
would receive Class B and Class C shares at the net asset value
next determined after Putnam Mutual Funds receives a
Reinstatement Authorization subject to the applicable CDSC
calculated for this purpose using the date of the original
purchase.

ALL SHARES

Exercise of the Reinstatement Privilege does not alter the
federal income tax treatment of any capital gains realized on a
sale of Fund shares, but to the extent that any shares are sold
at a loss and the proceeds are reinvested in shares of the Fund,
some or all of the loss may be disallowed as a deduction.
Consult your tax adviser.

Investors who desire to exercise this Privilege should contact
their investment dealer or Putnam Investor Services.

EXCHANGE PRIVILEGE

Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to
$500,000 between accounts with identical registrations, provided
that no certificates are outstanding for such shares and no
address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.

Putnam Investor Services also makes exchanges promptly after
receiving a properly completed Exchange Authorization Form and,
if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of Fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the Fund were to suspend
redemptions or postpone payment for the Fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The Fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.

Shares of the Fund must be held at least 15 days by the
shareholder requesting an exchange. There is no holding period
if the shareholder acquired the shares to be exchanged through
reinvestment of distributions, transfer from another shareholder,
prior exchange or certain employer-sponsored defined contribution
plans. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the
shareholder requesting the exchange.

Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the Fund, as set forth in the
current prospectus of each fund.

For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.

DIVIDENDS PLUS

Shareholders may invest the Fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the Fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the Fund is a money market fund. The prospectus of each fund
describes its investment objective(s) and policies, and
shareholders should obtain a prospectus and consider these
objective(s) and policies carefully before investing their
distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.

The minimum account size requirement for the receiving fund will
not apply if the current value of your account in this Fund is
more than $5,000.

Shareholders of other Putnam funds (except for money market
funds, whose shareholders must pay a sales charge or become
subject to a CDSC) may also use their distributions to purchase
shares of the Fund at net asset value.

For federal tax purposes, distributions from the Fund which are
reinvested in another fund are treated as paid by the Fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.

The Dividends PLUS program may be revised or terminated at any
time.

PLANS AVAILABLE TO SHAREHOLDERS

The Plans described below are fully voluntary and may be
terminated at any time without the imposition by the Fund or
Putnam Investor Services of any penalty. All Plans provide for
automatic reinvestment of all distributions in additional shares
of the Fund at net asset value. The Fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these Plans
at any time.

AUTOMATIC CASH WITHDRAWAL PLAN. An investor who owns or buys
shares of the Fund valued at $10,000 or more at the current
public offering price may open a Withdrawal Plan and have a
designated sum of money ($50 or more) paid monthly, quarterly,
semi-annually or annually to the investor or another person.
(Payments from the Fund can be combined with payments from other
Putnam funds into a single check through a Designated Payment
Plan.) Shares are deposited in a Plan account, and all
distributions are reinvested in additional shares of the Fund at
net asset value (except where the Plan is utilized in connection
with a charitable remainder trust). Shares in a Plan account are
then redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a Withdrawal Plan
generally will result in a gain or loss for tax purposes. Some
or all of the losses realized upon redemption may be disallowed
pursuant to the so-called wash sale rules if shares of the same
fund from which shares were redeemed are purchased (including
through the reinvestment of fund distributions) within a period
beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares
will be increased to reflect the disallowed loss. Continued
withdrawals in excess of income will reduce and possibly exhaust
invested principal, especially in the event of a market decline.
The maintenance of a Withdrawal Plan concurrently with purchases
of additional shares of the Fund would be disadvantageous to the
investor because of the sales charge payable on such purchases.
For this reason, the minimum investment accepted while a
Withdrawal Plan is in effect is $1,000, and an investor may not
maintain a Plan for the accumulation of shares of the Fund (other
than through reinvestment of distributions) and a Withdrawal Plan
at the same time. The cost of administering these Plans for the
benefit of those shareholders participating in them is borne by
the Fund as an expense of all shareholders. The Fund, Putnam
Mutual Funds or Putnam Investor Services may terminate or change
the terms of the Withdrawal Plan at any time. A Withdrawal Plan
will be terminated if communications mailed to the shareholder
are returned as undeliverable.

Investors should consider carefully with their own financial
advisers whether the Plan and the specified amounts to be
withdrawn are appropriate in their circumstances. The Fund and
Putnam Investor Services make no recommendations or
representations in this regard.

TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT
OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.)
Investors may purchase shares of the Fund through the following
Tax Qualified Retirement Plans, available to qualified
individuals or organizations:

Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and

Individual Retirement Account Plans (IRAs).

Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam
Fiduciary Trust Company serves as trustee under each of these
Plans.

Forms and further information on these Plans are available from
investment dealers or from Putnam Mutual Funds. In addition,
specialized professional plan administration services are
available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.

A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
Fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.

Consultation with a competent financial and tax adviser regarding
these Plans and consideration of the suitability of Fund shares
as an investment under the Employee Retirement Income Security
Act of 1974, or otherwise, is recommended.

SIGNATURE GUARANTEES

Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. Putnam Investor Services usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.

SUSPENSION OF REDEMPTIONS

The Fund may not suspend shareholders' right of redemption, or
postpone payment for more than seven days, unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it
impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.

SHAREHOLDER LIABILITY

Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of Fund property for all loss
and expense of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.

STANDARD PERFORMANCE MEASURES

Yield and total return data for the Fund may from time to time be
presented in Part I of this Statement and in advertisements. In
the case of funds with more than one class of shares, all
performance information is calculated separately for each class.
The data is calculated as follows.

Total return for one-, five- and ten-year periods (or for such
shorter periods as the Fund has been in operation or shares of
the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the Fund made at the beginning of the
period, at the maximum public offering price for Class A shares
and Class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the Fund during that
period. Total return calculations assume deduction of the Fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all Fund distributions at net asset value on their respective
reinvestment dates.

The Fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the Fund during the base period less expenses accrued
for that period, and (ii) dividing that amount by the product of
(A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B)
the per share maximum public offering price for Class A shares or
Class M shares, as appropriate and net asset value for other
classes of shares on the last day of the base period. The result
is annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
Fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as GNMA's, based on cost). Dividends on equity securities
are accrued daily at their stated dividend rates.

If the Fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.

If the Fund is a tax-exempt fund, the tax-equivalent yield during
the base period may be presented for shareholders in one or more
stated tax brackets. Tax-equivalent yield is calculated by
adjusting the tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to
produce an after-tax yield equal, for that shareholder, to the
tax-exempt yield. The tax-equivalent yield will differ for
shareholders in other tax brackets.

At times, Putnam Management may reduce its compensation or assume
expenses of the Fund in order to reduce the Fund's expenses. The
per share amount of any such fee reduction or assumption of
expenses during the Fund's past ten fiscal years (or for the life
of the Fund, if shorter) is reflected in the table in the section
entitled "Financial history" in the Prospectus. Any such fee
reduction or assumption of expenses would increase the Fund's
yield and total return during the period of the fee reduction or
assumption of expenses.

All data are based on past performance and do not predict future
results.

COMPARISON OF PORTFOLIO PERFORMANCE

Independent statistical agencies measure the Fund's investment
performance and publish comparative information showing how the
Fund, and other investment companies, performed in specified time
periods. Three agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the Fund may
distribute these comparisons to its shareholders or to potential
investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED
ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED
PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION.

LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, reflecting generally
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, for example year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.

MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the
Fund's 3-year, 5-year, and 10-year total return
performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the
fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard &
Poor's Corporation and Moody's Investor Service, Inc.

CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.

Independent publications may also evaluate the Fund's
performance. Certain of those publications are listed below, at
the request of Putnam Mutual Funds, which bears full
responsibility for their use and the descriptions appearing
below. From time to time the Fund may distribute evaluations by
or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of
information provided by these publications.

BUSINESS WEEK publishes mutual fund rankings in its
Investment Figures of the Week column. The rankings are
based on 4-week and 52-week total return reflecting
changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales
charges. Funds are not categorized; they compete in a
large universe of over 2000 funds. The source for
rankings is data generated by Morningstar, Inc.

INVESTOR'S BUSINESS DAILY publishes mutual fund rankings
on a daily basis. The rankings are depicted as the top 25
funds in a given category. The categories are based
loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and
income funds, corporate bond funds, etc. Performance
periods for sector equity funds can vary from 4 weeks to
39 weeks; performance periods for other fund groups vary
from 1 year to 3 years. Total return performance reflects
changes in net asset value and reinvestment of dividends
and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales
charges. Performance grades are conferred from A+ to E.
An A+ rating means that the fund has performed within the
top 5% of a general universe of over 2000 funds; an A
rating denotes the top 10%; an A- is given to the top 15%,
etc.

BARRON'S periodically publishes mutual fund rankings. The
rankings are based on total return performance provided by
Lipper Analytical Services. The Lipper total return data
reflects changes in net asset value and reinvestment of
distributions, but does not reflect deduction of any sales
charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example)
to long-term periods (five-year or ten-year performance,
for example). Barron's classifies the funds using the
Lipper mutual fund categories, such as Capital
Appreciation Funds, Growth Funds, U.S. Government Funds,
Equity Income Funds, Global Funds, etc. Occasionally,
Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with
assets in excess of $25 million; "small funds" may be
those with less than $25 million in assets.

THE WALL STREET JOURNAL publishes its Mutual Fund
Scorecard on a daily basis. Each Scorecard is a ranking
of the top-15 funds in a given Lipper Analytical Services
category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales
charges. The Scorecard portrays 4-week, year-to-date,
one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given
category appear approximately once per month.

FORTUNE magazine periodically publishes mutual fund
rankings that have been compiled for the magazine by
Morningstar, Inc. Funds are placed in stock or bond fund
categories (for example, aggressive growth stock funds,
growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds, etc.), with the top-10 stock
funds and the top-5 bond funds appearing in the rankings.
The rankings are based on 3-year annualized total return
reflecting changes in net asset value and reinvestment of
distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to
reflect the risk profile of the fund.

MONEY magazine periodically publishes mutual fund rankings
on a database of funds tracked for performance by Lipper
Analytical Services. The funds are placed in 23 stock or
bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net
asset value and reinvestment of all dividends and capital
gains distributions and does not reflect deduction of any
sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B,
etc. To be ranked, a fund must be at least one year old,
accept a minimum investment of $25,000 or less and have
had assets of at least $25 million as of a given date.

FINANCIAL WORLD publishes its monthly Independent
Appraisals of Mutual Funds, a survey of approximately 1000
mutual funds. Funds are categorized as to type, e.g.,
balanced funds, corporate bond funds, global bond funds,
growth and income funds, U.S. government bond funds, etc.
To compete, funds must be over one year old, have over $1
million in assets, require a maximum of $10,000 initial
investment, and should be available in at least 10 states
in the United States. The funds receive a composite past
performance rating, which weighs the intermediate- and
long-term past performance of each fund versus its
category, as well as taking into account its risk, reward
to risk, and fees. An A+ rated fund is one of the best,
while a D-rated fund is one of the worst. The source for
Financial World rating is Schabacker investment management
in Rockville, MD.

FORBES magazine periodically publishes mutual fund ratings
based on performance over at least two bull and bear
market cycles. The funds are categorized by type,
including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The
ratings are based strictly on performance at net asset
value over the given cycles. Funds performing in the top
5% receive an A+ rating; the top 15% receive an A rating;
and so on until the bottom 5% receive an F rating. Each
fund exhibits two ratings, one for performance in "up"
markets and another for performance in "down" markets.

KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing
Times), periodically publishes rankings of mutual funds
based on one-, three- and five-year total return
performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Funds are
ranked by tenths: a rank of 1 means that a fund was among
the highest 10% in total return for the period; a rank of
10 denotes the bottom 10%. Funds compete in categories of
similar funds--aggressive growth funds, growth and income
funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds,
etc. Kiplinger's also provides a risk-adjusted grade in
both rising and falling markets. Funds are graded against
others with the same objective. The average weekly total
return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk
profile of the fund.

U.S. NEWS AND WORLD REPORT periodically publishes mutual
fund rankings based on an overall performance index (OPI)
devised by Kanon Bloch Carre & Co., a Boston research
firm. Over 2000 funds are tracked and divided into 10
equity, taxable bond and tax-free bond categories. Funds
compete within the 10 groups and three broad categories.
The OPI is a number from 0-100 that measures the relative
performance of funds at least three years old over the
last 1, 3, 5 and 10 years and the last six bear markets.
Total return reflects changes in net asset value and the
reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales
charges. Results for the longer periods receive the most
weight.

THE 100 BEST MUTUAL FUNDS YOU CAN BUY (1992), authored by
Gordon K. Williamson. The author's list of funds is
divided into 12 equity and bond fund categories, and the
100 funds are determined by applying four criteria.
First, equity funds whose current management teams have
been in place for less than five years are eliminated.
(The standard for bond funds is three years.) Second, the
author excludes any fund that ranks in the bottom 20
percent of its category's risk level. Risk is determined
by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill.
Third, a fund must have demonstrated strong results for
current three-year and five-year performance. Fourth, the
fund must either possess, in Mr. Williamson's judgment,
"excellent" risk-adjusted return or "superior" return with
low levels of risk. Each of the 100 funds is ranked in
five categories: total return, risk/volatility,
management, current income and expenses. The rankings
follow a five-point system: zero designates "poor"; one
point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior";
and five points mean "excellent."

In addition, Putnam Mutual Funds may distribute to shareholders
or prospective investors illustrations of the benefits of
reinvesting tax-exempt or tax-deferred distributions over
specified time periods, which may include comparisons to fully
taxable distributions. These illustrations use hypothetical
rates of tax-advantaged and taxable returns and are not intended
to indicate the past or future performance of any fund.

DEFINITIONS

"Putnam Management" -- Putnam Investment Management,
Inc., the Fund's investment
manager.

"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
Fund's principal underwriter.

"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the Fund's custodian.

"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the Fund's
investor servicing agent.

<PAGE>
PUTNAM TAX-FREE INCOME TRUST

FORM N-1A
PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Index to Financial Statements and Supporting
Schedule:

(1) Financial Statements:

Statements of assets and liabilities -- July
31,

1994(a) .
Statements of operations -- year ended July
31, 1994(a) .
Statements of changes in net assets -- years
ended July 31, 1994 and
1993(a) .
Financial highlights(a)(b).
Notes to financial statements(a).

(2) Supporting Schedules:

Schedule I -- Portfolios of investments owned
-- July 31, 1994(a) .
Schedules II through IX omitted because the
required matter is not present.

(a) Incorporated by reference into Parts A
and B.
(b) Included in Part A.

- -------------------------
(b) Exhibits:

1. Agreement and Declaration of Trust, as
amended and restated July 21, 1993 --
Incorporated by reference to Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
2. Bylaws, as amended February 1, 1994 --
Exhibit 1 .
3. Not applicable.
4a. Specimen share certificates -- Incorporated
by reference to Post-Effective Amendment No.
9 to the Registrant's Registration Statement.
4b. Portions of Agreement and Declaration of
Trust Relating to Shareholder's Rights - -
Incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
4c. Portions of Bylaws Relating to Shareholder's
Rights -- Incorporated by reference
to Post-Effective Amendment No. 10 to
the Registrant's Registration Statement.
4d. Copy of Class M Specimen share
certificate for Putnam Tax-Free
High Yield Fund --
Exhibit 2.
5. Copy of Management Contract
for Putnam Tax-Free Income Trust dated
July 26, 1985, as amended and restated as of
July 1, 1994 --Exhibit 3.
6a. Copy of Distributors' Contract for Putnam
Tax-Free Insured Fund dated May 6 ,
1994 --Exhibit 4.
Copy of Distributors' Contract for Putnam
Tax-Free High Yield Fund -- Exhibit 5 .
6b. Copy of Specimen Dealer Sales Contract --
Incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement.
6c. Copy of Specimen Financial Institution Sales
Contract -- Incorporated by reference to
Post-Effective Amendment No. 8 to the
Registrant's Registration Statement.
7. Not applicable.
8. Copy of Custodian Agreement dated May 3, 1991
with Putnam Fiduciary Trust Company --
Incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement.
9. Copy of Investor Servicing Agency Agreement
dated June 3, 1991 with Putnam Fiduciary
Trust Company -- Incorporated by reference to
Post-Effective Amendment No. 8 to the
Registrant's Registration Statement.
10. Opinion of Ropes & Gray, including consent
for Putnam Tax-Free Income Trust - Tax-Free
Insured Fund -- Incorporated by reference to
Post-Effective Amendment No. 7 to the
Registrant's Registration Statement.
Opinion of Ropes & Gray, including consent
for Putnam Tax-Free Income Trust - Tax-Free
High Yield Fund -- Incorporated by reference
to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investment
Management, Inc. to the Registrant --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
14. Not applicable.
15a. Copy of Distribution Plan and Agreement for
the Class A Shares of Putnam Tax-Free Insured
Fund dated September 19, 1993 --
Incorporated by reference to Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
Copy of Distribution Plan and Agreement for
the Class B Shares of Putnam Tax-Free Insured
Fund, as revised August 23, 1993 --
Incorporated by reference to Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
Copy of Distribution Plan and Agreement for
the Class A Shares of Putnam Tax-Free High
Yield Fund dated September 19, 1993 --
Incorporated by reference to Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
Copy of Distribution Plan and Agreement for
the Class B Shares of Putnam Tax-Free High
Yield Fund, as revised August 23, 1993 --
Incorporated by reference to Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
15b. Form of Class M Distribution Plan and
Agreement -- Exhibit 6 .
15c . Copy of Specimen Dealer Service
Agreement --Incorporated by
reference to Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement.
15d . Copy of Specimen Financial
Institution Service Agreement -
Incorporated by reference to Post-
Effective Amendment No. 8 to the
Registrant's Registration
Statement.
16a. Schedules for computation of performance
quotations for Putnam Tax-Free Insured Fund -
- Exhibit 7 .
Schedules for computation of performance
quotations for Putnam Tax-Free High Yield
Fund -- Exhibit 8 .
17a. Financial Data Schedule for Putnam Tax-
Free Insured Fund - Class A shares --
Exhibit 9.
Financial Data Schedule for Putnam Tax-Free
Insured Fund - Class B shares -- Exhibit 10.
17b. Financial Data Schedule for Putnam Tax-Free
High Yield Fund - Class A shares -- Exhibit
11.
Financial Data Schedule for Putnam Tax-Free
High Yield Fund - Class B shares -- Exhibit
12.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

As of July 31, 1994 there were 4,434 and
12,379 holders , respectively, of Putnam Tax-Free Insured
Fund's Class A and B shares of beneficial interest.

As of July 31, 1994 there were 12,153 and 43,521
holders, respectively, of Putnam Tax-Free High Yield Fund's
Class A and B shares of beneficial interest. No Class M
shares were outstanding as of July 31, 1994 .

ITEM 27. INDEMNIFICATION

The information required by this item is incorporated
by reference from the Registrant's initial Registration Statement
on Form N-1A under the Investment Company Act of 1940 (811-4345).
<PAGE>
<PAGE>

Item 28. Business and Other Connections of Investment Adviser

Except as set forth below, the directors and officers
of the Registrant's investment adviser have been engaged during
the past two fiscal years in no business, vocation or employment
of a substantial nature other than as directors or officers of
the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of
some or all of the Putnam funds. The address of the investment
adviser, its corporate affiliates and the Putnam Funds is One
Post Office Square, Boston, Massachusetts 02109.

NAME NON-PUTNAM BUSINESS AND OTHER
CONNECTIONS

John V. Adduci Prior to July, 1993, Human Resources
Assistant Vice President Manager, First Security Services, 80
Main St., Reading, MA 01867

Gail S. Attridge Prior to November, 1993, International
Vice President Analyst, Keystone Custodian Funds,
200 Berkley Street, Boston, MA 02116

James E. Babcock Prior to June, 1994, Interest
Assistant Vice President Supervisor, Salomon Brothers, Inc.
7 World Trade Center, New York, NY
10048
Prior to June, 1993, Audit Manager,
Coopers & Lybrand, One Sylvan Way,
Parsipanny, NJ 07054

Robert K. Baumbach Prior to August, 1994, Vice President
Vice President and Analyst, Keystone Custodian
funds, 200 Berkely St., Boston, MA
02110

Sharon A. Berka Prior to January, 1994, Vice
Vice President President - Compensation Manager,
BayBanks, Inc., 175 Federal Street,
Boston, MA 02110

Edward P. Bousa Prior to October, 1992, Vice President
Senior Vice President and Portfolio Manager, Fidelity
Investments, 82 Devonshire St.,
Boston, MA 02109

Michael F. Bouscaren Prior to May, 1994, President and
Senior Vice President Chairman of the Board of Directors
at Salomon Series Funds, Inc. and a
Director of Salomon Brothers Asset
Management, 7 World Trade Center,
New York, NY 10048

Brett Browchuk Prior to April, 1994, Managing
Managing Director Director, Fidelity Investments, 82
Devonshire St., Boston, MA 02109

Carolyn S. Bunten Prior to July, 1993, Assistant Trader,
Assistant Vice President Scudder Stevens & Clark, Inc., 175
Federal St., Boston, MA 02110

Andrea Burke Prior to August, 1994, Vice President
Vice President and Portfolio Manager, Back Bay
Advisors, 399 Boylston St., Boston,
MA 02116

John M. Burton Prior to June, 1994, Manager --
Assistant Vice President Marketing Asset Management Pension
Services, The Travelers, Inc., 1
Tower Square, Hartford, CT 06183

Patricia A. Carey Prior to May, 1993, Research Analyst,
Assistant Vice President John Hancock Financial Services, 100
Clarendon St., Boston, MA 02116

Peter Carman Prior to August, 1993, Chief
Senior Managing Director Investment Officer, Chairman, U.S.
Equity Investment Policy Committee,
Member of Board of Directors,
Sanford C. Bernstein & Co., Inc.,
767 Fifth Avenue, New York, NY 10153

Steven Cheshire Prior to January, 1994, Assistant
Vice President Vice President, Wellington
Management, 75 State Street, Boston,
MA 02109

Anna Coppola Prior to May, 1993, Associate,
Assistant Vice President Heidrick & Struggles, One Post
Office Square, Boston, MA 02109

Kathleen Crews Prior to February, 1993, Assistant
Assistant Vice President Vice President, Alliance Capital
Management, L.P., 1345 Avenue of
the Americas, New York, NY 10105
York, NY

Kenneth L. Daly Prior to September, 1993, Vice
Senior Vice President President, Fidelity Investments,
82 Devonshire St., Boston, MA 02109
<PAGE>
John A. DeTore Prior to January, 1994, Director of
Managing Director Quantitative Portfolio Management,
Wellington Management, 75 State
Street, Boston, Ma 02109

Michael G. Dolan Prior to February, 1994, Senior
Assistant Vice President Financial Analyst, General Electric
Company, 1000 Western Ave., Lynn, MA
01905

Joseph Eagleeye Prior to August, 1994, Associate,
Assistant Vice President David Taussig & Associates, 424
University Ave., Sacremento, CA
95813

Richard B. England Prior to December, 1992, Investment
Senior Vice President Officer, Aetna Equity Investors,
151 Farmington Avenue, Hartford,
CT, 06156

Jonathan H. Francis Prior to March, 1993, President,
Senior Vice President J.H. Francis & Co., N. Pheasant
Lane, Westport, CT 06880

James F. Giblin Prior to April, 1993, Managing
Senior Vice President Director, CIGNA Corp. Investments,
Inc., 900 Cottage Grove Rd.
Bloomfield, CT 06152

Thomas C. Goggins Prior to June, 1993, Portfolio
Vice President Manager, Transamerica Investment
Services, 1150 South Olive Street,
Los Angeles, CA 90015

Mark D. Goodwin Prior to May, 1994, Manager, Audit &
Assistant Vice President Operations Analysis, Mitre
Corporation, 202 Burlington Rd.,
Bedford, MA 01730

Stephen Gorman Prior to July, 1994, Financial
Assistant Vice President Analyst, Boston Harbor Trust
Company, 100 Federal St., Boston, MA
02110

Daniel J. Grim Prior to May 1993, Consultant,
Vice President Connie Lee, 2445 M Street N.W.,
Washington, D.C. 20037;
Chief Operating Officer, Boardwalk,
Inc., Minocqua, WI 54548
<PAGE>
Billy P. Han Prior to December, 1992, Vice
Vice President President, Scudder, Stevens & Clark,
Inc., 160 Federal Street, Boston, MA
02110

Deborah R. Healy Prior to June, 1994, Senior Equity
Senior Vice President Trader, Fidelity Management &
Research Company, 82 Devonshire St.,
Boston, MA 02109

Lisa Heitman Prior to July, 1994, Securities
Analyst, Lord, Abbett & Company, 767
Fifth Ave., New York, NY 10153

Michael F. Hotchkiss Prior to May, 1994, Vice President,
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA 02116

Walter Hunnewell, Jr. Prior to April, 1994, Managing
Vice President Director, Veronis, Suhler &
Associates, 350 Park Avenue, New
York, NY 10022

Stephon A. Jackson Prior to December, 1992, nalyst,
Assistant Vice President Arco Investment Management Co.,
515 South Flower Street,
Los Angeles, CA 91030

Jeffrey L. Knight Prior to March, 1993, Teacher,
Vice President Greater Newburyport Educational
Collaborative, Newburyport, MA 01950

Jeffrey J. Kobylarz Prior to May, 1993, Credit Analyst,
Vice President Dean Witter Reynolds, Inc.,
Two World Trade Center,
New York, NY 10048

D. William Kohli Prior to September, 1994, Executive
Senior Vice President Vice President and Co-Director of
Global Bond Managment; Prior to
1993, Portfolio Manager, Franklin
Advisors/Templeton Investment
Counsel, 777 Mariners Island Blvd.,
San Mateo, CA 94404
<PAGE>
Karen R. Korn Prior to June, 1994, Vice President,
Vice President Assistant to the President, Designs,
Inc. 1244 Boylston St., Chestnut
Hill, MA 02167
Prior to March, 1993, Vice President,
Paine Webber, Inc., 265 Franklin
St., Boston, MA 02110

Bruce M. Landers Prior to February, 1993, Manager,
Assistant Vice President Purchasing, Vicor Coproration, 23
Frontage Road, Andover, MA 01810

Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020
Officer Director, INROADS/Central New England,
Inc., 99 Bedford St., Boston,
MA 02111

John A. Libertine, Jr. Prior to December, 1992, Tax Manager,
Assistant Vice President Coopers & Lybrand, One Post Office
Square, Boston, MA 02109

Jeff Lindsay Prior to April, 1994, Vice President
Vice President and Board Member, Strategic
Portfolio Management, 900 Ashwood
Parkway, Suite 290, Atlanta, GA
30338

Robert A. Madore Prior to October, 1992, Senior Vice
Vice President President and Portfolio Manager,
Fiduciary Captial Management, Inc.
51 Sherman Hill Rd., Woodbury,
CT 06798

Frederick S. Marius Prior to September, 1992, Associate
Assistant Vice President Attorney at Skadden Arps, One
Associate Counsel Beacon St., Boston, MA 02109

Michael Martino Prior to January, 1994, Executive
Senior Vice President Vice President and Chief Investment
Officer until 1992; Senior Vice
President and Portfolio Manager from
1990 to 1992, Back Bay Advisors, 399
Boylston St, Boston, MA 02116

Andrew S. Matteis Prior to March, 1993, Vice President,
Vice President Fitch Investors Service, One
State Street Plaza, New York,
NY 10004

Susan McCormack Prior to May, 1994, Associate
Vice President Investment Banker, Merrill Lynch &
Co., 350 South Grand Ave., Suite
2830, Los Angeles, CA 90071

Michael J. Mufson Prior to June, 1993, Senior Equity
Vice President Analyst, Stein Roe & Farnham,
One South Wacker Drive, Chicago, Il
60606

Warren S. Naphtal Prior to January, 1994, Managing
Senior Vice President Director, Continental Bank, 231
So. Lasalle St., Chicago, IL 60697

Jeffrey W. Netols Prior to February, 1993, Portfolio
Senior Vice President Analyst, Associated Bank,
200 N. Adams, Greenbay, WI 54307

Patrick C. O'Donnell, Jr. Prior to May, 1994, President,
Managing Director Exeter Research, Inc., 163 Water
Street, Exeter, New Hampshire, 03833

Brian O'Keefe Prior to December, 1993, Vice
Vice President President - Foreign Exchange
Trader, Bank of Boston, 100 Federal
Street, Boston, MA 02109

Pat G. Patel Prior to April, 1993, Regional
Vice President Manager, Zacks Investment Research,
155 N. Wacker Drive, Chicago,
IL 60606

Margaret Pietropaolo Prior to January, 1994, Data Base/
Assistant Vice President Production Analyst, Wellington
Management, 75 State Street, Boston,
MA 02109

George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.
Director, The Boston Company, Inc.,
One Boston Place, Boston, MA 02108
Director, Boston Safe Deposit and
Trust Company, One Boston Place,
Boston, MA 02108
Director, Freeport-McMoRan, Inc., 200
Park Avenue, New York, NY 10166
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis,
MN 55440
Director, Houghton Mifflin Company,
One Beacon Street, Boston, MA 02108
Director, Marsh & McLennan Companies,
Inc., 1221 Avenue of the Americas,
New York, NY 10020
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas,
New York, NY 10020

Christopher A. Ray Prior to December, 1992, Vice
Vice President President and Portfolio Manager at
Scudder, Stevens & Clark, Inc., 160
Federal Street, Boston, MA 02110

Mark J. Siegel Prior to June, 1993, Vice President,
Vice President Salomon Brothers International,
Ltd., Victoria Plaza, 111 Buckingham
Palace Road, London SW1W 0SB,
England

Joanne Soja Prior to June, 1993, Managing
Senior Vice President Director/Portfolio Manager,
Chancellor Capital Management,
153 East 53rd Street, New York, NY
10002

George W. Stairs Prior to July, 1994, Equity Research
Vice President Analyst, ValueQuest Limited,
Roundy's Hill, Marblehead, MA 01945

Hillary F. Till Prior to May, 1994, Fixed-Income
Vice President Deritive Trader, Bank of Boston,
100 Federal Street, Boston, MA 02109
Prior to December, 1993, Equity
Analyst, Harvard Management Company,
600 Atlantic St., Boston, MA 02109

Bonnie L. Troped Prior to May, 1993, Assistant Vice
Vice President President/Director of Corporate
Events, The Boston Company, One
Boston Place, Boston, MA 02108

Elizabeth A. Underhill Prior to August, 1994, Vice President
Vice President and Senior Equity Analyst, State
Street Bank and Trust Company, 225
Franklin St., Boston, MA 02110

Charles C. Van Vleet Prior to August, 1994, Vice President
Senior Vice President and Fixed-Income Manager, Alliance
Capital Management, 1345 Avenue of
the Americas, New York, NY 10105

Michael R. Weinstein Prior to March, 1994, Management
Vice President Consultant, Arthur D. Little, Acorn
Park, Cambridge, MA 02140

Item 29. Principal Underwriter

(a) Putnam Mutual Funds Corp. is the principal underwriter for
each of the following investment companies, including the
Registrant:

Putnam Adjustable Rate U.S. Government Fund, Putnam American
Government Income Fund, Putnam Arizona Tax Exempt Income Fund,
Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds,
Putnam Balanced Government Fund, Putnam California Tax Exempt
Income Trust, Putnam California Tax Exempt Money Market Fund,
Putnam Capital Appreciation Fund, Putnam Capital Growth and
Income Fund, Putnam Capital Manager Trust, Putnam Convertible
Income-Growth Trust, Putnam Corporate Asset Trust, Putnam
Diversified Equity Trust, Putnam Diversified Income Trust, Putnam
Dividend Growth Fund, Putnam Equity Income Fund, Putnam Europe
Growth Fund, Putnam Federal Income Trust, Putnam Florida Tax
Exempt Income Fund, The George Putnam Fund of Boston, Putnam
Global Governmental Income Trust, Putnam Global Growth Fund,
Putnam Growth Fund, The Putnam Fund for Growth and Income, Putnam
Health Sciences Trust, Putnam High Yield Trust, Putnam High Yield
Advantage Fund, Putnam Income Fund, Putnam Intermediate Tax
Exempt Income Fund, Putnam Investors Fund, Putnam Managed Income
Trust, Putnam Massachusetts Tax Exempt Income Fund II, Putnam
Michigan Tax Exempt Income Fund II, Putnam Minnesota Tax Exempt
Income Fund II, Putnam Money Market Fund, Putnam Municipal Income
Fund, Putnam Natural Resources Fund, Putnam New Jersey Tax Exempt
Income Fund, Putnam New Opportunities Fund, Putnam New York Tax
Exempt Income Fund, Putnam New York Tax Exempt Money Market Fund,
Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio Tax
Exempt Income Fund II, Putnam OTC Emerging Growth Fund, Putnam
Overseas Growth Fund, Putnam Pennsylvania Tax Exempt Income Fund,
Putnam Research Analyst Fund, Putnam Tax-Free Income Trust,
Putnam Tax Exempt Income Fund, Putnam Tax Exempt Money Market
Fund, Putnam U.S. Government Income Trust, Putnam Utilities
Growth and Income Fund, Putnam Vista Fund, Putnam Voyager Fund

(b) The directors and officers of the Registrant's principal
underwriter are:<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
<C> <C> <C>
John V. Adduci Assistant Vice President None
Christopher S. Alpaugh Vice President None
Paulette C. Amisano Vice President None
Ronald J. Anwar Vice President None
Karen M. Apatow Assistant Vice President None
Steven E. Asher Senior Vice President None
Georgette M. Bacca Vice President None
Ira G. Baron Senior Vice President None
John L. Bartlett Senior Vice President None
Steven M. Beatty Vice President None
Matthew F. Beaudry Vice President None
Robert A. Benish Vice President None
John J. Bent Vice President None
Sharon A. Berka Vice President None
James R. Besher Vice President None
Suzanne J. Bessett Vice President None
Maureen L. Boisvert Vice President None
Keith R. Bouchard Vice President None
Leslee R. Bresnahan Vice President None
James D. Brockelman Senior Vice President None
Scott C. Brown Vice President None
Gail Buckner Senior Vice President None
Robert W. Burke Senior Managing Director None
Richard P. Busher Vice President None
Ellen S. Callahan Assistant Vice President None
William A. Campagna Senior Vice President None
Charles A. Carey Assistant Vice President None
Patricia A. Cartwright Assistant Vice President None
Christopher D. Caton Assistant Vice President None
Stephen J. Chaput Assisant Vice President None
Daniel J. Church Vice President None
James E. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Vice President None
Donald A. Connelly Senior Vice President None
Anna Coppola Assistant Vice President None
F. Nicholas Corvinus Senior Vice President None
Kenneth L. Daly Senior Vice President None
Edward H. Dane Assistant Vice President None
Nancy M. Days Assistant Vice President None
Daniel J. Delianedis Vice President None
J. Thomas Depres Senior Vice President None
Michael G. Dolan Assistant Vice President None
Scott M. Donaldson Vice President None
Emily J. Durbin Assistant Vice President None
David B. Edlin Senior Vice President None
James M. English Senior Vice President None
Vincent Esposito Senior Vice President None
Mary K. Farrell Assistant Vice President None
Susan H. Feldman Vice President None
Michael J. Fetcher Assistant Vice President None
Paul F. Fichera Senior Vice President None
C. Nancy Fisher Senior Vice President None
Mitchell B. Fishman Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Judy P. Frodigh Vice President None
Samuel F. Gagliardi Vice President None
Judy S. Gates Vice President None
Richard W. Gauger Assistant Vice President None
Joseph P. Gennaco Vice President None
Steven E. Gibson Managing Director None
Mark D. Goodwin Assistant Vice President None
Robert Goodman Managing Director None
Robert G. Greenly Vice President None
Thomas W. Halloran Vice President None
Marilyn M. Hausammann Senior Vice President None
Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Assistant Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
Bradley J. Hilsabeck Vice President None
Bess J.M. Hochstein Vice President None
Maureen A. Holmes Assistant Vice President None
William J. Hurley Senior Vice President None
Gregory E. Hyde Vice President None
Dwight D. Jacobsen Senior Vice President None
Douglas B. Jamieson Director and Senior Managing Director None
Jay M. Johnson Vice President None
Kevin M. Joyce Senior Vice President None
John P. Keating Vice President None
James J. Kilbane Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Assistant Vice President None
Howard H. Kreutzberg Senior Vice President None
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
Rufino R. Lomba Vice President None
Maura A. Lockwood Assistant Vice President None
Robert F. Lucey Senior Managing Director None
Philip J. Lussier Managing Director None
Ann Malatos Assistant Vice President None
Renee L. Maloof Assistant Vice President None
Frederick S. Marius Assistant Vice President None
Karen E. Marotta Vice President None
Jill Maserian Vice President None
Kathleen M. McAnulty Assistant Vice President None
Anne B. McCarthy Assistant Vice President None
Mark J. McKenna Vice President None
Marla J. McDougall Assistant Vice President None
Walter S. McFarland Vice President None
Greg J. McMillan Assistant Vice President None
Robert E. McMurtrie Vice President None
Claye A. Metelmann Assistant Vice President None
J. Chris Meyer Senior Vice President None
Douglas W. Miller Vice President None
Ronald K. Mills Vice President None
Mitchell L. Moret Vice President None
Donald E. Mullen Vice President None
Brendan R. Murray Vice President None
Robert Nadherny Vice President None
Alexander L. Nelson Managing Director None
Jane M. Nickodemus Vice President None
John P. Nickodemus Vice President None
Michael C. Noonis Assistant Vice President None
Peter A. Nyhus Vice President None
Kristen P. O'Brien Vice President None
Lorie C. O'Malley Senior Vice President None
Kevin L. O'Shea Vice President None
Philip G. Padgett, Jr. Vice President None
Richard N. Pallan Senior Managing Director None
Scott A. Papes Vice President None
Cynthia O. Parr Vice President None
John D. Pataccoli Vice President None
Joseph Phoenix Vice President None
Jeffrey E. Place Senior Vice President None
Keith Plapinger Vice President None
Douglas H. Powell Vice President None
George Putnam Director Chairman & President
Susannah Psomas Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Thomas C. Rowley Vice President None
Deborah A. Ryan Assistant Vice President None
Charles Ruys de Perez Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Assistant Vice President None
Karl W. Saur Vice President None
Christine A. Scordato Vice President None
Joseph W. Scott Assistant Vice President None
Kathleen G. Sharpless Senior Vice President None
John F. Sharry Managing Director None
John B. Shamburg Vice President None
Vincent P. Sheehan Vice President None
William N. Shiebler Director, Chief Executive Vice President
Officer and President
Daniel S. Shore Vice President None
Mark J. Siebold Assistant Vice President None
Gordon H. Silver Senior Managing Director Vice President
Barry Sommers Vice President None
Nicholas T. Stanojev Vice President None
Brian L. Sullivan Vice President None
Kevin J. Sullivan Vice President None
Moira A. Sullivan Vice President None
Janet C. Sweeney Vice President None
Edward M. Syring, Jr. Vice President None
James S. Tambone Senior Vice President None
B. Iris Tanner Assistant Vice President None
Louis Tasiopoulos Senior Vice President None
David S. Taylor Vice President None
John R. Telling Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi Assistant Vice President None
John C. Tredinnick Vice President None
Bonnie L. Troped Vice President None
Larry R. Unger Vice President None
Douglas J. Vander Linde Vice President None
John F. Wallin Senior Vice President None
Edward F. Whalen Vice President None
Robert J. Wheeler Senior Vice President None
John B. White Vice President None
Kirk E. Williamson Senior Vice President None
Leigh T. Williamson Vice President None
Benjamin Woloshin Vice President None
William H. Woolverton Senior Vice President and Clerk None
Timothy R. Young Vice President None
SooHee L. Zebedee Assistant Vice President None
</TABLE>

The principal business address of each person listed above is One
Post Office Square, Boston, MA 02109, except for:

Mr. Alpaugh, 5980 Richmond Highway, Alexandria, VA 22303
Mr. Anwar, 25-49 86th St. Jackson Heights, NY 11369
Mr. Baron, 31 Cala Moreya, Laguna Niguel, CA 92667
Mr. Bartlett, 7 Farifield St., Boston, MA 02116
Mr. Besher, 14000 Margaux, Town & Country, MO 63017
Ms. Besset, 1140 North LaSalle Blvd, Chicago, IL 60610
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brown, 221 East Mallord Drive, Boise, ID 83706
Ms. Buckner, 8338 Timber Trail, Pittsburgh, PA 15237
Mr. Busher, 12005 Ridge Knoll Drive, Fairfax, VA 22033
Mr. Campagna, 2179-D Lake Park Drive, Smyrna, GA 30080
Mr. Church, 4504 Sir Winston Place, Charlotte, NC 28211
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 208 Water St., Newburyport, MA 01950
Mr. Deliandis, 206 Promontory Drive, Newport Beach, CA 92660
Mr. Edlin, 7 River Road, 305 Palmer Point, Cos Cob, CT 06807
Mr. English, 1184 Pintail Circle, Boulder, CO 80303
Mr. Goodman, 14 Clover Place, Cos Cob, CT 06807
Mr. Halloran, 978 W. Creek Lane, Westlake Village, CA 91362
Mr. Hyde, 3305 Sulky, Marietta, GA 30067
Mr. Jacobsen, 2744 Joyce Ridge Drive, Chesterfield, MO 63017
Mr. Johnson, 200 Clock Tower Place, Carmel, CA 93923
Mr. Keating, 5521 Greenville Avenue, Dallas, TX 75206
Ms. Kirk, 124 Rivermist Dr., Buffalo, NY 14202
Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010
Mr. Lewandowski, Jr., 2120 The Strand, Manhattan Beach, CA 90266
Mr. Lieberman, 200 Roy St., Seattle, WA 98199
Mr. McFarland, 8012 Dancing Fern Trail, Chattanooga, TN 37421
Mr. McMillan, 203 D. Zigler St., Zelienople, PA 16063
Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223
Mr. Miller, 260 West 72nd St., New York, NY 10023
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 13 Ridge Court, Saratoga Springs, NY 12866
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. and Mrs. Nickodemus, 1232 B Louden St., Cincinnati, OH 45202
Mr. Nyhus, 7203 Oak Pointe Curve, Bloomington, MN 55438
Mr. Padgett, Jr., 7709 Charleston Drive, Bethesda, MD 20817
Mr. Papes, 3102 Wood View Bridge Drive, Kansas City, KS 66103
Mr. Pataccoli, 125 41st Street, Manhattan Beach, Ca 90266
Mr. Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093
Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075
Mr. Powell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowley, 237 Peeke Avenue, Kirkwood, MO 63122
Ms. Saunders, 39939 Stevenson Common, Freemont, CA 94538
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Sheehan, Parkway Center, 1150 Galapago, Denver, CO 80204
Mr. Shore, 2870 Pharr Court South, N.W., Atlanta, BA 30305
Mr. Sommers, 397 North Little Pour, New City, NY 10956
Mr. B. Sullivan, 777 Pinoake Road, Mt. Lebanon, PA 15243
Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574
Ms. Sweeney, 8 Surf Street, Marblehead, MA 01945
Mr. Syring, 7540 Mandarian Dr., Boca Raton, FL 33433
Mr. Tambone, 10 Commercial Wharf, Boston, MA 02110
Mr. Tredinnick, 2995 Glenwood Drive, Boulder, CO 80301
Mr. Telling, 1995 Delaware Ave., Buffalo, NY 14216
Mr. Unger, 212 E. Broadway, New York, NY 10002
Mr. Vessels, 7 Riverview Drive, Norwalk, CT 06850
Mr. Williamson, 32 Kramer Place, Mandeville, LA 70448
Mr. White, 23 Wellington St., Arlington, MA 02174
Mr. Woloshin, 730 North Bundy Drive, Los Angeles, CA 90049

<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

Persons maintaining physical possession of accounts,
books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are Registrant's Clerk, Beverly Marcus;
Registrant's investment adviser, Putnam Investment Management,
Inc.; Registrant's principal underwriter, Putnam Mutual Funds
Corp.; Registrant's custodian, Putnam Fiduciary Trust Company
("PFTC"); and Registrant's transfer and dividend disbursing
agent, Putnam Investor Services, a division of PFTC. The address
of the Clerk, investment adviser, principal underwriter,
custodian and transfer and dividend disbursing agent is One Post
Office Square, Boston, Massachusetts 02109.

ITEM 31. MANAGEMENT SERVICES

None.

ITEM 32. UNDERTAKINGS

The Registrant undertakes to furnish to each person to
whom a prospectus of the Registrant is delivered a copy of the
Registrant's latest annual report to shareholders, upon request
and without charge.
<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in
the Prospectuses and Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 11
to the Registration Statement on Form N-1A (File No. 2-98790)
(the "Registration Statement") of our reports dated
September 15, 1994 and September 16, 1994, respectively ,
relating to the financial statements and financial highlights
appearing in the July 31, 1994 Annual Reports of
Putnam Tax-Free Insured Fund and Putnam Tax-Free High Yield
Fund , which financial statements and financial highlights are
also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings
"Independent Accountants and Financial Statements" in such
Statement of Additional Information and under the heading
"Financial highlights" in such Prospectuses .

PRICE WATERHOUSE LLP
Boston, Massachusetts
September 30, 1994

NOTICE

A copy of the Agreement and Declaration of Trust of Putnam
Tax-Free Income Trust is on file with the Secretary of State of
The Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Registrant by an
officer of the Registrant as an officer and not individually and
the obligations of or arising out of this instrument are not
binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of
the Registrant.

<PAGE>
POWER OF ATTORNEY

I, the undersigned Trustee of Putnam Tax-Free Income Trust,
hereby severally constitute and appoint George Putnam, Charles E.
Porter, Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins
and John W. Gerstmayr, and each of them singly, my true and
lawful attorneys, with full power to them and each of them, to
sign for me, and in my name and in the capacity indicated below,
the Registration Statement on Form N-1A of Putnam Tax-Free Income
Trust and any and all amendments (including post-effective
amendments) to said Registration Statement and to file the same
with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting
unto my said attorneys, and each of them acting alone, full power
and authority to do and perform each and every act and thing
requisite or necessary to be done in the premises, as fully to
all intents and purposes as he or she might or could do in
person, and hereby ratify and confirm all that said attorneys or
any of them may lawfully do or cause to be done by virtue
thereof.

WITNESS my hand and seal on the date set forth below.

Signature Title Date

/s/ Jameson A. Baxter
- ---------------------
JAMESON A. BAXTER Trustee January 6, 1994
<PAGE>

SIGNATURES

Pursuant to the requirements of the
Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, and The
Commonwealth of Massachusetts, on the day of
September, 1994 .

PUTNAM TAX-FREE INCOME TRUST

By: Gordon H. Silver, Vice President

Pursuant to the requirements of the Securities Act of
1933, this Amendment to the Registration Statement of Putnam Tax-
Free Income Trust has been signed below by the following persons
in the capacities and on the dates indicated:

SIGNATURE TITLE

George Putnam President and Chairman of the Board;
Principal Executive Officer; Trustee

William F. Pounds Vice Chairman; Trustee

John D. Hughes Vice President; Treasurer and
Principal Financial Officer

Paul G. Bucuvalas Assistant Treasurer and Principal
Accounting Officer

Jameson A. Baxter Trustee

Hans H. Estin Trustee

John A. Hill Trustee

Elizabeth T. Kennan Trustee

Lawrence J. Lasser Trustee

Robert E. Patterson Trustee

Donald S. Perkins Trustee
<PAGE>
George Putnam, III Trustee

A.J.C. Smith Trustee

W. Nicholas Thorndike Trustee

By: Gordon H. Silver, as Attorney-
in-Fact
September 30, 1994

BYLAWS
OF
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND,
PUTNAM AMERICAN GOVERNMENT INCOME FUND,
PUTNAM ARIZONA TAX EXEMPT INCOME FUND,
PUTNAM ASIA PACIFIC GROWTH FUND,
PUTNAM ASSET ALLOCATION FUNDS,
PUTNAM BALANCED GOVERNMENT FUND,
PUTNAM CALIFORNIA TAX EXEMPT MONEY MARKET FUND,
PUTNAM CONVERTIBLE INCOME-GROWTH TRUST,
PUTNAM DIVERSIFIED INCOME TRUST,
PUTNAM DIVIDEND GROWTH FUND,
PUTNAM EQUITY INCOME FUND,
PUTNAM EUROPE GROWTH FUND,
PUTNAM FLORIDA TAX EXEMPT INCOME FUND,
THE GEORGE PUTNAM FUND OF BOSTON,
PUTNAM GLOBAL GOVERNMENTAL INCOME TRUST,
PUTNAM GLOBAL GROWTH FUND,
PUTNAM HEALTH SCIENCES TRUST,
PUTNAM HIGH YIELD TRUST,
PUTNAM INCOME FUND,
PUTNAM INVESTORS FUND,
PUTNAM MANAGED INCOME TRUST,
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II,
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II,
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II,
PUTNAM MONEY MARKET FUND,
PUTNAM MUNICIPAL INCOME FUND,
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND,
PUTNAM NEW OPPORTUNITIES FUND,
PUTNAM NEW YORK TAX EXEMPT MONEY MARKET FUND,
PUTNAM NEW YORK TAX EXEMPT OPPORTUNITIES FUND,
PUTNAM OHIO TAX EXEMPT INCOME FUND II,
PUTNAM OTC EMERGING GROWTH FUND,
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND,
PUTNAM RESEARCH ANALYSTS FUND,
PUTNAM TAX EXEMPT INCOME FUND,
PUTNAM TAX EXEMPT MONEY MARKET FUND,
PUTNAM TAX-FREE INCOME TRUST,
PUTNAM U.S. GOVERNMENT INCOME TRUST,
PUTNAM UTILITIES GROWTH AND INCOME FUND,
PUTNAM VISTA FUND,
PUTNAM VOYAGER FUND
(AS AMENDED THROUGH FEBRUARY 1, 1994),
PUTNAM INTERMEDIATE TAX EXEMPT FUND
(AS AMENDED THROUGH MARCH 7, 1994),
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST,
PUTNAM NEW YORK TAX EXEMPT INCOME TRUST
(AS AMENDED THROUGH APRIL 8, 1994),
PUTNAM HIGH YIELD ADVANTAGE FUND,
PUTNAM OVERSEAS GROWTH FUND
(AS AMENDED THROUGH JUNE 1, 1994),
PUTNAM FEDERAL INCOME TRUST
(AS AMENDED THROUGH JUNE 6, 1994),
PUTNAM NATURAL RESOURCES FUND
(AS AMENDED THROUGH JULY 1, 1994),
THE PUTNAM FUND FOR GROWTH AND INCOME
(AS AMENDED THROUGH JULY 7, 1994), AND
PUTNAM TOTAL RETURN BOND FUNDS
(AS AMENDED THROUGH SEPTEMBER , 1994)

ARTICLE 1
Agreement and Declaration of Trust and Principal Office

1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall
be subject to the Agreement and Declaration of Trust, as from
time to time in effect (the "Declaration of Trust"), of the
Massachusetts business trust established by the Declaration of
Trust (the "Trust").

1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of
the Trust shall be located in Boston, Massachusetts.

ARTICLE 2
MEETINGS OF TRUSTEES

2.1 REGULAR MEETINGS. Regular meetings of the Trustees may
be held without call or notice at such places and at such times
as the Trustees may from time to time determine, provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees.

2.2 SPECIAL MEETINGS. Special meetings of the Trustees may
be held at any time and at any place designated in the call of
the meeting when called by the Chairman of the Trustees, the
President or the Treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the Clerk or an
Assistant Clerk or by the officer or the Trustees calling the
meeting.

2.3 NOTICE OF SPECIAL MEETINGS. It shall be sufficient
notice to a Trustee of a special meeting to send notice by mail
at least forty-eight hours or by telegram at least twenty-four
hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give
notice to him or her in person or by telephone at least
twenty-four hours before the meeting. Notice of a special
meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her. Neither notice of
a meeting nor a waiver of a notice need specify the purposes of
the meeting.

2.4 QUORUM. At any meeting of the Trustees a majority of
the Trustees then in office shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the
votes cast upon the question, whether or not a quorum is present,
and the meeting may be held as adjourned without further notice.

2.5 NOTICE OF CERTAIN ACTIONS BY CONSENT. If in accordance
with the provisions of the Declaration of Trust any action is
taken by the Trustees by a written consent of less than all of
the Trustees, then prompt notice of any such action shall be
furnished to each Trustee who did not execute such written
consent, provided that the effectiveness of such action shall not
be impaired by any delay or failure to furnish such notice.
<PAGE>
ARTICLE 3
OFFICERS

3.1 ENUMERATION; QUALIFICATION. The officers of the Trust
shall be a Chairman of the Trustees, a President, a Treasurer, a
Clerk and such other officers, if any, as the Trustees from time
to time may in their discretion elect. The Trust may also have
such agents as the Trustees from time to time may in their
discretion appoint. The Chairman of the Trustees and the
President shall be a Trustee and may but need not be a
shareholder; and any other officer may but need not be a Trustee
or a shareholder. Any two or more offices may be held by the
same person. A Trustee may but need not be a shareholder.

3.2 ELECTION. The Chairman of the Trustees, the President,
the Treasurer and the Clerk shall be elected by the Trustees upon
the occurrence of any vacancy in any such office. Other
officers, if any, may be elected or appointed by the Trustees at
any time. Vacancies in any such other office may be filled at
any time.

3.3 TENURE. The Chairman of the Trustees, the President,
the Treasurer and the Clerk shall hold office in each case until
he or she dies, resigns, is removed or becomes disqualified.
Each other officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.

3.4 POWERS. Subject to the other provisions of these
Bylaws, each officer shall have, in addition to the duties and
powers herein and in the Declaration of Trust set forth, such
duties and powers as are commonly incident to the office occupied
by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the
Trustees may from time to time designate.

3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise
provide, the Chairman of the Trustees or, if there is none or in
the absence of the Chairman of the Trustees, the President shall
preside at all meetings of the shareholders and of the Trustees.
Unless the Trustees otherwise provide, the President shall be the
chief executive officer.

3.6 TREASURER. Unless the Trustees shall provide
otherwise, the Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the
provisions of the Declaration of Trust and to any arrangement
made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be
in charge of the valuable papers, books of account and accounting
records of the Trust, and shall have such other duties and powers
as may be designated from time to time by the Trustees or by the
President.

3.7 CLERK. The Clerk shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which
books or a copy thereof shall be kept at the principal office of
the Trust. In the absence of the Clerk from any meeting of the
shareholders or Trustees, an Assistant Clerk, or if there be none
or if he or she is absent, a temporary Clerk chosen at such
meeting shall record the proceedings thereof in the aforesaid
books.

3.8 RESIGNATIONS AND REMOVALS. Any Trustee or officer may
resign at any time by written instrument signed by him or her and
delivered to the Chairman of the Trustees, the President or the
Clerk or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some
other time. The Trustees may remove any officer elected by them
with or without cause. Except to the extent expressly provided
in a written agreement with the Trust, no Trustee or officer
resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or
removal, or any right to damages on account of such removal.

ARTICLE 4
COMMITTEES

4.1 QUORUM; VOTING. A majority of the members of any
Committee of the Trustees shall constitute a quorum for the
transaction of business, and any action of such a Committee may
be taken at a meeting by a vote of a majority of the members
present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Members of a Committee may
participate in a meeting of such Committee by means of a
conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each
other at the same time and participation by such means shall
constitute presence in person at a meeting.

ARTICLE 5
REPORTS

5.1 GENERAL. The Trustees and officers shall render
reports at the time and in the manner required by the Declaration
of Trust or any applicable law. Officers and Committees shall
render such additional reports as they may deem desirable or as
may from time to time be required by the Trustees.

ARTICLE 6
FISCAL YEAR

6.1 GENERAL. Except as from time to time otherwise
provided by the Trustees, the initial fiscal year of the Trust
shall end on such date as is determined in advance or in arrears
by the Treasurer, and subsequent fiscal years shall end on such
date in subsequent years.

ARTICLE 7
SEAL

7.1 GENERAL. The seal of the Trust shall consist of a
flat-faced die with the word "Massachusetts", together with the
name of the Trust and the year of its organization cut or
engraved thereon but, unless otherwise required by the Trustees,
<PAGE>
the seal shall not be necessary to be placed on and its absence
shall not impair the validity of, any document, instrument or
other paper executed and delivered by or on behalf of the Trust.

ARTICLE 8
EXECUTION OF PAPERS

8.1 GENERAL. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other
manner, all deeds, leases, contracts, notes and other obligations
made by the Trustees shall be signed by the President, the Vice
Chairman, a Vice President or the Treasurer and need not bear the
seal of the Trust.

ARTICLE 9
ISSUANCE OF SHARES AND SHARE CERTIFICATES

9.1 SALE OF SHARES. Except as otherwise determined by the
Trustees, the Trust will issue and sell for cash or securities
from time to time, full and fractional shares of its shares of
beneficial interest, such shares to be issued and sold at a price
of not less than the par value per share, if any, and not less
than the net asset value per share as from time to time
determined in accordance with the Declaration of Trust and these
Bylaws and, in the case of fractional shares, at a proportionate
reduction in such price. In the case of shares sold for
securities, such securities shall be valued in accordance with
the provisions for determining the value of the assets of the
Trust as stated in the Declaration of Trust and these Bylaws.
The officers of the Trust are severally authorized to take all
such actions as may be necessary or desirable to carry out this
Section 9.1.

9.2 SHARE CERTIFICATES. In lieu of issuing certificates
for shares, the Trustees or the transfer agent may either issue
receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and
agreed to the terms hereof.

The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled
to a certificate stating the number of shares of each class owned
by him, in such form as shall be prescribed from time to time by
the Trustees. Such certificate shall be signed by the President
or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate
is signed by a transfer agent or by a registrar. In case any
officer who has signed or whose facsimile signature has been
placed on such certificate shall cease to be such officer before
such certificate is issued, it may be issued by the Trust with
the same effect as if he were such officer at the time of its
issue.
<PAGE>
9.3 LOSS OF CERTIFICATES. The transfer agent of the Trust,
with the approval of any two officers of the Trust, is authorized
to issue and countersign replacement certificates for the shares
of the Trust which have been lost, stolen or destroyed upon (i)
receipt of an affidavit or affidavits of loss or non-receipt and
of an indemnity agreement executed by the registered holder or
his legal representative and supported by an open penalty surety
bond, said agreement and said bond in all cases to be in form and
content satisfactory to and approved by the President or the
Treasurer, or (ii) receipt of such other documents as may be
approved by the Trustees.

9.4 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of
shares transferred as collateral security shall be entitled to a
new certificate if the instrument of transfer substantially
describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it
is held as collateral security, and the name of the pledgor shall
be stated thereon, who alone shall be liable as a shareholder and
entitled to vote thereon.

9.5 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The
Trustees may at any time discontinue the issuance of share
certificates and may, by written notice to each shareholder,
require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect
the ownership of shares in the Trust.

ARTICLE 10
PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S BUSINESS

10.1 CERTAIN DEFINITIONS. When used herein the following
words shall have the following meanings: "Distributor" shall mean
any one or more corporations, firms or associations which have
distributor's or principal underwriter's contracts in effect with
the Trust providing that redeemable shares issued by the Trust
shall be offered and sold by such Distributor. "Manager" shall

mean any corporation, firm or association which may at the time
have an advisory or management contract with the Trust.

10.2 LIMITATIONS ON DEALINGS WITH OFFICERS OR TRUSTEES.
The Trust will not lend any of its assets to the Distributor or
Manager or to any officer or director of the Distributor or
Manager or any officer or Trustee of the Trust, and shall not
permit any officer or Trustee or any officer or director of the
Distributor or Manager to deal for or on behalf of the Trust with
himself or herself as principal or agent, or with any
partnership, association or corporation in which he or she has a
financial interest; provided that the foregoing provisions shall
not prevent (a) officers and Trustees of the Trust or officers
and directors of the Distributor or Manager from buying, holding
or selling shares in the Trust or from being partners, officers
or directors of or otherwise financially interested in the
Distributor or the Manager; (b) purchases or sales of securities
or other property if such transaction is permitted by or is
exempt or exempted from the provisions of the Investment Company
Act of 1940 or any Rule or Regulation thereunder and if such
transaction does not involve any commission or profit to any
security dealer who is, or one or more of whose partners,
shareholders, officers or directors is, an officer or Trustee of
the Trust or an officer or director of the Distributor or
Manager; (c) employment of legal counsel, registrar, transfer
agent, shareholder servicing agent, dividend disbursing agent or
custodian who is, or has a partner, shareholder, officer or
director who is, an officer or Trustee of the Trust or an officer
or director of the Distributor or Manager; (d) sharing
statistical, research, legal and management expenses and office
hire and expenses with any other investment company in which an
officer or Trustee of the Trust or an officer or director of the
Distributor or Manager is an officer or director or otherwise
financially interested.

10.3 SECURITIES AND CASH OF THE TRUST TO BE HELD BY
CUSTODIAN SUBJECT TO CERTAIN TERMS AND CONDITIONS.

(a) All securities and cash owned by the Trust
shall be held by or deposited with one or more banks or
trust companies having (according to its last published
report) not less than $1,000,000 aggregate capital,
surplus and undivided profits (any such bank or trust
company being hereby designated as "Custodian"),
provided such a Custodian can be found ready and
willing to act; subject to such rules, regulations and
orders, if any, as the Securities and Exchange
Commission may adopt, the Trust may, or may permit any
Custodian to, deposit all or any part of the securities
owned by the Trust in a system for the central handling
of securities pursuant to which all securities of any
particular class or series of any issue deposited
within the system may be transferred or pledged by
bookkeeping entry, without physical delivery. The

Custodian may appoint, subject to the approval of the
Trustees, one or more subcustodians.

(b) The Trust shall enter into a written contract
with each Custodian regarding the powers, duties and
compensation of such Custodian with respect to the cash
and securities of the Trust held by such Custodian.
Said contract and all amendments thereto shall be
approved by the Trustees.

(i) in case of such resignation or inability to
serve, use its best efforts to obtain a successor
Custodian;

(ii) require that the cash and securities owned
by the Trust be delivered directly to the successor
Custodian; and

(iii) in the event that no successor Custodian
can be found, submit to the shareholders, before
permitting delivery of the cash and securities owned by
the Trust otherwise than to a successor Custodian, the
question whether the Trust shall be liquidated or shall
function without a Custodian.

10.4 REPORTS TO SHAREHOLDERS. The Trust shall send to each
shareholder of record at least semi-annually a statement of the
condition of the Trust and of the results of its operations,
containing all information required by applicable laws or
regulations.

10.5 DETERMINATION OF NET ASSET VALUE PER SHARE. Net asset
value per share of each class or series of shares of the Trust
shall mean: (i) the value of all the assets properly allocable
to such class or series; (ii) less total liabilities properly
allocable to such class or series; (iii) divided by the number of
shares of such class or series outstanding, in each case at the
time of each determination. Except as otherwise determined by
the Trustees, the net asset value per share of each class or
series shall be determined no less frequently than once daily,
Monday through Friday, on days on which the New York Stock
Exchange is open for trading, at such time or times that the
Trustees set at least annually.

In valuing the portfolio investments of any class or series
of shares for the determination of the net asset value per share
of such class or series, securities for which market quotations
are readily available shall be valued at prices which, in the
opinion of the Trustees or the person designated by the Trustees
to make the determination, most nearly represent the market value
of such securities, and other securities and assets shall be
valued at their fair value as determined by or pursuant to the
direction of the Trustees, which in the case of debt obligations,
commercial paper and repurchase agreements may, but need not, be
on the basis of yields for securities of comparable maturity,
quality and type, or on the basis of amortized cost. Expenses
and liabilities of the Trust shall be accrued each day.
Liabilities may include such reserves for taxes, estimated
accrued expenses and contingencies as the Trustees or their
designates may in their sole discretion deem fair and reasonable
under the circumstances. No accruals shall be made in respect of
taxes on unrealized appreciation of securities owned unless the
Trustees shall otherwise determine.

ARTICLE 11
SHAREHOLDERS

11.1 MEETINGS. A meeting of the shareholders shall be
called by the Clerk whenever ordered by the Trustees, the
Chairman of the Trustees or requested in writing by the holder or
holders of at least one-tenth of the outstanding shares entitled
to vote at such meeting. If the Clerk, when so ordered or
requested, refuses or neglects for more than two days to call
such meeting, the Trustees, Chairman of the Trustees or the
<PAGE>
shareholders so requesting may, in the name of the Clerk, call
the meeting by giving notice thereof in the manner required when
notice is given by the Clerk.

11.2 ACCESS TO SHAREHOLDER LIST. Shareholders of record
may apply to the Trustees for assistance in communicating with
other shareholders for the purpose of calling a meeting in order
to vote upon the question of removal of a Trustee. When ten or
more shareholders of record who have been such for at least six
months preceding the date of application and who hold in the
aggregate shares having a net asset value of at least $25,000 so
apply, the Trustees shall within five business days either:

(i) afford to such applicants access to a list of
names and addresses of all shareholders as recorded on
the books of the Trust; or

(ii) inform such applicants of the approximate
number of shareholders of record and the approximate
cost of mailing material to them, and, within a
reasonable time thereafter, mail, at the applicants'
expense, materials submitted by the applicants, to all
such shareholders of record. The Trustees shall not be
obligated to mail materials which they believe to be
misleading or in violation of applicable law.

11.3 RECORD DATES. For the purpose of determining the
shareholders of any class or series of shares of the Trust who
are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to receive payment of any dividend
or of any other distribution, the Trustees may from time to time
fix a time, which shall be not more than 90 days before the date
of any meeting of shareholders or more than 60 days before the
date of payment of any dividend or of any other distribution, as
the record date for determining the shareholders of such class or
series having the right to notice of and to vote at such meeting
and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on
such record date shall have such right notwithstanding any
transfer of shares on the books of the Trust after the record
date; or without fixing such record date the Trustees may for any
such purposes close the register or transfer books for all or
part of such period.

11.4 PROXIES. The placing of a shareholder's name on a
proxy pursuant to telephone or electronically transmitted
instructions obtained pursuant to procedures reasonably designed
to verify that such instructions have been authorized by such
shareholder shall constitute execution of such proxy by or on
behalf of such shareholder.

ARTICLE 12
PREFERENCES, RIGHTS AND PRIVILEGES OF THE
TRUST'S CLASSES OF SHARES

12.1 GENERAL. Each class of shares of the Trust or of a
particular series of the Trust, as the case may be, will
represent interests in the same portfolio of investments of the
Trust (or that series) and be identical in all respects, except
as set forth below: (a) each class of shares shall be charged
with the expense of any Distribution Plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940
with respect to such class of shares, (b) each class of shares
will be charged with any incremental shareholder servicing
expense attributable solely to such class, as determined by the
Trustees, (c) each class of shares shall be charged with any
other expenses properly allocated to such class, as determined by
the Trustees and approved by the Securities and Exchange
Commission, (d) each class of shares shall vote as a separate
class on matters which pertain to any Rule 12b-1 Distribution
Plan pertaining to such class of shares, (e) each class of shares
will have only such exchange privileges as may from time to time
be described in the Trust's prospectus with respect to such
class, (f) each class of shares shall bear such designation as
may be approved from time to time by the Trustees and (g)
reinvestments of distributions from the Trust paid with respect
to the shares of a particular class will be paid in additional
shares of such class.

12.2. CONVERSION OF CLASS B SHARES. Except as hereinafter
provided with respect to shares acquired by exchange or
reinvestment of distributions, Class B shares of the Trust will
automatically convert into Class A shares of the Trust at the end
of the month eight years after the month of purchase, or at such
earlier time as the Trustees may in their sole discretion
determine from time to time as to all Class B shares purchased on
or before such date as the Trustees may specify. Class B shares
acquired by exchange from Class B shares of another Putnam Fund
will convert into Class A shares based on the date of the initial
purchase of the Class B shares of such other Fund. Class B
shares acquired through reinvestment of distributions will
convert into Class A shares based on the date of the initial
purchase of Class B shares to which such reinvestment shares
relate. For this purpose, Class B shares acquired through
reinvestment of distributions will be attributed to particular
purchases of Class B shares in accordance with such procedures,
which may include without limitation methods of proration or
approximation, as the Trustees may in their sole discretion
determine from time to time.

ARTICLE 13
AMENDMENTS TO THE BYLAWS

13.1 GENERAL. These Bylaws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at
any meeting of the Trustees, or by one or more writings signed by
such a majority.

NF-04F

PUTNAM TAX-FREE INCOME TRUST

Putnam Tax-Free High Yield Fund

Class M Shares

Trust Certificate

Account No. Certificate No. Shares

CUSIP 746872-50-6

THIS CERTIFIES THAT

is the owner of Class M shares of
beneficial interest in Putnam Tax-Free Income Trust-Putnam Tax-
Free High Yield Fund, fully paid and nonassessable, the said
shares being issued, received and held under and subject to the
terms and provisions of the Agreement and Declaration of Trust
dated as of June 28, 1985, establishing Putnam Tax-Free Income
Trust-Putnam Tax-Free High Yield Fund, and all amendments
thereto, copies of which are on file with the Secretary of State
of The Commonwealth of Massachusetts. The said owner by
accepting this certificate agrees to and is bound by all of the
said terms and provisions. The shares represented hereby are
transferable in writing by the owner thereof in person or by
attorney upon surrender of this certificate to the Trustees
properly endorsed for transfer. This certificate is executed on
behalf of the Trustees as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Trust. This certificate is not valid unless
countersigned by the Investor Servicing Agent.

In Witness Whereof the Trustees of Putnam Tax-Free Income
Trust-Putnam Tax-Free High Yield Fund have caused the following
facsimile signatures to be affixed to this certificate.

Dated: COUNTERSIGNED:

PUTNAM INVESTOR SERVICES
a division of Putnam Fiduciary
Trust Company
INVESTOR SERVICING AGENT

FOR THE TRUSTEES AUTHORIZED SIGNATURE

PUTNAM TAX-FREE INCOME TRUST

MANAGEMENT CONTRACT

Management Contract dated as of July 26, 1985, as amended
and restated as of July 1, 1994, between PUTNAM TAX-FREE INCOME
TRUST, a Massachusetts business trust (the "Fund"), and PUTNAM
INVESTMENT MANAGEMENT, INC., a Delaware corporation (the
"Manager").

WITNESSETH:

That in consideration of the mutual covenants herein
contained, it is agreed as follows:

1. SERVICES TO BE RENDERED BY MANAGER TO FUND.

(a) The Manager, at its expense, will furnish continuously
an investment program for the Fund, will determine what
investments shall be purchased, held, sold or exchanged by the
Fund and what portion, if any, of the assets of the Fund shall be
held uninvested and shall, on behalf of the Fund, make changes in
the Fund's investments. Subject always to the control of the
Trustees of the Fund and except for the functions carried out by
the officers and personnel referred to in Section 1(d), the
Manager will also manage, supervise and conduct the other affairs
and business of the Fund and matters incidental thereto. In the
performance of its duties, the Manager will comply with the
provisions of the Agreement and Declaration of Trust and By-Laws
of the Fund and its stated investment objectives, policies and
restrictions, and will use its best efforts to safeguard and
promote the welfare of the Fund and to comply with other policies
which the Trustees may from time to time determine and shall
exercise the same care and diligence expected of the Trustees.

(b) The Manager, at its expense, except as such expense is
paid by the Fund as provided in Section 1(d), will furnish (1)
all necessary investment and management facilities, including
salaries of personnel, required for it to execute its duties
faithfully; (2) suitable office space for the Fund; and (3)
administrative facilities, including bookkeeping, clerical
personnel and equipment necessary for the efficient conduct of
the affairs of the Fund, including determination of the Fund's
net asset value, but excluding shareholder accounting services.
Except as otherwise provided in Section 1(d), the Manager will
pay the compensation, if any, of the officers of the Fund.

(c) The Manager, at its expense, shall place all orders for
the purchase and sale of portfolio investments for the Fund's
account with brokers or dealers selected by the Manager. In the
selection of such brokers or dealers and the placing of such
orders, the Manager shall use its best efforts to obtain for the
Fund the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage
commissions for brokerage and research services as described
below. In using its best efforts to obtain for the Fund the most
favorable price and execution available, the Manager, bearing in
mind the Fund's best interests at all times, shall consider all
factors it deems relevant, including by way of illustration,
price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker or
dealer involved and the quality of service rendered by the broker
or dealer in other transactions. Subject to such policies as the
Trustees of the Fund may determine, the Manager shall not be
deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its
having caused the Fund to pay a broker or dealer that provides
brokerage and research services to the Manager an amount of
commission for effecting a portfolio investment transaction in
excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Manager's overall
responsibilities with respect to the Fund and to other clients of
the Manager as to which the Manager exercises investment
discretion. The Manager agrees that in connection with purchases
or sales of portfolio investments for the Fund's account, neither
the Manager nor any officer, director, employee or agent of the
Manager shall act as a principal or receive any commission other
than as provided in Section 3.

(d) The Fund will pay or reimburse the Manager for (i) the
compensation of the Vice Chairman and Treasurer of the Fund and
of persons assisting him in these offices, as determined from
time to time by the Trustees of the Fund, (ii) the compensation
in whole or in part of such other officers of the Fund and
persons assisting them as may be determined from time to time by
the Trustees of the Fund, and (iii) the cost of suitable office
space, utilities, support services and equipment of the Vice
Chairman and Treasurer and persons assisting him and, as
determined from time to time by the Trustees of the Fund, all or
a part of such cost attributable to the other officers and
persons assisting them whose compensation is paid in whole or in
part by the Fund. The Fund will pay the fees, if any, of the
Trustees of the Fund.

(e) The Manager shall pay all expenses incurred in
connection with the organization of the Fund and the initial
public offering and sale of its shares of beneficial interest,
provided that upon the issuance and sale of such shares to the
public pursuant to the offering, and only in such event, the Fund
shall become liable for, and to the extent requested reimburse
the Manager for, registration fees payable to the Securities and
Exchange Commission and for an additional amount not exceeding
$62,500 per series of the Fund as its agreed share of such
expenses.

(f) The Manager shall not be obligated to pay any expenses
of or for the Fund not expressly assumed by the Manager pursuant
to this Section 1 other than as provided in Section 3.

2. OTHER AGREEMENTS, ETC.

It is understood that any of the shareholders, Trustees,
officers and employees of the Fund may be a shareholder,
director, officer or employee of, or be otherwise interested in,
the Manager, and in any person controlled by or under common
control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have
an interest in the Fund. It is also understood that the Manager
and any person controlled by or under common control with the
Manager have and may have advisory, management, service or other
contracts with other organizations and persons, and may have
other interests and business.

3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.

The Fund will pay to the Manager as compensation for the
Manager's services rendered, for the facilities furnished and for
the expenses borne by the Manager pursuant to paragraphs (a),
(b), (c) and (e) of Section 1, a fee, computed and paid monthly
at the following annual rates applicable to the average net asset
value of each series of the Fund (a "Series"): Putnam Tax-Free
Insured Fund - 0.60% of the first $500 million, 0.50% of the next
$500 million; 0.45% of the next $500 million and 0.40% of any
excess; Putnam Tax-Free High Yield Fund - 0.65% of the first $500
million, 0.55% of the next $500 million, 0.50% of the next $500
million and 0.45% of any excess over $1.5 billion. Such fee
computed with respect to the net asset value of each of the
Series shall be paid from the assets of such Series. Such
average net asset value of each Series shall be determined by
taking an average of all of the determinations of such net asset
value during such month at the close of business on each business
day during such month while this Contract is in effect. Such fee
shall be payable for each month within 15 days after the close of
such month and shall commence accruing as of the date of the
initial issuance of shares of the Fund to the public.

The fees payable to the Manager pursuant to this Section 3
shall be reduced by any commissions, fees, brokerage or similar
payments received by the Manager or any affiliated person of the
Manager in connection with the purchase and sale of portfolio
investments of the particular Series, less any direct expenses
<PAGE>
approved by the Trustees incurred by the Manager or any
affiliated person of the Manager in connection with obtaining
such payments.

In the event that expenses of the Fund or of any Series, if
applicable, for any fiscal year should exceed the expense
limitation on investment company expenses imposed by any statute
or regulatory authority of any jurisdiction in which shares of
the Fund are qualified for offer or sale, the compensation due
the Manager for such fiscal year shall be reduced by the amount
of excess by a reduction or refund thereof. In the event that
the expenses of any Series exceed any expense limitation which
the Manager may, by written notice to the Fund, voluntarily
declare to be effective subject to such terms and conditions as
the Manager may prescribe in such notice, the compensation due
the Manager shall be reduced, and, if necessary, the Manager
shall assume expenses of the Series to the extent required by the
terms and conditions of such expense limitation.

If the Manager shall serve for less than the whole of a
quarter, the foregoing compensation shall be prorated.

4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.

This Contract shall automatically terminate, without the
payment of any penalty, in the event of its assignment; and this
Contract shall not be amended as to any Series unless such
amendment be approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Series, and by the
vote, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of the Trustees of the
Fund who are not interested persons of the Fund or of the
Manager.

5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.

This Contract shall become effective upon its execution, and
shall remain in full force and effect as to each Series
continuously thereafter (unless terminated automatically as set
forth in Section 4) until terminated as follows:

(a) Either party hereto may at any time terminate this
Contract as to any Series or as to the Fund as a whole by not
more than sixty days' nor less than thirty days' written notice
delivered or mailed by registered mail, postage prepaid, to the
other party, or

(b) If (i) the Trustees of the Fund or the shareholders by
the affirmative vote of a majority of the outstanding shares of
the Series and (ii) a majority of the Trustees of the Fund who
are not interested persons of the Fund or of the Manager, by vote
cast in person at a meeting called for the purpose of voting on
such approval, do not specifically approve at least annually the
continuance of this Contract, then this Contract shall
automatically terminate as to Putnam Tax-Free High Yield Fund at
the close of business on January 31, 1996 and as to Putnam Tax-
Free Insured Fund at the close of business on January 31, 1993,
or the expiration of one year from the effective date of the last
such continuance, whichever is later; provided, however, that if
the continuance of this Contract is submitted to the shareholders
of a Series for their approval and such shareholders fail to
approve such continuance as provided herein, the Manager may
continue to serve hereunder in a manner consistent with the
Investment Company Act of 1940 and the Rules and Regulations
thereunder.

Action by the Fund under (a) above may be taken either (i)
by vote of a majority of its Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of the one or more
Series affected.

Termination of this Contract pursuant to this Section 5 will
be without the payment of any penalty.

6. CERTAIN DEFINITIONS.

For the purposes of this Contract, the "affirmative vote of
a majority of the outstanding shares of the Fund or the Series"
means the affirmative vote, at a duly called and held meeting of
shareholders of the Fund or the Series, as the case may be, (a)
of the holders of 67% or more of the shares of the Fund or the
Series, as the case may be, present (in person or by proxy) and
entitled to vote at such meeting, if the holders of more than 50%
of the outstanding shares of the Fund or the Series, as the case
may be, entitled to vote at such meeting are present in person or
by proxy, or (b) of the holders of more than 50% of the
outstanding shares of the Fund or the Series, as the case may be,
entitled to vote at such meeting, whichever is less.

For the purposes of this Contract, the terms "affiliated
person", "control", "interested person" and "assignment" shall
have their respective meanings defined in the Investment Company
Act of 1940 and the Rules and Regulations thereunder, subject,
however, to such exemptions as may be granted by the Securities
and Exchange Commission under said Act; the term "specifically
approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the Rules
and Regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the Securities Exchange
Act of 1934 and the Rules and Regulations thereunder.

7. NON-LIABILITY OF MANAGER.

In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of
its obligations and duties hereunder, the Manager shall not be
subject to any liability to the Fund or to any shareholder of the
Fund, for any act or omission in the course of, or connected
with, rendering services hereunder.

8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.

A copy of the Agreement and Declaration of Trust of the Fund
is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Fund as Trustees and
not individually and that the obligations of or arising out of
this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Fund.

IN WITNESS WHEREOF, PUTNAM TAX-FREE INCOME TRUST and PUTNAM
INVESTMENT MANAGEMENT, INC. have each caused this instrument to
be signed in duplicate in its behalf by its President or a Vice
President thereunto duly authorized, all as of the day and year
first above written.

PUTNAM TAX-FREE INCOME TRUST

By: /s/ Charles E. Porter
---------------------------
Charles E. Porter
Executive Vice President

PUTNAM INVESTMENT MANAGEMENT, INC.

By: /s/ Gordon H. Silver
---------------------------
Gordon H. Silver
Senior Managing Director

PUTNAM TAX-FREE INCOME TRUST --
PUTNAM TAX-FREE INSURED FUND
DISTRIBUTOR'S CONTRACT

Distributor's Contract dated May 6, 1994, by and between
PUTNAM TAX-FREE INCOME TRUST -- PUTNAM TAX-FREE INSURED FUND, a
Massachusetts business trust (the "Trust"), and PUTNAM MUTUAL
FUNDS CORP., a Massachusetts corporation ("Putnam").

WHEREAS, the Trust and Putnam are desirous of entering into
this agreement to provide for the distribution by Putnam of
shares of the various portfolio series of the Trust (each a
"Fund");

NOW, THEREFORE, in consideration of the mutual agreements
contained in the Terms and Conditions of Distributor's Contract
attached to and forming a part of this Contract (the "Terms and
Conditions"), the Trust hereby appoints Putnam as a distributor
of shares of the Trust, and Putnam hereby accepts such
appointment, all as set forth in the Terms and Conditions.

A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts and notice is hereby given that this instrument
is executed on behalf of the Trustees of the Trust as Trustees
and not individually, and that the obligations of or arising out
of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the relevant Fund.

IN WITNESS WHEREOF, PUTNAM TAX-FREE INCOME TRUST --PUTNAM
TAX-FREE INSURED FUND and PUTNAM MUTUAL FUNDS CORP. have each
caused this Distributor's Contract to be signed in duplicate in
its behalf, all as of the day and year first above written.

PUTNAM TAX-FREE INCOME TRUST --
PUTNAM TAX-FREE INSURED FUND

By: -----------------------------
Executive Vice President

PUTNAM MUTUAL FUNDS CORP.

By: -----------------------------
President<PAGE>

TERMS AND CONDITIONS
OF
DISTRIBUTOR'S CONTRACT

1. RESERVATION OF RIGHT NOT TO SELL. The Trust reserves the
right to refuse at any time or times to sell hereunder any shares
of beneficial interest ("shares") of a Fund for any reason deemed
adequate by it.

2. PAYMENTS TO PUTNAM. In connection with the distribution of
shares of a Fund, Putnam will be entitled to receive: (a)
payments pursuant to any Distribution Plan and Agreement from
time to time in effect between the Trust and Putnam with respect
to such Fund or any particular class of shares of such Fund, (b)
any contingent deferred sales charges applicable to the
redemption of shares of such Fund or of any particular class of
shares of such Fund, determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of such Fund and (c) subject to the provisions of Section 3
below, any front-end sales charges applicable to the sale of
shares of such Fund or of any particular class of shares of such
Fund, less any applicable dealer discount.

3. SALES OF SHARES TO PUTNAM AND SALES BY PUTNAM. Putnam will
have the right, as principal, to sell shares of a Fund to
investment dealers against orders therefor (a) at the public
offering price (calculated as described below) less a discount
determined by Putnam, which discount shall not exceed the amount
of the sales charge referred to below, or (b) at net asset value.
Upon receipt of an order to purchase shares from an investment
dealer with whom Putnam has a Sales Contract, Putnam will
promptly purchase shares from the relevant Fund to fill such
order. The public offering price of a class of shares of a Fund
shall be the net asset value of such shares then in effect, plus
any applicable front-end sales charge determined in the manner
set forth in the then current Prospectus and Statement of
Additional Information of the Fund or as permitted by the
Investment Company Act of 1940, as amended, and the Rules and
Regulations of the Securities and Exchange Commission promulgated
thereunder. In no event shall the public offering price exceed
1000/915ths of such net asset value, and in no event shall any
applicable sales charge exceed 8 1/2% of the public offering
price. The net asset value of the shares shall be determined in
the manner provided in the Agreement and Declaration of Trust of
the Trust as then amended and when determined shall be applicable
to transactions as provided for in the then current Prospectus
and Statement of Additional Information of the relevant Fund.

Putnam will also have the right, as principal, to purchase
shares from a Fund at their net asset value and to sell such
shares to the public against orders therefor at the public
offering price or at net asset value.

Putnam will also have the right, as principal, to sell
shares at their net asset value and not subject to a contingent
deferred sales charge to such persons as may be approved by the
Trustees of the Trust, all such sales to comply with the
provisions of the Investment Company Act of 1940, as amended, and
the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder.

Putnam will also have the right, as agent for the Trust, to
sell shares at the public offering price or at net asset value to
such persons and upon such conditions as the Trustees of the
Trust may from time to time determine.

On every sale the Trust shall receive the applicable net
asset value of the shares. Putnam will reimburse the Trust for
any increased issue tax paid on account of sales charges. Upon
receipt of registration instructions in proper form and payment
for shares, Putnam will transmit such instructions to the Trust
or its agent for registration of the shares purchased.

4. SALES OF SHARES BY THE TRUST. The Trust reserves the right
to issue shares at any time directly to its shareholders as a
stock dividend or stock split and to sell shares to its
shareholders or to other persons approved by Putnam at not less
than net asset value.

5. REPURCHASE OF SHARES. Putnam will act as agent for the
Trust in connection with the repurchase of shares by the Trust
upon the terms and conditions set forth in the then current
Prospectus and Statement of Additional Information of the
relevant Fund.

6. BASIS OF PURCHASES AND SALES OF SHARES. Putnam will use its
best efforts to place shares sold by it on an investment basis.
Putnam does not agree to sell any specific number of shares.
Shares will be sold by Putnam only against orders therefor.
Putnam will not purchase shares from anyone other than the Trust
or a Fund except in accordance with Section 5, and will not take
"long" or "short" positions in shares contrary to the Agreement
and Declaration of Trust of the Trust.

7. RULES OF NASD, ETC. Putnam will conform to the Rules of
Fair Practice of the National Association of Securities Dealers,
Inc. and the sale of securities laws of any jurisdiction in which
it sells, directly or indirectly, any shares. Putnam also agrees
to furnish to the Trust sufficient copies of any agreements or
plans it intends to use in connection with any sales of shares in
adequate time for the Trust to file and clear them with the
proper authorities before they are put in use, and not to use
them until so filed and cleared.

8. PUTNAM INDEPENDENT CONTRACTOR. Putnam shall be an
independent contractor and neither Putnam nor any of its officers
or employees as such is or shall be an employee of the Trust.
Putnam is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or
employees. Putnam assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all
employer taxes thereunder.

Putnam will maintain at its own expense insurance against
public liability in such an amount as the Trustees of the Trust
may from time to time reasonably request.

9. EXPENSES. Putnam will pay all expenses of qualifying shares
for sale under the so-called "Blue Sky" laws of any state (except
expenses of any action by the Trust relating to its Agreement and
Declaration of Trust or other matters in which the Trust has a
direct concern), and expenses of preparing, printing and
distributing advertising and sales literature (apart from
expenses of registering shares under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
and the preparation and printing of Prospectuses and Statements
of Additional Information and reports as required by said Acts
and the direct expenses of the issue of shares, except that
Putnam will pay the cost of the preparation and printing of
Prospectuses and Statements of Additional Information and
shareholders' reports used by it and by others in the sale of
shares to the extent such cost is not paid by others).

10. INDEMNIFICATION OF TRUST. Putnam agrees to indemnify and
hold harmless the Trust and each person who has been, is, or may
hereafter be a Trustee of the Trust against expenses reasonably
incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of
them may be a party, which arises out of or is alleged to arise
out of any misrepresentation or omission to state a material
fact, or out of any alleged misrepresentation or omission to
state a material fact, on the part of Putnam or any agent or
employee of Putnam or any other person for whose acts Putnam is
responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon written
information furnished by the Trust. Putnam also agrees likewise
to indemnify and hold harmless the Trust and each such person in
connection with any claim or in connection with any action, suit
or proceeding which arises out of or is alleged to arise out of
Putnam's (or an affiliate of Putnam's) failure to exercise
reasonable care and diligence with respect to its services
rendered in connection with investment, reinvestment, automatic
withdrawal and other plans for shares. The term "expenses"
includes amounts paid in satisfaction of judgments or in
settlements which are made with Putnam's consent. The foregoing
rights of indemnification shall be in addition to any other
rights to which the Trust or a Trustee may be entitled as a
matter of law.

11. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT. This Contract shall automatically terminate, without
the payment of any penalty, in the event of its assignment. This
Contract may be amended only if such amendment be approved either
by action of the Trustees of the Trust or at a meeting of the
shareholders of the relevant Fund by the affirmative vote of a
majority of the outstanding shares of such Fund, and by a
majority of the Trustees of the Trust who are not interested
persons of the Trust or of Putnam by vote cast in person at a
meeting called for the purpose of voting on such approval.

12. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This
Contract shall take effect upon the date first above written and
shall remain in full force and effect continuously (unless
terminated automatically as set forth in Section 11) until
terminated with respect to a particular Fund:

(a) Either by the Trust or Putnam by not more
than sixty (60) days' nor less than ten (10) days'
written notice delivered or mailed by registered
mail, postage prepaid, to the other party; or

(b) If the continuance of this Contract after
January 31, 1995 is not specifically approved at
least annually by the Trustees of the Trust or the
shareholders of the relevant Fund by the affirmative
vote of a majority of the outstanding shares of such
Fund, and by a majority of the Trustees of the Trust
who are not interested persons of the Trust or of
Putnam by vote cast in person at a meeting called for
the purpose of voting on such approval.

Action by the Trust under (a) above may be taken either (i)
by vote of its Trustees or (ii) by the affirmative vote of a
majority of the outstanding shares of the relevant Fund. The
requirement under (b) above that continuance of this Contract be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940, as
amended, and the Rules and Regulations thereunder.

Termination of this Contract pursuant to this Section 12
shall be without the payment of any penalty.

13. CERTAIN DEFINITIONS. For the purposes of this Contract,
the "affirmative vote of a majority of the outstanding shares of
a Fund" means the affirmative vote, at a duly called and held
meeting of shareholders of such Fund, (a) of the holders of 67%
or more of the shares of such Fund present (in person or by
proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of such Fund entitled to
vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of such
Fund entitled to vote at such meeting, whichever is less.

For the purposes of this Contract, the terms "interested
person" and "assignment" shall have the meanings defined in the
Investment Company Act of 1940, as amended, subject, however, to
such exemptions as may be granted by the Securities and Exchange
Commission under said Act.

s:\shared\discon.ser

PUTNAM TAX-FREE INCOME TRUST --
PUTNAM TAX-FREE HIGH YIELD FUND
DISTRIBUTOR'S CONTRACT

Distributor's Contract dated May 6, 1994, by and between
PUTNAM TAX-FREE INCOME TRUST -- PUTNAM TAX-FREE HIGH YIELD FUND,
a Massachusetts business trust (the "Trust"), and PUTNAM MUTUAL
FUNDS CORP., a Massachusetts corporation ("Putnam").

WHEREAS, the Trust and Putnam are desirous of entering into
this agreement to provide for the distribution by Putnam of
shares of the various portfolio series of the Trust (each a
"Fund");

IN WITNESS WHEREOF, PUTNAM TAX-FREE INCOME TRUST --PUTNAM
TAX-FREE HIGH YIELD FUND and PUTNAM MUTUAL FUNDS CORP. have each
caused this Distributor's Contract to be signed in duplicate in
its behalf, all as of the day and year first above written.

PUTNAM TAX-FREE INCOME TRUST --
PUTNAM TAX-FREE HIGH YIELD FUND

By: -----------------------------
Executive Vice President

PUTNAM MUTUAL FUNDS CORP.

By: -----------------------------
President<PAGE>

TERMS AND CONDITIONS
OF
DISTRIBUTOR'S CONTRACT

Putnam will maintain at its own expense insurance against
public liability in such an amount as the Trustees of the Trust
may from time to time reasonably request.

(a) Either by the Trust or Putnam by not more
than sixty (60) days' nor less than ten (10) days'
written notice delivered or mailed by registered
mail, postage prepaid, to the other party; or

Termination of this Contract pursuant to this Section 12
shall be without the payment of any penalty.

s:\shared\discon.ser

PUTNAM TAX-FREE INCOME TRUST --
PUTNAM TAX-FREE HIGH YIELD FUND
CLASS M
DISTRIBUTION PLAN AND AGREEMENT

This Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Class M shares of Putnam Tax-Free
Income Trust--Putnam Tax-Free High Yield Fund, a Massachusetts
business trust (the "Trust"), adopted pursuant to the provisions
of Rule 12b-1 under the Investment Company Act of 1940 (the
"Act") and the related agreement between the Trust and Putnam
Mutual Funds Corp. ("PMF"). During the effective term of this
Plan, the Trust may incur expenses primarily intended to result
in the sale of its Class M shares upon the terms and conditions
hereinafter set forth:

SECTION 1. The Trust shall pay to PMF a monthly fee at the
annual rate of 1.00% of the average net asset value of the Class
M shares of the Trust, as determined at the close of each
business day during the month, to compensate PMF for services
provided and expenses incurred by it in connection with the
offering of the Trust's Class M shares, which may include,
without limitation, payments by PMF to investment dealers with
respect to Class M shares, as set forth in the then current
Prospectus or Statement of Additional Information of the Trust,
including the payment of a service fee of up to 0.25% of such net
asset value for the purpose of maintaining or improving services
provided to shareholders by PMF and investment dealers. Such
fees shall be payable for each month within 15 days after the
close of such month. A majority of the Qualified Trustees, as
defined below, may, from time to time, reduce the amount of such
payments, or may suspend the operation of the Plan for such
period or periods of time as they may determine.

SECTION 2. This Plan shall not take effect until:

(a) it has been approved by a vote of a majority of the
outstanding Class M shares of the Trust;

(b) it has been approved, together with any related
agreements, by votes of the majority (or whatever greater
percentage may, from time to time, be required by Section
12(b) of the Act or the rules and regulations thereunder)
of both (i) the Trustees of the Trust, and (ii) the
Qualified Trustees of the Trust, cast in person at a
meeting called for the purpose of voting on this Plan or
such agreement; and

(c) the Trust has received the proceeds of the initial
public offering of its Class M shares.
<PAGE>
SECTION 3. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 2(b).

SECTION 4. PMF shall provide to the Trustees of the Trust,
and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made.

SECTION 5. This Plan may be terminated at any time by vote
of a majority of the Qualified Trustees or by vote of the
majority of the outstanding Class M shares of the Trust.

SECTION 6. All agreements with any person relating to
implementation of this Plan shall be in writing, and any
agreement related to this Plan shall provide:

(a) that such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority
of the Qualified Trustees or by vote of a majority of
the outstanding Class M shares of the Trust, on not
more than 60 days' written notice to any other party
to the agreement; and

(b) that such agreement shall terminate automatically in
the event of its assignment.

SECTION 7. This Plan may not be amended to increase
materially the amount of distribution expenses permitted pursuant
to Section 1 hereof without the approval of a majority of the
outstanding Class M shares of the Trust and all material
amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).

SECTION 8. As used in this Plan, (a) the term "Qualified
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the term "majority of the
outstanding Class M shares of the Trust" means the affirmative
vote, at a duly called and held meeting of Class M shareholders
of the Trust, (i) of the holders of 67% or more of the Class M
shares of the Trust present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the
outstanding Class M shares of the Trust entitled to vote at such
meeting are present in person or by proxy, or (ii) of the holders
of more than 50% of the outstanding Class M shares of the Trust
entitled to vote at such meeting, whichever is less, and (c) the
terms "assignment" and "interested person" shall have the
respective meanings specified in the Act and the rules and
regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.

SECTION 9. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually, and that the obligations
of or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Trust.

Executed as of November , 1994.

PUTNAM MUTUAL FUNDS CORP. PUTNAM TAX-FREE INCOME TRUST --
PUTNAM TAX-FREE HIGH YIELD FUND

By ____________________ By: __________________________
William N. Shiebler Executive Vice President
President

SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS

Fund name: Putnam Tax-Free Insured Fund -- Class A Shares
Fiscal period ending: July 31, 1994
Inception date (if less than 10 years of performance): September
20, 1993

TOTAL RETURN

Formula -- Average Annual Total Return: ERV = P(1+T)^n

n = Number of Time Periods 1 Year 5 Years 10 Years*

P = Initial Investment N/A N/A $1,000

ERV = Ending Redeemable Value N/A N/A $929

T = Average Annual
Total Return N/A N/A -7.11%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $753,994

Expenses $102,658

Reimbursement None

Average shares 9,731,124

NAV $14.67

Sales Charge 4.75%

POP $15.40

Yield at POP 5.27%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

5.27% 5.27%
- ------ = ------ = 8.73%
1-39.6% .604%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS

Fund name: Putnam Tax-Free Insured Fund -- Class B Shares
Fiscal period ending: July 31, 1994
Inception date (if less than 10 years of performance): September
9, 1985

TOTAL RETURN

Formula -- Average Annual Total Return: ERV = P(1+T)^n

n = Number of Time Periods 1 Year 5 Years 10 Years*

P = Initial Investment $1000 $1000 $1000

ERV = Ending Redeemable Value $953 $1350 $2057

T = Average Annual
Total Return -4.74% +6.19% +8.45%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $2,286,954

Expenses $538,859

Reimbursement None

Average shares 29,495,677

NAV $14.68

Maximum Contingent Deferred
Sales Charge 5.0%

Yield at NAV 4.89%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

4.89% 4.89%
- ------ = ----- = 8.10%
1-39.6% .604%

SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS

Fund name: Putnam Tax-Free High Yield Fund -- Class A Shares
Fiscal period ending: July 31, 1994
Inception date (if less than 10 years of performance): September
20, 1993

TOTAL RETURN

Formula -- Average Annual Total Return: ERV = P(1+T)^n

n = Number of Time Periods 1 Year 5 Years 10 Years*

P = Initial Investment N/A N/A $1,000

ERV = Ending Redeemable Value N/A N/A $929

T = Average Annual
Total Return N/A N/A -5.67%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $2,175,499

Expenses $281,807

Reimbursement None

Average shares 25,247,082

NAV $14.24

Sales Charge 4.75%

POP $14.95

Yield at POP 6.10%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

6.10% 6.10%
- ------ = ------ = 10.10%
1-39.6% .604%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS

Fund name: Putnam Tax-Free High Yield Fund -- Class B Shares
Fiscal period ending: July 31, 1994
Inception date (if less than 10 years of performance): September
9, 1985

TOTAL RETURN

Formula -- Average Annual Total Return: ERV = P(1+T)^n

n = Number of Time Periods 1 Year 5 Years 10 Years*

P = Initial Investment $1,000 $1,000 $1,000

ERV = Ending Redeemable Value $966 $1,400 $2,174

T = Average Annual
Total Return -3.38% +6.97% +9.13%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $9,147,174

Expenses $1,963,722

Reimbursement None

Average shares 106,131,710

NAV $14.24

Maximum Contingent Deferred
Sales Charge 5.0%

Yield at NAV 5.77%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

5.77% 5.77%
- ------ = ------ = 9.55%
1-39.6% .604%

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PUTNAM TAX-FREE INSURED FUND ANNUAL REPORT (CLASS A) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME>PUTNAM TAX-FREE INSURED FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> $554,461,194
<INVESTMENTS-AT-VALUE> $574,434,997
<RECEIVABLES> $15,129,335
<ASSETS-OTHER> $0
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $589,564,332
<PAYABLE-FOR-SECURITIES> $10,962,442
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $2,627,664
<TOTAL-LIABILITIES> $13,590,106
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $562,349,600
<SHARES-COMMON-STOCK> 9,751,110
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> $0
<OVERDISTRIBUTION-NII> ($778,138)
<ACCUMULATED-NET-GAINS> ($4,830,414)
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $19,233,178
<NET-ASSETS> $575,974,226
<DIVIDEND-INCOME> $0
<INTEREST-INCOME> $37,486,128
<OTHER-INCOME> $0
<EXPENSES-NET> $82,777,928
<NET-INVESTMENT-INCOME> $29,208,200
<REALIZED-GAINS-CURRENT> ($846,042)
<APPREC-INCREASE-CURRENT> ($29,129,498)
<NET-CHANGE-FROM-OPS> $88,757
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> ($7,004,732)
<DISTRIBUTIONS-OF-GAINS> ($2,495)
<DISTRIBUTIONS-OTHER> ($932,962)
<NUMBER-OF-SHARES-SOLD> 10,582,170
<NUMBER-OF-SHARES-REDEEMED> 1,176,150
<SHARES-REINVESTED> 345,090
<NET-CHANGE-IN-ASSETS> $3,315,691
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $0
<OVERDISTRIB-NII-PRIOR> ($350,114)
<OVERDIST-NET-GAINS-PRIOR> ($2,082,147)
<GROSS-ADVISORY-FEES> $3,451,352
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $8,277,928
<AVERAGE-NET-ASSETS> $147,081,297
<PER-SHARE-NAV-BEGIN> $15.88
<PER-SHARE-NII> $0.73
<PER-SHARE-GAIN-APPREC> ($1.12)
<PER-SHARE-DIVIDEND> ($0.72)
<PER-SHARE-DISTRIBUTIONS> $0
<RETURNS-OF-CAPITAL> ($0.10)
<PER-SHARE-NAV-END> $14.67
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PUTNAM TAX-FREE INSURED FUND ANNUAL REPORT (CLASS B) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> PUTNAM TAX-FREE INSURED FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> $554,461,194
<INVESTMENTS-AT-VALUE> $574,434,997
<RECEIVABLES> $15,129,335
<ASSETS-OTHER> $0
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $589,564,332
<PAYABLE-FOR-SECURITIES> $10,962,442
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $2,627,664
<TOTAL-LIABILITIES> $13,590,106
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $562,349,600
<SHARES-COMMON-STOCK> 29,482,448
<SHARES-COMMON-PRIOR> 36,943,496
<ACCUMULATED-NII-CURRENT> $0
<OVERDISTRIBUTION-NII> ($778,138)
<ACCUMULATED-NET-GAINS> ($4,830,414)
<OVERDISTRIBUTION-GAINS> $0
<ACCUM-APPREC-OR-DEPREC> $19,233,178
<NET-ASSETS> $575,974,226
<DIVIDEND-INCOME> $0
<INTEREST-INCOME> $37,486,128
<OTHER-INCOME> $0
<EXPENSES-NET> $8,277,928
<NET-INVESTMENT-INCOME> $29,208,200
<REALIZED-GAINS-CURRENT> ($846,042)
<APPREC-INCREASE-CURRENT> ($29,129,498)
<NET-CHANGE-FROM-OPS> $88,757
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> ($22,142,492)
<DISTRIBUTIONS-OF-GAINS> ($7,560)
<DISTRIBUTIONS-OTHER> ($2,827,335)
<NUMBER-OF-SHARES-SOLD> 4,889,248
<NUMBER-OF-SHARES-REDEEMED> 13,406,532
<SHARES-REINVESTED> 1,046,236
<NET-CHANGE-IN-ASSETS> $3,315,691
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $0
<OVERDISTRIB-NII-PRIOR> ($350,114)
<OVERDIST-NET-GAINS-PRIOR> ($2,082,147)
<GROSS-ADVISORY-FEES> $3,451,352
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $8,277,928
<AVERAGE-NET-ASSETS> $462,605,377
<PER-SHARE-NAV-BEGIN> $15.50
<PER-SHARE-NII> $0.74
<PER-SHARE-GAIN-APPREC> ($0.73)
<PER-SHARE-DIVIDEND> ($0.73)
<PER-SHARE-DISTRIBUTIONS> $0
<RETURNS-OF-CAPITAL> ($0.10
<PER-SHARE-NAV-END> $14.68
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PUTNAM TAX-FREE HIGH YIELD FUND ANNUAL REPORT (CLASS A) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> PUTNAM TAX-FREE HIGH YIELD FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> $1,846,104,032
<INVESTMENTS-AT-VALUE> $1,860,972,540
<RECEIVABLES> $59,365,433
<ASSETS-OTHER> $85,106
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $1,920,423,079
<PAYABLE-FOR-SECURITIES> $26,365,075
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $9,509,242
<TOTAL-LIABILITIES> $35,874,317
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $1,893,315,091
<SHARES-COMMON-STOCK> 25,394,226
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> $0
<OVERDISTRIBUTION-NII> ($3,464,463)
<ACCUMULATED-NET-GAINS> $0
<OVERDISTRIBUTION-GAINS> ($18,839,125)
<ACCUM-APPREC-OR-DEPREC> $13,537,258
<NET-ASSETS> $1,884,548,761
<DIVIDEND-INCOME> $0
<INTEREST-INCOME> $128,769,616
<OTHER-INCOME> $0
<EXPENSES-NET> $24,014,132
<NET-INVESTMENT-INCOME> $104,755,484
<REALIZED-GAINS-CURRENT> ($13,212,683)
<APPREC-INCREASE-CURRENT> ($74,498,222)
<NET-CHANGE-FROM-OPS> $17,044,579
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> ($18,855,987)
<DISTRIBUTIONS-OF-GAINS> ($1,181,683)
<DISTRIBUTIONS-OTHER> ($1,630,442)
<NUMBER-OF-SHARES-SOLD> 28,874,587
<NUMBER-OF-SHARES-REDEEMED> 4,299,629
<SHARES-REINVESTED> 819,268
<NET-CHANGE-IN-ASSETS> $383,014,123
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $6,129,364
<OVERDISTRIB-NII-PRIOR> ($317,082)
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $8,498,843
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $24,014,132
<AVERAGE-NET-ASSETS> $338,318,597
<PER-SHARE-NAV-BEGIN> $15.34
<PER-SHARE-NII> $0.83
<PER-SHARE-GAIN-APPREC> ($0.98)
<PER-SHARE-DIVIDEND> ($0.83)
<PER-SHARE-DISTRIBUTIONS> ($0.05)
<RETURNS-OF-CAPITAL> ($0.07)
<PER-SHARE-NAV-END> $14.24
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

f<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PUTNAM TAX-FREE HIGH YIELD FUND ANNUAL REPORT(CLASS B) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> PUTNAM TAX-FREE HIGH YIELD FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> $1,846,104,032
<INVESTMENTS-AT-VALUE> $1,860,972,540
<RECEIVABLES> $59,365,433
<ASSETS-OTHER> $85,106
<OTHER-ITEMS-ASSETS> $0
<TOTAL-ASSETS> $1,920,423,079
<PAYABLE-FOR-SECURITIES> $26,365,075
<SENIOR-LONG-TERM-DEBT> $0
<OTHER-ITEMS-LIABILITIES> $9,509,242
<TOTAL-LIABILITIES> $35,874,317
<SENIOR-EQUITY> $0
<PAID-IN-CAPITAL-COMMON> $1,893,315,091
<SHARES-COMMON-STOCK> 106,941,561
<SHARES-COMMON-PRIOR> 100,040,549
<ACCUMULATED-NII-CURRENT> $0
<OVERDISTRIBUTION-NII> ($3,464,463)
<ACCUMULATED-NET-GAINS> $0
<OVERDISTRIBUTION-GAINS> ($18,839,125)
<ACCUM-APPREC-OR-DEPREC> $13,537,258
<NET-ASSETS> $1,884,548,761
<DIVIDEND-INCOME> $0
<INTEREST-INCOME> $128,769,616
<OTHER-INCOME> $0
<EXPENSES-NET> $24,014,132
<NET-INVESTMENT-INCOME> $104,755,484
<REALIZED-GAINS-CURRENT> ($13,212,683)
<APPREC-INCREASE-CURRENT> ($74,498,222)
<NET-CHANGE-FROM-OPS> $17,044,579
<EQUALIZATION> $0
<DISTRIBUTIONS-OF-INCOME> ($85,899,497)
<DISTRIBUTIONS-OF-GAINS> ($5,005,098)
<DISTRIBUTIONS-OTHER> ($7,083,690)
<NUMBER-OF-SHARES-SOLD> 37,754,456
<NUMBER-OF-SHARES-REDEEMED> 34,185,478
<SHARES-REINVESTED> 3,332,034
<NET-CHANGE-IN-ASSETS> $383,014,123
<ACCUMULATED-NII-PRIOR> $0
<ACCUMULATED-GAINS-PRIOR> $6,129,364
<OVERDISTRIB-NII-PRIOR> ($317,082)
<OVERDIST-NET-GAINS-PRIOR> $0
<GROSS-ADVISORY-FEES> $8,498,843
<INTEREST-EXPENSE> $0
<GROSS-EXPENSE> $24,014,132
<AVERAGE-NET-ASSETS> $1,489,829,609
<PER-SHARE-NAV-BEGIN> $15.01
<PER-SHARE-NII> $0.86
<PER-SHARE-GAIN-APPREC> ($0.65)
<PER-SHARE-DIVIDEND> ($0.85)
<PER-SHARE-DISTRIBUTIONS> ($0..05)
<RETURNS-OF-CAPITAL> ($0.08)
<PER-SHARE-NAV-END> $14.24
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> $0
<AVG-DEBT-PER-SHARE> $0

</TABLE>