PTHAX Putnam Tax-Free High Yield Fund Class A (MM)

The Putnam Funds have reported their proxy voting records for the 12-month period ended June 30, 2010. During this period, the Putnam Funds voted against approximately 32% of the proposals by U.S.-based companies to adopt or amend stock option or restricted stock equity compensation plans in which company executives or directors would participate. The Funds also withheld votes from approximately 17% of the nominees for director at U.S.-based companies, generally because the nominees failed to satisfy the Funds’ independence standards or failed to meet the Funds’ standards for sound corporate governance, which require, among other things, establishing reasonable executive compensation programs.

“The Trustees are dedicated to voting proxies on behalf of Fund shareholders in a way that promotes sound corporate governance practices at the companies in which the Putnam Funds invest,” said John A. Hill, independent Chairman of the Funds. “We have long believed that this can enhance shareholder value by encouraging principled conduct and accountability.”

“The Funds believe that stockholders of public companies are entitled to the honest services of boards of directors that are effectively independent from company management,” said Mr. Hill. “The difficult economic conditions of the past couple of years have highlighted the importance to companies of boards that are independent and conscientious. The Funds employ strict criteria for director independence that are in some respects even more demanding than the NYSE standards, and will generally withhold votes from entire boards or individual director nominees if these criteria are not satisfied. The Funds may also withhold votes from directors who fail to observe good corporate governance practices or who demonstrate a disregard for the interests of shareholders. In assessing whether directors have met our high standards for corporate governance, we pay particular attention to executive compensation arrangements, which we believe can offer insight into a board’s attitude toward corporate governance and shareholder interests more generally. The Funds’ proxy voting guidelines emphasize the importance of reasonable executive compensation that aligns the incentives of a company’s management with the long-term interest of stockholders in the company’s performance. We believe that boards of directors should be held accountable for all elements of the compensation arrangements that they approve, including equity-based compensation plans, severance arrangements, and perquisites. Consistent with this belief, we consider on a case-by-case basis whether a company’s board has approved compensation arrangements for company management that are excessive by reasonable corporate standards, taking into account the company’s performance record. We also evaluate the quality of the company’s compensation disclosure; we believe that shareholders are entitled to complete and forthright disclosure of compensation practices. When the Funds withhold votes from some or all of a company’s directors to register dissatisfaction with the company’s corporate governance practices or executive compensation arrangements, we send a letter to the company explaining the reasons for the Funds’ action. We will continue our diligent focus on critical elements of corporate governance in future years.”

The Putnam Funds’ 2010 proxy voting guidelines and their proxy voting records for the 12 months ended June 30, 2010 are available on Putnam’s Web site at www.putnam.com.

Putnam Tax-Free High Yield Fund Class A (MM) (NASDAQ:PTHAX)
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