PUTNAM TAX EXEMPT INCOME FUND
PROSPECTUS SUPPLEMENT DATED NOVEMBER 4, 1996
TO PROSPECTUS DATED FEBRUARY 1, 1996
The third paragraph under the heading "How the fund is managed"
is replaced with the following:
The following officer of Putnam Investment Management, Inc.
("Putnam Management") has had primary responsibility for the day-
to-day management of the fund's portfolio since the year stated
below:
Business experience
Year (at least 5 years)
----- -------------------------
William H. Reeves 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1986.
********
At a meeting held on September 5, 1996, shareholders of the fund
approved a number of changes to the fundamental investment
restrictions of the fund, including the elimination of certain
restrictions. As a result, the fund may now:
-- invest
more than 5% of the total assets in the
securities of any issuer with respect to 25% of its
total assets. (Investments in obligations issued or
guaranteed as to interest or
principal by the U.S.
government or its agencies or instrumentalities are not
subject to any limitation.)
The policy summarized above is fundamental and may not be changed
without shareholder approval. See the statement of additional
information of the fund for the full text of this policy as well
as the fund's other fundamental policies, some of which were also
changed by vote of shareholders.
To the extent the fund invests a significant portion of its
assets in the securities of a particular issuer, the fund will be
subject to an increased risk of loss if the market value of such
issuer's securities declines.
********
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The third paragraph under the heading "How the fund pursues its
objective - Basic investment strategy" on page 8 of the
prospectus is replaced with the following:
Investments by the fund in tax-exempt securities and taxable
obligations will be limited to securities rated at the time of
purchase at least Ba by Moody's Investors Service, Inc.
("Moody's") or at least BB by Standard & Poor's ("S&P") or
unrated securities that Putnam Management determines are of
comparable quality.
