PUTNAM TAX FREE INCOME TRUST /MA/, 485BPOS, 1996-11-27

PUTNAM TAX FREE INCOME TRUST /MA/
485BPOS, 1996-11-27

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As filed with the Securities and Exchange Commission on
November 27, 1996
Registration No. 2-98790
811-4345
- -----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
----
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
----
----
Pre-Effective Amendment No. / /
----
----
Post-Effective Amendment No. 14 / X /
and ----
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
----
Amendment No. 14 / 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
--------------
It is proposed that this filing will become effective
(check appropriate box)
----
/ / immediately upon filing pursuant to paragraph (b)
- ----
----
/ X / on November 30, 1996 pursuant to paragraph
(b)
- ----
----
/ / 60 days after filing pursuant to paragraph (a)(1)
- ----
----
/ / on (date) pursuant to paragraph (a)(1)
- ----
----
/ / 75 days after filing pursuant to paragraph (a)(2)
- ----
----
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
- ----
If appropriate, check the following box:
----
/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.

--------------
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, 1996 was filed on September 27, 1996 .<PAGE>
<TABLE>
<CAPTION>
Putnam Tax-Free Insured Fund

CALCULATION OF REGISTRATION FEE

- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Proposed Proposed
maximum maximum
Amount offering aggregate Amount of
Title of securities being price per offering registration
being registeredregistered unit* price** fee
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Shares of Beneficial
Interest 3,584,893 shs. $15.99 $330,000 $100.00
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------

* Based on offering price per share on November 20, 1996 .
** Calculated pursuant to Rule 24e-2 under the Investment Company Act of 1940.
The total amount of securities of Putnam Tax-Free Insured Fund redeemed or
repurchased during the Registrant's previous fiscal year was 8,987,032
shares, 5,422,776 of which have been used for reductions pursuant to Rule
24e-2(a) or Rule 24f-2(c) under said Act in the current fiscal year, and
3,564,256 of which are being used for such reduction in this Amendment.

</TABLE>

<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 the fund
pursues its objective;
Organization and history

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

5A. Management's Discussion of Fund
Performance...................... (Contained in the annual
report of the
Registrant)

6. Capital Stock and Other
Securities....................... Cover page; Organization
and history; How the
fund makes
distributions to
shareholders; 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 the fund pursues its
objective (Part
A); Investment
restrictions;
Miscellaneous investment
practices

14. Management of the Registrant..... Management (Trustees;
Trustees fees;
Officers); Additional
officers

15. Control Persons and Principal
Holders of Securities............ Management (Trustees;
Officers); Charges and
expenses (Share
ownership)

16. Investment Advisory and Other
Services......................... Organization and
history (Part A);
Management (Trustees;
Officers; The management
contract; Principal
underwriter; Investor
servicing agent and
custodian); Charges and
expenses; Distribution
plans; Independent
accountants and
financial statements

17. Brokerage Allocation............ Management (Portfolio
transactions); Charges
and expenses
<PAGE>
18. Capital Stock and Other
Securities....................... Organization and history
(Part A); How the fund
makes distributions to
shareholders; 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 the fund makes
distributions to
shareholders; tax
information (Part A);
Taxes

21. Underwriters..................... Management (Principal
underwriter); Charges
and expenses

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

NOVEMBER 30, 1996

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 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 in the
November 30, 1996 statement of additional information (the
"SAI") , as amended from time to time. For a free copy of the
SAI or other information, call Putnam Investor Services at
1-800-225-1581. The SAI has been filed with the Securities
and Exchange Commission and is incorporated into this
prospectus by reference.

The 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 nonpayment of
interest. Purchasers should carefully assess the risks
associated with an investment in the fund .

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 AMOUNT INVESTED .

BOSTON * LONDON * TOKYO<PAGE>
ABOUT THE FUND

Expenses summary
..............................................................
...
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes of fund
shares. Use it to help you estimate the impact of transaction
costs on your investment over time.

Financial highlights
..............................................................
...
Study this table to see, among other things, how the fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.

Objective
..............................................................
...
Read this section to make sure the fund's objective is
consistent with your own.

How the fund pursues its objective
.................................................................
This section explains in detail how the fund seeks its investment
objective.

Risk factors . All investments entail some risk. Read
this section to make sure you understand the risks that are
associated with an investment in the fund.

How performance is shown
..............................................................
...
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.

How the fund is managed
..............................................................
...
Consult this section for information about the fund's management,
allocation of its expenses, and how purchases and sales of
securities are made.

Organization and history
..............................................................
...
In this section, you will learn when the fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
<PAGE>
ABOUT YOUR INVESTMENT

Alternative sales arrangements
..............................................................
...
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.

How to buy shares
..............................................................
...
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on each class
of shares.

Distribution plans
..............................................................
...
This section tells you what distribution fees are charged against
each class of shares .

How to sell shares
..............................................................
...
In this section you can learn how to sell fund shares, either
directly to the fund or through an investment dealer.

How to exchange shares
..............................................................
...
Find out in this section how you may exchange fund shares for
shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.

How the fund values its shares
..............................................................
...
This section explains how the fund determines the value of its
shares.

How the fund makes distributions to shareholders;
tax information
..............................................................
...
This section describes the various options you have in choosing
how to receive fund dividends. It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
<PAGE>
ABOUT PUTNAM INVESTMENTS, INC.
..............................................................
...
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.

APPENDIX
..............................................................
...
Securities ratings
<PAGE>
About the fund

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing
. The following table summarizes your maximum transaction
costs from investing in the fund and expenses
based on the most recent fiscal year. The examples
show the cumulative expenses attributable to a hypothetical
$1,000 investment over specified periods.

Class A Class B Class M
shares shares shares
Shareholder transaction
expenses

Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*

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

Annual fund operating expenses
(as a percentage of average net assets)

Total fund
Management 12b-1 Otheroperating
fees fees expenses expenses
- ---------- ----- -------------------

Class A 0.54% 0.20% 0.10% 0.84%
Class B 0.54% 0.85% 0.11% 1.50%
Class M 0.54% 0.50% 0.09% 1.13%

Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and , except as indicated,
redemption at the end of each period:

1 3 5 10
year years years years

Class A $56 $73 $92 $146
Class B $65 $77 $102 $161 ***
Class B (no redemption) $15 $47 $82 $161
***
Class M $44 $67 $93 $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 varies .

* The higher 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.

** 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 . 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
"Alternative sales arrangements."

FINANCIAL HIGHLIGHTS

The following table presents per share financial
information for class A, B and M 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 1996
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.
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
TABLE
<PAGE>
<CAPTION>
Putnam Tax-Free High Yield Fund

For the period
December 29, 1994
(commencement of
Year ended operations) to Year ended
July 31 July 31 July 31
1996 1995 1996

Class M Class A
<S> <C> <C> <C>
Net asset value, beginning of period $14.13 $13.43 $14.14
Investment operations
Net investment income .84 .58 .90
Net realized and unrealized
gain (loss) on investments (.08) .70 (.10)
Total from investment operations .76 1.28 .80
Less distributions:
From net investment income (.85) (.58) (.89)
In excess of net investment income -- -- --
From net realized gain on investments -- -- --
In excess of net realized
gain on investments -- -- --
Total distributions (.85) (.58) (.89)
Net asset value, end of period $14.04 $14.13 $14.05
Total investment return at net asset value (%)(a) 5.44 9.69(b) 5.76
Net assets, end of period (in thousands) $9,984 $2,331 $540,607
Ratio of expenses to average net assets
(%)(c) 1.13 .71(b) .84
Ratio of net investment income
to average net assets (%) 5.87 3.98(b) 6.27
Portfolio turnover (%) 67.70 60.41 67.70

/TABLE
<PAGE>
<TABLE>
<CAPTION>

For the period
Year September 20, 1993
ended(commencement of
July operations) to Year ended July 31
31 July 31
1995 1994 1996 1995 1994 1993

Class A Class B

<S> <C> <C> <C> <C> <C>
$14.24 $15.34 14.14 $14.24 $15.01 14.64
.94 .83 .80 .85 .86 .95
(.10) (.98) (.09) (.10) (.65) .41
.84 (.15) .71 .75 .21 1.36
(.94) (.83) (.80) (.85) (.85) (.95)
-- (.02) -- -- (.03) --
-- (.05) -- -- (.05) (.04)
-- (.05) -- -- (.05) --
(.94) (.95) (.80) (.85) (.98) (.99)
$14.14 $14.24 $14.05 $14.14 $14.24 $15.01
6.24 (.99)(b) 5.08 5.54 1.36 9.68
$474,984 $361,593 $1,421,448$1,436,481 $1,522,955$1,501,535
.87 (.71)(b) 1.50 1.51 1.45 1.38
6.73 5.58(b) 5.62 6.10 5.76 6.39
60.41 44.41 67.70 60.41 44.41 52.29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended July 31

1992 1991 1990 1989 1988 1987

Class B
<C> <C> <C> <C> <C> <C>
$13.79 $13.87 $14.30 $13.72 $13.77 $13.91

.99 .99 1.00 .98 .96 .98

.94 (.07) (.43) .56 (.05) .04
1.93 .92 .57 1.54 .91 1.02
(.99) (1.00) (1.00) (.96) (.96) (.98)
-- -- -- -- -- --
(.09) -- -- -- -- (.18)

-- -- -- -- -- --
(1.08) (1.00) (1.00) (.96) (.96) (1.16)
$14.64 $13.79 $13.87 $14.30 $13.72 $13.77
14.60 6.98 4.20 11.71 6.96 7.48
$1,015,866 $738,113 $651,152 $635,899 $586,721 $582,023
1.45 1.52 1.66 1.75 1.77 1.78

7.03 7.26 7.12 7.02 7.11 6.71
82.31 49.83 46.66 96.97 101.02 132.87
<PAGE>
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
(c) The ratio of expenses to average net assets for the period ended July 31, 1996 includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts.
</TABLE>

<PAGE>
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 THE FUND PURSUES ITS OBJECTIVE

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 income or
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 Investment Management , Inc., the fund's
investment manager ("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 ("S&P")), or
from unrated securities of comparable quality. The fund may
invest in securities rated, at the time of purchase, at least Ca
by Moody's or CC by S&P, and in unrated securities of
comparable quality. The fund is not subject to any other
limitation based on securities ratings. Securities rated Ca by
Moody's or CC by S&P and unrated securities that Putnam
Management determines to be of comparable quality
are considered 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.

Alternative minimum tax

Interest income distributed by the fund from certain types of
tax-exempt securities may be subject to federal
alternative minimum tax for individuals and corporations.

In determining compliance with the 80% test described above,
it is a fundamental policy of the fund to exclude
from tax-exempt securities any securities the interest
from which may be subject to the federal alternative
minimum tax for individuals. All tax-exempt interest
dividends will, however, be included in determining
federal alternative minimum taxable income of corporations.

Alternative investment strategies

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
fund assets.

In implementing these "defensive" strategies, the fund
may invest without limit in taxable obligations,
including 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,
these alternative strategies will be used .

Tax -exempt securities

Tax -exempt securities include obligations of a
state (including the District of Columbia), a territory or a U.S.
possession, or any of their agencies, instrumentalities
or other governmental units, the interest on 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, or to fund short-term cash
requirements. They 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.

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.

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,
whose credit quality is tied 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 ." These
obligations pay interest rates that vary inversely
with 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.

These securities have the effect of providing a degree of
investment leverage . They will generally respond
to changes in market interest rates more rapidly than
fixed-rate long-term securities (typically twice as
fast) . 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.

Risk factors

The values of tax-exempt securities fluctuate in response
to changes in interest rates. A decrease in interest
rates will generally result in an increase in the value of
fund assets. Conversely, during periods of rising
interest rates, the value of fund assets will generally
decline. The magnitude of these fluctuations generally is
greater for securities with longer maturities. However, the
yields on such securities are also generally higher. In
addition, the values of fixed-income 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
a fixed-income security and changes 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 these securities, but will affect the fund's
net asset value.

Investors should carefully consider their ability to assume the
risks of owning shares of a mutual fund that invests
primarily 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 placed on such
securities. In the absence of a liquid trading market for its
portfolio securities , the fund at times may be
unable 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.
<PAGE>

The table below shows the percentages of fund assets
invested during fiscal 1996 in securities assigned to the
various rating categories by S&P , or, if unrated by
S&P, assigned to comparable rating categories by Moody's, and
in unrated securities determined by Putnam Management to be of
comparable quality:

Unrated securities
Rated securities, of comparable
quality,
as percentage of as percentage of
Rating net assets net assets

"AAA" 32.26% 0.24%
"AA" 1.88 0.15
"A" 4.47 0.34
"BBB" 18.19 4.51
"BB" 7.01 11.60
"B" 2.10 15.94
"CCC" 0.86 0.45
------ ------
66.77% 33.23%
====== ======

Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis.
However, the amount of information available 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 its goals is more
dependent on Putnam Management's ability than would be the case
if it were investing in tax-exempt securities in
the higher rating categories.

At times, a substantial portion of fund 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 all or a major
portion . Under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the
issuer, it may be more difficult to sell
these securities when Putnam Management believes it
advisable to do so or the fund may be able to sell
the securities only at prices lower than if they
were more widely held. Under these 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
of these securities, the fund may be required to
participate in various legal proceedings or take
possession of and manage assets securing the issuer's obligations
on the securities . This could increase fund
operating expenses and adversely affect its net asset
value. Any income derived from the ownership or
operation of such assets would not be tax-exempt. The ability
of a holder of a tax-exempt security to enforce the terms of that
security in a bankruptcy proceeding may be more limited than
would be the case with respect to securities of private
issuers.

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 may invest in so-called "zero-coupon" bonds ,
which 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. The values of zero-coupon bonds are
subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently.

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
interest income from zero-coupon bonds on a current basis,
even though it does not receive that income currently in cash.
Thus it may be necessary 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 it may be more difficult to value or buy and sell
certain of these securities .

Certain investment grade securities share some of the risk
factors discussed above with respect to lower-rated
securities.

For additional information concerning the risks associated with
investing in securities in the lower rating categories,
see the SAI.

Putnam Management buys and sells securities for the fund's
portfolio with a view to seeking as high a level of current
income as Putnam Management believes does not pose undue risk to
principal.

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.

Concentration policies

The fund will not 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, for this purpose
tax-exempt securities backed only by the assets and revenues of
nongovernmental users may be deemed to be issued by such
nongovernmental users. Thus, the 25% limitation would apply to
these obligations.

It is possible that the fund may invest more than 25% of its
assets in a broader segment of the market for tax-exempt
securities, such as revenue obligations of hospitals and other
health care facilities, housing 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 these obligations could be supported by the credit of
governmental issuers or by the credit of nongovernmental issuers
engaged in a number of industries, economic, business, political
and other developments generally affecting the revenues of such
issuers may have a general adverse effect on all tax-exempt
securities in a particular market segment. (Examples of such
developments include proposed legislation or pending court
decisions affecting the financing of such projects and market
factors affecting the demand for their services or products.)

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

During a period of declining interest rates, many of the fund's
portfolio investments will likely bear coupon rates that are
higher than current market rates, regardless of whether these
securities were originally purchased at a premium. These
securities would generally carry market values greater than the
principal amounts payable on maturity, which would be reflected
in the net asset value of fund shares.

The values of these "premium" securities tend to approach the
principal amount as the securities approach maturity (or call
price in the case of securities approaching their first call
date). As a result, an investor who purchases fund shares during
these periods would initially receive higher monthly
distributions (derived from the higher coupon rates payable on
fund investments) than might be available from alternative
investments bearing current market interest rates. But the
investor 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,
investors may find it useful to compare 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."

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
its portfolio turnover rate may be higher than that of other
mutual funds.

Portfolio turnover generally involves some expense ,
including brokerage commissions or dealer markups and
other transaction costs on the sale of securities and
reinvestment in other securities. These transactions may
result in realization of taxable capital gains. Portfolio
turnover rates are shown in the section "Financial
highlights."

Financial futures and options

The fund may purchase and sell financial futures contracts
and options.

The fund may purchase and sell futures contracts on
the Municipal Bond Index , which 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 the fund enters into and
terminates an index futures contract, the fund realizes a
gain or loss.

The fund may also purchase and sell put and call
options on index futures or on indexes directly, in
addition to or as an alternative to purchasing and selling index
futures. The fund may also purchase and
sell futures contracts and related options on U.S.
Treasury securities, including U.S. Treasury bills, notes and
bonds ("U.S. government securities"), and options directly
on U.S. government securities.

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 the fund and
other investors own an interest in one or more options on
tax-exempt securities.

The fund will engage in these transactions for hedging purposes
and, to the extent permitted by applicable law, for nonhedging
purposes, such as to manage the effective duration of the fund's
portfolio or as a substitute for direct investment .

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 from the possibility of imperfect
correlations among movements in the prices of financial
futures and options purchased or sold by the fund, of the
underlying bond index or U.S. government securities and, in
the case of hedging transactions, of the tax-exempt securities
that are the subject of the hedge. The successful use of
futures and options further depends on Putnam Management's
ability to forecast interest rates and market movements
correctly.

Other risks arise from the potential inability to
close out futures or options positions .
There can be no assurance that a liquid secondary market will
exist for any futures contract or option at a particular time.
The fund's ability to terminate option positions establsihed
in the over-the-counter market may be more limited than exchange-
traded options and may also involve the risks that securities
dealers participating in such transactions would fail to meet
their obligations to the fund. Certain provisions of the
Internal Revenue Code and certain regulatory requirements may
limit the use of futures and options transactions.

A more detailed explanation of financial futures and options
transactions , and the risks associated with them ,
is included in the SAI .

Other investment practices

The fund may also engage in the following
investment practices, each of which may result in taxable income
or capital gains and involves certain special risks. The
SAI contains more detailed information about these
practices, including limitations designed to reduce these risks.

Repurchase agreements and forward commitments. 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 if
the other party should default on its obligation and the
fund is delayed or prevented from recovering the
collateral or completing the transaction.

Derivatives

Certain of the instruments in which the fund may invest, such as
futures contracts, options and inverse floating obligations, are
considered to be "derivatives." Derivatives are financial
instruments whose value depends upon, or is derived from, the
value of an underlying asset, such as a security or an index.
Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.

Limiting investment risk

Specific investment restrictions help to limit investment
risks for the fund's shareholders. These restrictions
prohibit the fund and the Trust from acquiring more than 10%
of the voting securities of any one issuer.* They also 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;
or

(c) 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.

At a shareholder meeting to be held on February 6, 1997, the
shareholders of the fund will be asked to approve a number of
changes to the fund's fundamental investment restrictions. If
the proposed changes are approved, the restriction that prohibits
the fund (together with all other portfolios of the Trust) from
acquiring more than 10% of the voting securities of any issuer
will no longer take account of securities held by other
portfolios of the Trust, and the restriction that prohibits the
fund from investing more than 5% of its total assets in
securities of any one issuer will be limited to 75% of the fund's
total assets.

If these proposals do not ultimately receive sufficient votes for
approval, this prospectus will be revised or supplemented, as
appropriate.

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

It is expected that, at a Trustees meeting scheduled for
December 6, 1996, non-fundamental restrictions (b) and (c) above
will be eliminated.

HOW PERFORMANCE IS SHOWN

Fund advertisements may, from time to time , include
performance information . "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 the class on the last day of
that period.

For purposes of calculating yield , 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
tax purposes, which may not reflect amortization in the
same manner. See "How the fund pursues its objective
-- Investments in premium securities."

Yield is based on the price of the shares, including
the maximum initial sales charge in the case of class A
and class M shares, but does not reflect
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 the sales charge
were used.

All data are based on past investment results and
do not predict future performance. Investment
performance, which will vary, is based on many factors, including
market conditions, portfolio composition , fund
operating expenses and which class of shares the investor
purchases . Investment performance also often reflects the
risks associated with the fund's investment
objective and policies. These factors should be
considered when comparing the fund's investment results
with 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. Fund performance may
be compared to that of various indexes. See the
SAI .

HOW THE FUND IS MANAGED

The Trustees are responsible for generally overseeing the
conduct of fund 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.

The fund pays Putnam Management a monthly fee for these
services based on average net assets. See "Expenses summary" and
the SAI.

The following officers of Putnam Management have 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)
---- -----------------

Triet M. Nguyen 1988 Employed as an investment
Senior Vice President professional by Putnam
Management since 1985.

Leslie J. Burke 1996 Employed as an investment
Vice President professional by Putnam
Management since 1992. Prior
to February, 1992, Ms. Burke
was a Research Associate and
Municipal Bond Trader at
Fidelity Management and
Research Company.

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 and any other portfolio of the Trust 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 fund
officers and their staff who provide administrative
services . The total reimbursement is determined annually
by the Trustees.

Putnam Management places all orders for purchases and sales of
fund 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 fund shares (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 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. Only class A, B and M shares are
offered by this prospectus. The fund may also offer other
classes of shares with different sales charges and expenses.
Because of these different sales charges and expenses, the
investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581) .

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, only shareholders of
such series shall be entitled to vote. Shares of all
classes will vote together as a single class except when
otherwise 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 the minimum set by
the Trustees (presently 20 shares), the fund may choose to
redeem your shares . 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, Massachusetts Institute of Technology ; Jameson
Adkins Baxter, President, Baxter Associates, Inc.; Hans H. Estin,
Vice Chairman, North American Management Corp. ; John A.
Hill, Principal and Managing Director, First Reserve
Corporation; Ronald J. Jackson, Former Chairman, President and
Chief Executive Officer of Fisher-Price, Inc., Director of Safety
1st, Inc., Trustee of Salem Hospital and the Peabody Essex
Museum; Elizabeth T. Kennan, President Emeritus and
Professor , 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 Cummins Engine Company, Lucent
Technologies, Inc., Springs Industries, Inc. and Time Warner
Inc.; George Putnam, III,* President, New Generation Research,
Inc. ; Eli Shapiro, Alfred P. Sloan Professor of Management,
Emeritus, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology ; 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 Data General Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Massachusetts General Hospital and Eastern
Utilities Associates. The Trustees are also Trustees of
the other Putnam funds. Those marked with an asterisk (*) are
or may be deemed to be "interested persons" of the Trust,
Putnam Management or Putnam Mutual Funds.

About Your Investment

ALTERNATIVE SALES ARRANGEMENTS

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 certain sales at net asset
value that are subject to a contingent deferred sales
charge ("CDSC") . Certain purchases of class A
shares qualify for reduced sales charges. Class A shares
bear a lower 12b-1 fee than class B and class M
shares. See "How to buy shares -- Class A shares " and
"Distribution plans."

Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a
specified period after purchase . Class B shares also bear a
higher 12b-1 fee than class A and class M shares. Class B
shares automatically convert into class A shares,
based on relative net asset value, approximately eight years
after purchase. For more information about the conversion of
class B shares, see the SAI. This discussion includes
information about how shares acquired through reinvestment of
distributions are treated for conversion purposes. The
discussion also notes certain circumstances under which a
conversion may not occur. 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 . Until conversion, class B
shares will have a higher expense ratio and pay lower
dividends than class A and class M shares
because of the higher 12b-1 fee. See "How to buy shares -
- - Class B shares " and "Distribution plans."

Class M shares. An investor who purchases class M shares
pays a sales charge at the time of purchase that is lower
than the sales charge applicable to class A shares.
Certain purchases of class M shares qualify for
reduced sales charges. Class M shares bear a 12b-1 fee
that is lower than class B shares but higher than class A
shares. Class M shares are not subject to any CDSC and do
not convert into any other class of shares. See "How to buy
shares -- Class M shares " and "Distribution plans."

Which arrangement is best 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 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. 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 write a check for the amount you wish to
invest, payable to the fund. Return the completed form
and check 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 or savings 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

Sales charge Amount of
as a percentage of: sales charge
-------------------reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 25,000 4.99% 4.75% 4.50%
25,000 but under 100,000 4.71 4.50 4.25
100,000 but under 250,000 3.90 3.75 3.50
250,000 but under 500,000 3.09 3.00 2.75
500,000 but under 1,000,000 2.04 2.00
1.85
- -----------------------------------------------------------------

There is no initial sales charge on purchases of class A
shares of $1 million or more. However, a CDSC of 1.00% or
0.50%, respectively, will be imposed within the
first or second year after purchase on redemptions by any
investor that purchased fund shares without an initial sales
charge as part of an investment of $1 million or more.

Shares purchased by investors investing $1 million or more in
class A shares whose dealer of record waived its commission with
the approval of Putnam Mutual Funds are not subject to the CDSC.

In determining whether a CDSC is payable, shares not subject to
any charge will be redeemed first. Any CDSC will be 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. Putnam Mutual Funds receives the entire
amount of any CDSC you pay. See the SAI for more
information about the CDSC.

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 . Each subsequent one-year
measuring period for these purposes will begin 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.

Class B shares

Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase , as shown in the table below .
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.

Year 1 2 3 4 5 6 7+
- -------------------------------------- -----------------------

Charge 5% 4% 3% 3% 2% 1% 0%

In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed
first, followed by shares held longest during the CDSC
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 CDSC period, a
CDSC is assessed only 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.

Class M shares

Sales charge Amount
of
as a percentage of: sales
charge
------------------- reallowed
to
Net dealers
as a
Amount of transaction amount Offering
percentage of
at offering price ($) invested price offering
price
- -----------------------------------------------------------------
Under 50,000 3.36% 3.25% 3.00%
50,000 but under 100,000 2.30
2.25 2.00
100,000 but under 250,000 1.52 1.50 1.25
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONENONE

General

You may be eligible to buy fund 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,
qualified retirement plans and other plans. Descriptions are
also included in the order form and in the SAI.

Class A, class B and class M shares are
available at net asset value without an initial sales charge
or a CDSC to 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, shares are available 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 . The CDSC
will be waived on redemptions of shares arising out of the
death or post-purchase disability of a shareholder
or settlor of a living trust account, and on redemptions
in connection with certain withdrawals from IRA or other
retirement plans. Up to 12% of the shares subject to a
systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares at reduced sales charges.

Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares 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 ,
payment may be delayed 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, certificates will not be
issued for your shares unless you request them.

Putnam Mutual Funds will from time to time , at its
expense, provide additional promotional incentives or payments to
dealers that sell shares of the Putnam funds. These
incentives or payments may include payments for travel expenses,
including lodging, incurred in connection with trips taken by
invited registered representatives and their guests to locations
within and outside the United States for meetings or seminars of
a business nature. 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.

Putnam Mutual Funds makes quarterly payments to
qualifying dealers (including, for this purpose,
certain financial institutions) to compensate them for
services provided in connection with sales of class A
shares and the maintenance of shareholder accounts . The
payments are based on the average net asset value of
class A shares 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 . NAV shares are not subject to the
one-year exclusion provision in cases where certain
shareholders who invested $1 million or more have
made arrangements with Putnam Mutual Funds and the dealer
of record waived the sales commission.

Putnam Mutual Funds makes quarterly payments at
the annual rate of 0.20% of such average net asset value for
class A shares.

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. The Trustees currently limit payments under the
class B and class M plans to the annual rate of 0.85%
and 0.50% of such assets , respectively.

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 or on sales to investors exempt from the
CDSC.

The amount paid to dealers at the time of the sale of
class M shares is set forth above under "How to buy
shares -- Class M shares." In addition, in order to further
compensate dealers (including qualifying 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 .

The payments are 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
for class B shares , which are prepaid as described above.
Putnam Mutual Funds makes the payments at an annual rate
of 0.20% of such average net asset value for class B
shares outstanding as of March 31, 1990 , 0.25% of such
average net asset value for class B shares acquired after
that date and 0.25% of such average net asset value
for class M shares (including shares acquired through
reinvestment of dividends).

Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of class M shares,
0.15% of such average net asset value of class M
shares. For class M shares, the total annual payment to
dealers equals 0.40% 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 .

The 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.

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 your 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 SAI 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.

Your 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 this event, 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 shares that 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
you 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. 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 . The CDSC will be computed 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.
The form is available from 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 that
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 your fund,
the fund reserves the right to revise or terminate the
exchange privilege, limit the amount or number of exchanges or
reject any exchange. Consult Putnam Investor Services
before requesting an exchange. See the SAI 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 valued 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 a
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 valued at market value. Short-term
investments that will mature in 60 days or less are valued
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 THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS ;
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. A capital loss carryover is
currently available. Distributions paid on class A
shares will generally be greater than those paid on 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:

- Reinvest all distributions in additional shares
without a sales charge;

- Receive distributions from net investment income in cash
while reinvesting capital gains distributions in additional
shares without a sales charge; or

- 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 distributions are 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 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.

Fund distributions designated 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, for
both 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 you as such when it is
distributed to you .

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 Putnam Investor Services 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 federal 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
Trust . Putnam Fiduciary Trust Company is the
custodian of the Trust . Putnam Investor Services, a
division of Putnam Fiduciary Trust Company, is the
investor servicing and transfer agent for the Trust .

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>
Appendix

SECURITIES RATINGS

The following rating services describe rated securities as
follows:

Moody's Investors Services , 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 -edged." 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.

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.

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 supporting institutions) have a
superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will
often 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 supporting institutions) have a
strong ability for repayment of senior short-term
debt 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

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:)

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.

BB -- Debt rated `BB' has less near-term vulnerability to
default than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `BBB-' rating.

B -- Debt rated `B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BB' or `BB-' rating.

CCC -- Debt rated `CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `B' or `B-'
rating.

CC -- The rating `CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied `CCC'-
rating.

C -- The rating `C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied `CCC-' debt
rating. The `C' rating may be used to cover a situation where
bankruptcy petition has been filed, but debt service payments are
continued.

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 -- Strong capacity to pay principal and interest.
Issues determined to possess very strong
characteristics are given a plus sign (+)
designation .

SP-2 -- Satisfactory capacity to pay principal and interest ,
with some vulnerability to adverse financial and economic changes
over the term of the notes.

Commercial paper

A-1 -- This highest category indicates that the degree of
safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus sign (+)
designation .

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

Glossary of terms

Bond An IOU issued by a government or corporation that
usually pays interest.
- -----------------------------------------------------------------
Capital A rise in an investment's principal value.
appreciation Also used to describe the investment objective of
a mutual fund whose primary criterion for choosing
securities is the potential to rise in value
rather than to provide dividend income.
- -----------------------------------------------------------------
Capital A profit or loss on the sale of securities
gain/loss (generally stocks or bonds).
- -----------------------------------------------------------------
Class A, B, M Types of shares, each class offering
shares investors a different way to pay sales charges and
distribution fees. A fund's prospectus explains
the availability and attributes of each type.
- -----------------------------------------------------------------
Common A unit of ownership of a corporation.
stock
- -----------------------------------------------------------------
Contingent A charge applied at the time of redemption of
deferred certain mutual fund shares, rather than at the
sales charge time of purchase. A fund's CDSC generally
(CDSC) declines each year after purchase until it no
longer applies.
- -----------------------------------------------------------------
Cost basis The purchase price of mutual fund shares for tax
purposes, adjusted for such things as share
splits, distributions, and return of capital
distributions.
- -----------------------------------------------------------------
Declaration The date on which the Trustees approve the
date amount of your fund's next distribution.
- -----------------------------------------------------------------
Distribution A payment from a mutual fund to shareholders. It
may include interest from bonds and dividends from
stocks (dividend distributions). It may also
include profits from the sale of securities from
the fund's portfolio (capital gains
distributions).
- -----------------------------------------------------------------
Diversification
Investing in a number of securities to reduce the
effect of any one investment going bad. A basic
premise of mutual fund investing.
- -----------------------------------------------------------------
Dividend For mutual fund shares, a payment derived solely
from dividends or interest paid on securities held
in the portfolio (i.e. not including capital
gains).
- -----------------------------------------------------------------
Equity Securities representing ownership in a
securities corporation. Common stock and preferred stock are
equity securities.
- -----------------------------------------------------------------
Ex-dividend The date on or after which a new shareholder
date will not receive the fund's next distribution. For
Putnam funds, it is the same as the record date.
- -----------------------------------------------------------------
Fiscal year Typically an accounting period of 365 days (366
days in leap years) for which a mutual fund
prepares financial statements and performance
data. For administrative reasons, it often differs
from a calendar year.
- -----------------------------------------------------------------
Fixed-income Securities that pay an unchanging rate of
securities interest or dividends. Bonds, notes, bills, money
market instruments, and preferred stocks may all
be considered fixed-income securities.
- -----------------------------------------------------------------
Net asset The value of one share of a mutual fund
value (NAV) without regard to sales charges. Some bond funds
aim for a steady NAV, representing stability; most
stock funds aim to raise NAV, representing growth
in the value of an investment.
- -----------------------------------------------------------------
Payable date The date on which a mutual fund pays its
distributions to shareholders.
- -----------------------------------------------------------------
Public The purchase price of one class A share or
offering price class M share of a mutual fund, including the
(POP) applicable up-front sales charge.
- -----------------------------------------------------------------
Record date The date used to determine which shareholders are
entitled to a distribution. After the record date,
shares are sold "ex-dividend," or without the
dividend. For Putnam funds, the ex-dividend date
is the same as the record date.
- -----------------------------------------------------------------
Total return A measure of performance showing the change in the
value of an investment over a given period,
assuming all earnings are reinvested in the fund.
- -----------------------------------------------------------------
Yield The percentage rate at which a fund has earned
income from its investments over the indicated
period. "Dividend rate" is a current return that
includes interest and dividend income, net of all
fund expenses. "Distribution rate" is a current
return that includes short-term capital gains, as
well as net investment income. "SEC yield" is a
current return based on net investment income over
a recent 30-day period, computed on a yield-to-
maturity basis, which may differ from net
investment income as determined for financial
reporting purposes. All of these returns are
calculated by annualizing the dividends or
distributions over the indicated period and
dividing it by the price of a share at the end of
the period.
<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>
PROSPECTUS

NOVEMBER 30, 1996

Putnam Tax-Free Insured Fund
Class A, B and M shares
INVESTMENT STRATEGY: TAX-ADVANTAGED

This prospectus explains concisely what you should know before
investing in 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 in the November 30, 1996 statement of
additional information (the "SAI"), as amended from time to time.
For a free copy of the SAI or other information, call Putnam
Investor Services at 1-800-225-1581. The SAI has been filed with
the Securities and Exchange Commission and is incorporated into
this prospectus by reference.

BOSTON * LONDON * TOKYO<PAGE>
ABOUT THE FUND

Expenses summary
..............................................................
...
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes
of fund shares. Use it to help you estimate the impact of
transaction costs on your investment over time.

Objective
..............................................................
...
Read this section to make sure the fund's objective is consistent
with your own.

How the fund pursues its objective
..............................................................
...
This section explains in detail how the fund seeks its investment
objective.

Risk factors. All investments entail some risk. Read
this section to make sure you understand the risks
that are associated with an investment in the fund.

How performance is shown
..............................................................
...
This section describes and defines the measures used to assess
fund performance. All data are based on past
investment results and do not predict future performance.

Distribution plans
..............................................................
...
This section tells you what distribution fees are charged against
each class of shares.

How to sell shares
..............................................................
...
In this section you can learn how to sell fund shares
, either directly to the fund or through an investment
dealer.

How to exchange shares
..............................................................
...Find out in this section how you may exchange fund
shares for shares of other Putnam funds. The section
also explains how exchanges can be made without sales charges and
the conditions under which sales charges may be required.

How the fund values its shares
..............................................................
...
This section explains how the fund determines the value of its
shares.

ABOUT PUTNAM INVESTMENTS, INC.
..............................................................
...
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.

About the fund

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs
from investing in the fund and expenses based on
the most recent fiscal year. The examples show the
cumulative expenses attributable to a hypothetical $1,000
investment over specified periods.

Class A Class B Class M
shares shares shares
Shareholder transaction
expenses

Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*

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

Annual fund operating expenses
(as a percentage of average net assets)

Total fund
Management 12b-1 Other operating
fees fees expenses expenses
- ---------- ----- -------------------
Class A 0.59% 0.20% 0.11% 0.90%
Class B 0.59% 0.60% 0.14% 1.33%
Class M 0.59% 0.50% 0.10% 1.19%

The table is provided to help you understand the expenses of
investing and your share of fund operating
expenses . The expenses shown in the table do not reflect the
application of credits that reduce fund expenses . The 12b-1
fees for class B shares reflect amounts currently payable
under the class B distribution plan. Actual 12b-1 fees
and total fund operating expenses for the class B
shares were 0.85% and 1.58%, respectively .
<PAGE>
Examples

Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated,
redemption at the end of each period:

1 3 5 10
year years years years

Class A $56 $75 $95 $153
Class B $64 $72 $93
$148 ***
Class B (no redemption) $14 $42 $73 $148
***
Class M $44 $69 $96 $172

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 varies.

* The higher 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.

** 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. 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 "Alternative sales
arrangements."

FINANCIAL HIGHLIGHTS

The following table presents per share financial information for
class A, B and M 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 1996
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.
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Putnam Tax-Free Insured Fund

For the period
June 1, 1995
(commencement
Year ended of operations) Year ended
July 31 to July 31 July 31
1996 1995 1996

Class M Class A

<S> <C> <C> <C>
Net asset value, beginning of period $14.86 $15.11 $14.86
Investment operations
Net investment income .76 .12 .81
Net realized and unrealized
gain (loss) on investments .08 (.25) .08
Total from investment operations .84 (.13) .89
Less distributions:
From net investment income (.76) (.12) (.81)
From net realized gain on investments -- -- --
In excess of net realized gain on
investments -- -- --
Total distributions (.76) (.12) (.81)
Net asset value, end of period $14.94 $14.86 $14.94
Total investment return at net
asset value (%) (a) 5.74 (0.87)(c) 6.06
Net assets, end of period (in thousands) $325 $17 $196,948
Ratio of expenses to average net assets (%) (b) 1.19 .14(c) .90
Ratio of net investment income to average
net assets (%) 4.99 .73(c) 5.37
Portfolio turnover (%) 54.58 37.62 54.58
/TABLE
<PAGE>
<TABLE>
<CAPTION>

For the period
September 20, 1993
(commencement of
operations) to Year ended July 31
July 31
1995 1994 1996 1995 1994 1993

Class A Class B

<C> <C> <C> <C> <C>
$14.67 $15.88 $14.87 $14.68 $15.50 $15.42

.83 .73 .71 .73 .74 .75

.19 (1.12) .09 .20 (.73) .28
1.02 (.39) .80 .93 .01 1.03

(.82) (.72) (.71) (.73) (.73) (.75)
- -- -- -- -- -- (.20)
(.01) (.10) -- (.01) (.10) --
(.83) (.82) (.71) (.74) (.83) (.95)
$14.86 $14.67 $14.96 $14.87 $14.68 $15.50
7.21 (2.49)(c) 5.44 6.53 --- 7.00
$184,241$143,079 $354,431 $377,443 $432,895 $572,659
.89 .80(c) 1.58 1.54 1.53 1.74
5.68 4.73(c) 4.72 5.05 4.81 4.88
37.62 47.72 54.58 37.62 47.72 42.01
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Year ended July 31

<C> <C> <C> <C> <C>
1992 1991 1990 1989 1988 1987

Class B

$14.38 $14.25 $14.79 $13.85 $13.77 $13.91

.76 .79 .83 .85 .85 .84

1.14 .14 (.06) .93 .11 (.10)
1.90 .93 .77 1.78 .96 .74

(.77) (.80) (.83) (.84) (.85) (.84)
(.09) -- (.48) -- (.03) (.04)
-- -- -- -- -- --

(.86) (.80) (1.31) (.84) (.88) (.88)
$15.42 $14.38 $14.25 $14.79 $13.85 $13.77

13.63 6.79 5.49 13.31 7.24 5.31
$466,135 $359,465 $309,050 $293,127 $268,004 $264,916
1.79 1.68 1.63 1.61 1.58 1.61
<PAGE>
5.16 5.60 5.81 6.01 6.20 5.83
66.18 54.69 86.29 201.21 197.29 85.49

(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 includes amounts paid through expenses offset
arrangements. Prior period ratios exclude these amounts.
(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 THE FUND PURSUES ITS OBJECTIVE

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 income or
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.

Investments by the fund in tax-exempt securities will be
limited to securities rated at the time of purchase at least
Baa by Moody's Investors Service, Inc. ("Moody's") or at
least BBB by Standard & Poor's ("S&P") or unrated
securities which Putnam Management determines are of comparable
quality. The rating services' descriptions of these
grades of debt securities are included in the SAI. Securities
rated Baa or BBB (and comparable unrated securities) lack
outstanding investment characteristics, have speculative
characteristics and may be more likely to exhibit a weakened
capacity to pay interest and repay principal under adverse
economic conditions.

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, unless a security is, at the time of
purchase , (i) 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) 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
under (i) a "new issue" insurance policy obtained
by the issuer or underwriter of a security, (ii) a
"secondary market" policy purchased by the fund with respect to a
security, or (iii) 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 .
However, Putnam Management will consider such reduction in
its determination of whether the fund
should continue to hold the security in its
portfolio. Certain investment grade securities share
some of the risk factors discussed above with respect to lower-
rated securities.

Alternative minimum tax

Interest income distributed by the fund from certain types
of tax-exempt securities may be subject to federal alternative
minimum tax for individuals and corporations.

In determining compliance with the 80% test described above, it
is a fundamental policy of the fund to exclude from tax-
exempt securities any securities the interest from which may be
subject to the federal alternative minimum tax for individuals.
All tax-exempt interest dividends will, however, be
included in determining the federal alternative
minimum taxable income of corporations.

Alternative investment strategies

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 fund assets.

In implementing these "defensive" strategies, the fund may invest
without limit in taxable obligations, including 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, these
alternative strategies will be used .

Tax-exempt securities

Tax-exempt securities include obligations of a state (including
the District of Columbia), a territory or a U.S. possession, or
any of their agencies, instrumentalities or other
governmental units, the interest on 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, or to fund short-term cash requirements. They 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.

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.

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, whose credit
quality is tied 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." These obligations pay interest rates
that vary inversely with 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.

These securities have the effect of providing a degree of
investment leverage. They will generally respond to changes in
market interest rates more rapidly than fixed-rate long-term
securities (typically twice as fast). 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.

Risk factors

The values of tax-exempt securities fluctuate in response to
changes in interest rates. A decrease in interest rates will
generally result in an increase in the value of fund
assets. Conversely, during periods of rising interest rates, the
value of fund assets will generally decline. The
magnitude of these fluctuations generally is greater for
securities with longer maturities. However, the yields on such
securities are also generally higher. In addition, the
values of fixed-income 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 a
fixed-income security, an insurer's claims paying
ability and changes 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
these 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 secondary market for tax-exempt securities is generally
less liquid than that for taxable fixed-income securities,
particularly in the lower rating categories. Thus it may
be more difficult to value or buy and sell certain of
these securities .

For additional information concerning the risks associated with
investing in securities in the lower rating categories, see the
SAI.

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 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.

NOTE TO REPORTING: CONFIRM LAST SENTENCE

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
1996, the fund did not pay any insurance premiums.

Concentration policies

The fund will not 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,
for this purpose tax-exempt securities backed only by the assets
and revenues of nongovernmental users may be deemed to be issued
by such nongovernmental users. Thus, the 25% limitation would
apply to such obligations.

It is possible that the fund may invest more than 25% of its
assets in a broader segment of the market for tax-exempt
securities, such as revenue obligations of hospitals and other
health care facilities, housing 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 these obligations could be supported by the credit of
governmental issuers or by the credit of nongovernmental issuers
engaged in a number of industries, economic, business, political
and other developments generally affecting the revenues of
such issuers may have a general adverse effect on all tax-
exempt securities in a particular market segment.
(Examples of such developments include proposed
legislation or pending court decisions affecting the financing of
such projects and market factors affecting the demand for their
services or products.)

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

The values of these "premium" securities tend to approach the
principal amount as the securities approach maturity (or call
price in the case of securities approaching their first call
date). As a result, an investor who purchases fund shares
during these periods would initially receive higher
monthly distributions (derived from the higher coupon rates
payable on fund investments) than might be available from
alternative investments bearing current market interest rates.
But the investor 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
, investors may find it useful to compare 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."

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 its portfolio turnover rate may be
higher than that of other mutual funds.

Portfolio turnover generally involves some expense ,
including brokerage commissions or dealer markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. Portfolio turnover rates are
shown in the section "Financial highlights."

Financial futures and options

The fund may purchase and sell financial futures contracts and
options.

The fund may purchase and sell futures contracts on the
Municipal Bond Index , which 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
the fund enters into and terminates an index futures
contract, the fund realizes a gain or loss.

The fund may also purchase and sell put and call options
on index futures or on indexes directly, in addition to
or as an alternative to purchasing and selling index futures.
The fund may also purchase and sell futures contracts and
related options on U.S. Treasury securities, including U.S.
Treasury bills, notes and bonds ("U.S. government securities"),
and options directly on U.S. government securities.

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 the fund and other
investors own an interest in one or more options on tax-exempt
securities.

The fund will engage in these transactions for hedging
purposes and, to the extent permitted by applicable law, for
nonhedging purposes, such as to manage the effective duration of
the fund's portfolio or as a substitute for direct
investment.

Certain risks arise from the possibility of imperfect
correlations among movements in the prices of financial
futures and options purchased or sold by the fund, of the
underlying bond index or U.S. government securities and, in
the case of hedging transactions, of the tax-exempt
securities that 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 potential inability to close out
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any futures contract or
option at a particular time. The fund's ability to terminate
option positions established in the over-the-counter market may
be more limited than for exchange-traded options and may also
involve the risks that securities dealers participating in such
transactions would fail to meet their obligations to the
fund. Certain provisions of the Internal Revenue Code and
certain regulatory requirements may limit the use of futures and
options transactions.

A more detailed explanation of financial futures and options
transactions , and the risks associated with them ,
is included in the SAI.

Other investment practices

The fund may also engage in the following investment practices,
each of which may result in taxable income or capital gains and
involves certain special risks. The SAI contains more detailed
information about these practices, including limitations designed
to reduce these risks.

Repurchase agreements and forward commitments. 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 if
the other party should default on its obligation and the fund is
delayed or prevented from recovering the collateral or completing
the transaction.

Derivatives

Certain of the instruments in which the fund may invest,
such as futures contracts, options and inverse floating
obligations, are considered to be "derivatives." Derivatives are
financial instruments whose value depends upon, or is derived
from, the value of an underlying asset, such as a security or an
index. Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.

Limiting investment risk

Specific investment restrictions help to limit investment
risks for the fund's shareholders. These restrictions
prohibit the fund and the Trust from acquiring more than 10% of
the voting securities of any one issuer.* They also 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;
or

(c) 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.

If these proposals do not ultimately receive sufficient votes for
approval, this prospectus will be revised or supplemented, as
appropriate.

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

It is expected that, at a Trustees meeting scheduled for
December 6, 1996, non-fundamental investment restrictions (b) and
(c) above will be eliminated.

HOW PERFORMANCE IS SHOWN

For purposes of calculating yield, 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 tax purposes,
which may not reflect amortization in the same manner. See "How
the fund pursues its objective -- Investments in premium
securities."

Yield is based on the price of the shares, including the maximum
initial sales charge in the case of class A and class M shares,
but does not reflect 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 the sales
charge were used.
<PAGE>

All data are based on past investment results and do not
predict future performance. Investment performance, which
will vary, is based on many factors, including market conditions,
portfolio composition , fund operating expenses and
which class of shares the investor purchases. Investment
performance also often reflects the risks associated with the
fund's investment objective and policies. These factors should
be considered when comparing the fund's investment results with
those of other mutual funds and other investment vehicles.

HOW THE FUND IS MANAGED

The Trustees are responsible for generally overseeing the
conduct of fund 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.

The fund pays Putnam Management a monthly fee for these services
based on average net assets. See "Expenses summary" and
the SAI.

The following officer of 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)
---- -------------------

Richard P. Wyke 1988 Employed by Putnam Management
Senior Vice President since 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
and any other portfolio of the Trust 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 fund officers and
their staff who provide administrative services . The
total reimbursement is determined annually by the Trustees.

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.

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. Only class A, B and M
shares are offered by this prospectus. The fund may also offer
other classes of shares with different sales charges and
expenses. Because of these different sales charges and expenses,
the investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581).

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, only shareholders of such
series shall be entitled to vote. Shares of all classes
will vote together as a single class except when otherwise
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 the minimum set by
the Trustees (presently 20 shares), the fund may choose to redeem
your shares. 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, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill,
Principal and Managing Director, First Reserve Corporation;
Ronald J. Jackson, Former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc., Director of Safety 1st, Inc.,
Trustee of Salem Hospital and the Peabody Essex Museum;
Elizabeth T. Kennan, President Emeritus and Professor, 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 Cummins
Engine Company, Lucent Technologies, Inc., Springs Industries,
Inc. and Time Warner Inc.; George Putnam, III,* President,
New Generation Research, Inc.; Eli Shapiro, Alfred P. Sloan
Professor of Management, Emeritus, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; 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 Data General
Corporation, Bradley Real Estate, Inc. and Providence Journal Co.
Also, Trustee of Massachusetts General Hospital and Eastern
Utilities Associates. The Trustees are also Trustees of
the other Putnam funds. Those marked with an asterisk (*) are or
may be deemed to be "interested persons" of the Trust, Putnam
Management or Putnam Mutual Funds.

About Your Investment

ALTERNATIVE SALES ARRANGEMENTS

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 certain sales at net asset value that are subject to a
contingent deferred sales charge ("CDSC"). Certain purchases of
class A shares qualify for reduced sales charges. Class A shares
bear a lower 12b-1 fee than class B and class M shares. See "How
to buy shares -- Class A shares" and "Distribution plans."

Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a specified
period after purchase. Class B shares also bear a higher 12b-1
fee than class A and class M shares. Class B shares
automatically convert into class A shares, based on relative net
asset value, approximately eight years after purchase. For more
information about the conversion of class B shares, see the SAI.
This discussion includes information about how shares
acquired through reinvestment of distributions are treated for
conversion purposes. The discussion also notes
certain circumstances under which a conversion may not occur.
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. Until conversion, class B shares will have a higher
expense ratio and pay lower dividends than class A and class M
shares because of the higher 12b-1 fee. See "How to buy shares -
- - Class B shares" and "Distribution plans."

Class M shares. An investor who purchases class M shares pays a
sales charge at the time of purchase that is lower than the sales
charge applicable to class A shares. Certain purchases of class
M shares qualify for reduced sales charges. Class M shares bear
a 12b-1 fee that is lower than class B shares but higher than
class A shares. Class M shares are not subject to any CDSC and
do not convert into any other class of shares. See "How to buy
shares -- Class M shares" and "Distribution plans."

Which arrangement is best 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 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. 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 write a check for the amount you wish to invest, payable
to the fund. Return the completed form and check 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 or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.

Class A shares

The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, in its discretion, allocates the entire amount to
your investment dealer.
<PAGE>
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 25,000 4.99% 4.75% 4.50%
25,000 but under 100,000 4.71 4.50 4.25
100,000 but under 250,000 3.90 3.75 3.50
250,000 but under 500,000 3.09 3.00 2.75
500,000 but under 1,000,000 2.04 2.00 1.85
- -----------------------------------------------------------------

There is no initial sales charge on purchases of class A shares
of $1 million or more. However, a CDSC of 1.00% or 0.50%,
respectively, will be imposed within the first or second
year after purchase on redemptions by any investor that
purchased fund shares without an initial sales charges as part of
an investment of $1 million or more.

Shares purchased by investors investing $1 million or more in
class A shares whose dealer of record waived its commission with
the approval of Putnam Mutual Funds are not subject to the CDSC.

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. Each subsequent one-year measuring period for these
purposes will begin 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.
<PAGE>
Class B shares

Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below. 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.

Year 1 2 3 4 5 6 7+
- -------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%

In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed
first, followed by shares held longest during the CDSC
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 CDSC period, a CDSC
is assessed only 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.

Class M shares

The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
<PAGE>
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 50,000 3.36% 3.25% 3.00%
50,000 but under 100,000 2.30 2.25 2.00
100,000 but under 250,000 1.52 1.50 1.25
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE

General

You may be eligible to buy fund 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, qualified
retirement plans and other plans. Descriptions are
also included in the order form and in the SAI.

Class A, class B and class M shares are available
at net asset value without an initial sales charge or a CDSC to
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, shares are available 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. The CDSC will be waived on
redemptions of shares arising out of the death or post-purchase
disability of a shareholder or settlor of a living trust account,
and on redemptions in connection with certain withdrawals from
IRA or other retirement plans. Up to 12% of the shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares at reduced sales charges.

Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares 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 ,
payment may be delayed 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, certificates will not be issued for your
shares unless you request them.

Putnam Mutual Funds will from time to time, at its
expense, provide additional promotional incentives or payments to
dealers that sell shares of the Putnam funds. These incentives
or payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. 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.

Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares 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. NAV shares are not subject to the one-year
exclusion provision in cases where certain shareholders who
invested $1 million or more have made arrangements with Putnam
Mutual Funds and the dealer of record waived the sales
commission.

Putnam Mutual Funds makes quarterly payments at the annual rate
of 0.20% of such average net asset value for class A shares.

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. The Trustees currently limit payments under the class B
and class M plans to the annual rate of 0.60% and
0.50% of such assets, respectively.

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 or
on sales to investors exempt from the CDSC.

The amount paid to dealers at the time of the sale of class M
shares is set forth above under "How to buy shares -- Class M
shares." In addition, in order to further compensate dealers
(including qualifying 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.

The payments are 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 for class B shares,
which are prepaid as described above. Putnam Mutual Funds makes
the payments at an annual rate of 0.20% of such average net asset
value for class B shares outstanding as of March 31, 1990, 0.25%
of such average net asset value for class B shares acquired after
that date and 0.25% of such average net asset value for class M
shares (including shares acquired through reinvestment of
dividends).

Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of class M shares, 0.15% of
such average net asset value of class M shares. For class M
shares, the total annual payment to dealers equals 0.40% 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.

The 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.

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 your 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 SAI 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.

Your 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 this event, 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
shares that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.

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. The CDSC will be computed 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. The
form is available from 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 that 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 your
fund, the fund reserves the right to revise or terminate the
exchange privilege, limit the amount or number of exchanges or
reject any exchange. Consult Putnam Investor Services
before requesting an exchange. See the SAI 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 valued 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 a 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 valued at market value. Short-term investments
that will mature in 60 days or less are valued 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 THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; 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. A
capital loss carryover is currently available. Distributions
paid on class A shares will generally be greater than those paid
on 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:

- - Reinvest all distributions in additional shares without a
sales charge;

- - Receive distributions from net investment income in cash
while reinvesting capital gains distributions in additional
shares without a sales charge; or

- - 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 distributions are 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 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.

Fund distributions designated 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, for both 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
you as such when it is distributed to you .

Early in each year Putnam Investor Services 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 federal 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 Trust
. Putnam Fiduciary Trust Company is the custodian
of the Trust . Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing
and transfer agent for the Trust .

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

PUTNAM TAX-FREE INCOME TRUST

FORM N-1A
PART B

STATEMENT OF ADDITIONAL INFORMATION

("SAI")
DECEMBER 1, 1995

This SAI 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, 1995 , as revised from time to time,
relating to the series of shares of the Trust the investor is
considering purchasing (the "prospectus"). This
SAI contains information which may be useful to investors
but which is not included in the prospectus. This SAI
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 SAI
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 SAI 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

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

INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . . I-20

EQUIVALENT YIELDS: TAX EXEMPT VERSUS TAXABLE SECURITIES. . . . .I- 22

ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . . I-23

INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .I- 24

Part II

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

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . II- 25

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . II- 30

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . II- 40

HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . II- 41

DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . II- 54

INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . II- 55

SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . II- 60

SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . II- 61

SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . II- 61

STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . II- 61

COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . II- 63

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . II- 67
<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 SAI, the term "tax-exempt securities" includes
obligations of 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 on which , in
the opinion of bond counsel, is exempt from federal income
tax. These securities are 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 the payment of 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 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, (including special provisions related to
municipalities and other public entities) 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 , ability or willingness
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 -edged" . 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 risk appear somewhat
larger than the Aaa securities.
<PAGE>
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 supporting institutions)
have a superior ability for repayment of senior
short - term debt obligations. Prime - 1
repayment ability will often 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 supporting institutions)
have a strong ability for repayment of senior
short - term debt 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

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.

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.
<PAGE>
BB-B-CCC-CC-C -- Debt rated `BB',`B',`CCC',`CC'
and`C' is regarded as having predominantly
speculative characteristics with respect to
capacity to pay interest and repay principal . `BB' indicates
the least degree of speculation and `C' the highest . While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

CC -- The rating `CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied `CCC'-
rating.

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 -- Strong capacity to pay principal and interest.
Issues determined to possess very strong
characteristics are given a plus sign
(+) designation.

SP - 2 -- Satisfactory capacity to pay principal and
interest , with some vulnerability to adverse financial and
economic changes over the term of the notes.

Commercial paper

A - 1 -- This highest category indicates that
the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+)
designation .

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

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 funds do 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 the Trust or
that fund , 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 of the Trust or that fund are represented at the
meeting in person or by proxy.

Putnam Tax-Free Insured Fund has undertaken to a state
securities authority that it will not purchase or sell
real property (including limited partnership interests), except
that the fund may (a) purchase or sell readily marketable
interests in real estate investment trusts or readily marketable
securities of companies which invest in real estate (b) purchase
or sell securities that are secured by interests in real estate
, or (c) acquire real estate through exercise of
its rights as a holder of obligations secured by real estate or
interests therein or sell real estate so acquired.

CHARGES AND EXPENSES

Management fees

Under a Management Contract (dated as described below) ,
the Trust pays a monthly fee to Putnam Management with respect
to each fund based on the average net assets of
that fund , as determined at the close of each business day
during the month, at the following rates expressed as a
percentage of each fund's average net assets:

Fund name Contract date Rates

Putnam Tax-Free 7/26/85, as 0.65% of the first $500
High Yield Fund amended through million of average net
7/1/94 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.

Putnam Tax-Free 7/26/85, as 0.60% of the first $500
Insured Fund amended through million of average net
7/1/94 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

For the past three fiscal years, pursuant to the Trust's
Management Contract (and, in the case of Putnam Tax-Free
High Yield Fund , a management contract in effect prior to July
1, 1994, under which the management fee payable to Putnam
Management was paid at the following rates: 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 ), each
fund incurred the following fees:

Fiscal Management
year fee paid
------ ----------

Putnam Tax-Free High Yield Fund

1995 $10,082,299
1994 $8,498,843
1993 $6,015,521

Putnam Tax-Free Insured Fund

1995 $3,286,811
1994 $3,451,352
1993 $3,060,616

Brokerage commissions

The following table shows brokerage commissions paid during the
fiscal periods indicated.

Fiscal Brokerage
year commissions
------ ------------

Putnam Tax-Free High Yield Fund

1995 $157,118
1994 $183,921
1993 $436,683
<PAGE>
Putnam Tax-Free Insured Fund

1995 $85,448
1994 $421,729
1993 $911,063

The following table shows transactions placed with brokers and
dealers during the most recent fiscal year to recognize research,
statistical and quotation services Putnam Management considered
to be particularly useful to it and its affiliates.

Dollar
value Percent of
of these total Amount of
transactions transactionscommissions
------------ ---------- -------------

Putnam Tax-Free
High Yield Fund $6,042,765 0.50%$47,623

Putnam Tax-Free
Insured Fund --- --- ---

Administrative expense reimbursement

The funds reimbursed Putnam Management in the following amounts
for administrative services during fiscal 1995, including the
following amounts for compensation of certain officers of the
Trust and contributions to the Putnam Investments, Inc. Profit
Sharing Retirement Plan for their benefit:

Portion of total
reimbursement for
compensation
Total and
reimbursement contributions
---------- --- ---------------

Putnam Tax-Free
High Yield Fund $30,277 $28,196

Putnam Tax-Free
Insured Fund $14,290 $13,303

Trustee fees

Each Trustee receives a fee for his or her services. Each
Trustee also receives fees for serving as Trustee of other Putnam
funds. The Trustees periodically review their fees to assure
that such fees continue to be appropriate in light of their
responsibilities as well as in relation to fees paid to trustees
of other mutual fund complexes. The Trustees meet monthly over a
two-day period, except in August. The Compensation Committee,
which consists solely of Trustees not affiliated with Putnam
Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time
together with the appropriate preparation requires the equivalent
of at least three business days per Trustee meeting. The
following table shows the year each Trustee was first elected a
Trustee of the Putnam funds, the fees paid to each Trustee by
each fund for fiscal 1995 and the fees paid to each Trustee by
all of the Putnam funds during calendar year 1994:

COMPENSATION TABLE

Aggregate compensation* from:

Putnam Putnam
Tax-Free Tax-Free
High Yield Insured All
Putnam
Trustee/Year Fund Fund
funds**
- -----------------------------------------------------------------

Jameson A. Baxter/1994 $3,125 $1,395 $135,850
Hans H. Estin/1972 $3,124 $1,385 141,850
John A. Hill/1985 $3,112 $1,379 143,850
Elizabeth T. Kennan/1992 $3,085 $1,371 141,850
Lawrence J. Lasser/1992 $3,124 $1,385 141,850
Robert E. Patterson/1984 $3,164 $1,400 144,850
Donald S. Perkins/1982 $3,124 $1,385 139,850
William F. Pounds/1971 $3,144 $1,392 143,850
George Putnam/1957 $3,124 $1,385 141,850
George Putnam, III/1984 $3,124 $1,385 141,850
Eli Shapiro/1995*** $770 $340 N/A
A.J.C. Smith/1986 $3,072 $1,375 137,850
W. Nicholas Thorndike/1992 $3,164 $1,400 144,850

* Includes an annual retainer and an attendance fee for each
meeting attended.
** Reflects total payments received from all Putnam funds in
the most recent calendar year. As of December 31, 1994,
there were 86 funds in the Putnam family.
*** Elected as a Trustee in April 1995. For the calendar year
ended December 31, 1994, Dr. Shapiro received $38,577 in
retirement benefits from the Putnam funds in respect of his
prior service as a Trustee from 1984 to 1989, which
benefits terminated at the end of 1994.

The Trustees have approved Retirement Guidelines for Trustees of
the Putnam funds. These Guidelines provide generally that a
Trustee who retires after reaching age 72 and who has at least 10
years of continuous service will be eligible to receive a
retirement benefit from each Putnam fund for which he or she
served as a Trustee. The amount and form of such benefit is
subject to determination annually by the Trustees and, unless
otherwise determined by the Trustees, will be an annual cash
benefit payable for life equal to one-half of the Trustee
retainer fees paid by each fund at the time of retirement.
Several retired Trustees are currently receiving benefits
pursuant to the Guidelines and it is anticipated that the current
Trustees will receive similar benefits upon their retirement. A
Trustee who retired in calendar 1994 and was eligible to receive
benefits under these Guidelines would have received an annual
benefit of $60,425, based upon the aggregate retainer fees paid
by the Putnam funds for such year. The Trustees reserve the
right to amend or terminate such Guidelines and the related
payments at any time, and may modify or waive the foregoing
eligibility requirements when deemed appropriate.

For additional information concerning the Trustees, see
"Management" in Part II of this SAI.

Share ownership

At October 31, 1995, the officers and Trustees of the Trust as a
group owned less than 1% of the outstanding shares of each class
of each fund, and to the knowledge of each fund no person owned
of record or beneficially 5% or more of the shares of any class
of a fund.

Putnam Tax-Free High Yield Fund

Shareholder name Percentage
Class and address owned
----- --------- ------------- --------

B Merrill, Lynch, Pierce 8.60%
Fenner & Smith
4800 Deer Lake Dr. East
Jacksonville, FL 32246

M Ms. Betty Sprecher 5.90%
115 Nilewood Drive
Laporte, ID 46350

M Ms. Clara Jaegaer 7.00%
514 2 1/2 Avenue S.E.
Rugby, ND 58368

M Donaldson Lufkin Jenrette 7.10%
P.O. Box 2052
Jersey City, NJ 07003

<PAGE>
Putnam Tax-Free Insured Fund

Shareholder name Percentage
Class and address owned
----- ---------------------- --------

M Richard A. Shand 18.50%
111 W. 2nd
P.O. Box 496
Lajunta, CO 81050

M Robert G. Dunworth 64.00%
130 Keefauver Rd.
Grey, TN 37615

Distribution fees

During fiscal 1995, the funds paid the following 12b-1 fees to
Putnam Mutual Funds:

Class A Class B Class M
------- ------- -------
Putnam Tax-Free
High Yield Fund $813,093 $12,279,217 $3,092

Putnam Tax-Free
Insured Fund $327,934 $3,344,389 $5

Class A sales charges and contingent deferred sales charges

Putnam Mutual Funds received sales charges with respect to class
A shares in the following amounts during the periods indicated:

Sales charges
retained by Putnam Contingent
Total Mutual Funds deferred
front-end after sales
sales chargesdealer concessions charges
---------------------------------------

Putnam Tax-Free
High Yield Fund

Fiscal year
- -----------

1995 $1,280,085 $84,096 $4,769
1994 $1,826,603 $115,146 $6,066
1993 N/A N/A N/A

Putnam Tax-Free
Insured Fund

Fiscal year
- ----- ------

1995 $243,446 $14,530 $24,212
1994 $423,423 $34,822 None
1993 N/A N/A N/A

Class B contingent deferred sales charges

Putnam Mutual Funds received contingent deferred sales charges
upon redemptions of class B shares in the following amounts
during the periods indicated:

Contingent deferred
sales charges
-------------------

Putnam Tax-Free High Yield Fund

Fiscal year
- -----------

1995 $2,930,977
1994 $795,020
1993 $632,749

Putnam Tax-Free Insured Fund

Fiscal year
- -----------

1995 $864,745
1994 $2,264,594
1993 $1,304,639

Class M sales charges

Putnam Mutual Funds received sales charges with respect to class
M shares in the following amounts during the 1995 fiscal year:

Sales charges
retained by Putnam
Mutual Funds
Total after
sales chargesdealer concessions
--------------------------- ----

Putnam Tax-Free
High Yield Fund $162 $2,088

Putnam Tax-Free
Insured Fund $22,204 $12

Investor servicing and custody fees and expenses

During the 1995 fiscal year, each fund incurred the following
fees and out-of-pocket expenses for investor servicing and
custody services provided by Putnam Fiduciary Trust Company:

Putnam Tax-Free
High Yield Fund $1,800,807

Putnam Tax-Free
Insured Fund $331,359

INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended July 31, 1995)

Putnam Tax-Free High Yield Fund

Total Class A Class B Class M+
return NAV* POP** NAV CDSC NAV POP

Inception date: 9/20/93 9/9/85 12/24/94
- -----------------------------------------------------------
1 year 6.24% 1.19% 5.54% 0.58% ---- ----
5 years ---- ---- 7.55 7.24 ---- ----
Life of class 2.75 0.12 8.76 8.76 9.69% 6.13%

+ Total return shown for class M shares for the period from
December 1, 1994 to July 31, 1995 reflects cumulative, rather
than average annual total return.

Class A Class B Class M

Yield POP NAV POP

30-day Yield 6.36% 6.01% 6.15%

Tax-equivalent
yield*** 10.53 9.95 10.18

*net asset value
**public offering price
*** Assumes the maximum federal tax rate of 39.6%. Results for
investors subject to lower tax rates would not be as
advantageous.
<PAGE>
Putnam Tax-Free Insured Fund

Total Class A Class B Class M+
return NAV* POP** NAV CDSC NAV POP
Inception date: 9/20/93 9/9/85 6/1/95
- ------------------------------------------------------------
1 year 7.21% 2.13% 6.53% 1.53% ---- ----
5 years ---- ---- 6.70 6.39 ---- ----
Life of class 2.42 -0.22 8.26 8.26 -0.87% -4.11%

+ Total return shown for class M shares for the period from
December 1, 1994 to July 31, 1995 reflects cumulative, rather
than average annual total return.

Class A Class B Class M

Yield POP NAV POP

30-day Yield 5.05% 4.62% 4.85%

Tax-equivalent 8.36% 7.65% 8.03%
yield***

*net asset value
**public offering price
*** Assumes the maximum federal tax rate of 39.6%. Results for
investors subject to lower tax rates would not be as
advantageous.

Data represent past performance and are not indicative of future
results. Total return and yield at POP for class A and class M
shares reflect the deduction of the maximum sales charge of 4.75%
and 3.25%, respectively. Total return at CDSC for class B shares
reflects the deduction of the applicable contingent deferred
sales charge (CDSC). The maximum class B CDSC is 5.0%. See
"Standard performance measures" in Part II of this SAI for
information on how performance is calculated. Past performance is
no guarantee of future results.

<PAGE>
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 1995. 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 3.0% to 8.0% .

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

Marginal
Taxable Income* federal Tax-exempt yield
------------------------ income ---------------------------
tax
Joint Single bracket** 3% 4% 5% 6% 7% 8%

- -------------------------------------------------------------------------------
Equivalent taxable yield

<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-23,350 $0-39,000 15.0% 3.5% 4.7% 5.9% 7.1%
8.2%9.4%
23,351-56,550 39,001-94,250 28.0 4.2% 5.6% 6.9% 8.3%
9.7%11.1%
56,551-117,950 *** 94,251-143,600 *** 31.0 4.4% 5.8% 7.3% 8.7%
10.1%11.6%
117,951-256,500 *** 143,601-256,500 *** 36.0 4.7% 6.3% 7.8% 9.4%
10.9%12.5%
256,501 and more ***256,501 and more *** 39.6 5.0% 6.6% 8.3% 9.9%
11.6%13.3%
- ------------------------------------------------------------------------------------------
</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 1995 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

In addition to the persons listed as officers of the Trust in
Part II of this SAI, each of following persons is
also a Vice President of the Trust and Vice President
of certain of the Putnam funds . Officers of Putnam
Management hold the same offices in Putnam Management's parent
company, Putnam Investments, Inc.

Gary N. Coburn, Senior Managing Director of Putnam
Management. Director, Putnam Investments, Inc.

James E. Erickson, Managing Director of Putnam Management.

Richard P. Wyke, Senior Vice President of Putnam
Management.

Triet M. Nguyen, Senior Vice President of Putnam
Management.
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS

Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts,
02110, 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, financial highlights and
financial statements included in each fund's Annual Report
for the fiscal year ended July 31, 1995 , filed
electronically on October 6, 1995 (File No. 811-4345), are
incorporated by reference into this SAI . The financial
highlights included in the prospectus and incorporated
by reference into this SAI and the financial statements
incorporated by reference into the prospectus and this SAI
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-29

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-35

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-44

HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-46

DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-59

INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-60

SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-66

SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-66

SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-66

STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-67

COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-68

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-73

<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
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 objectives(s), 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. This
expense may include brokerage commissions or dealer markups 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 at times may be unable to establish the fair value
of such securities.

Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time
of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating
would indicate. In addition, the rating assigned to a security
by Moody's Investors Service, Inc. or Standard & Poor's (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 SAI 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. 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. The values of lower-
rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries.
Negative publicity or investor perceptions may also adversely
affect the values of lower-rated securities. Changes by
recognized rating services in their ratings of any fixed-income
security and changes 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 these 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. However, Putnam
Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment
objective(s).

Issuers of lower-rated securities are often highly leveraged, so
that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest
rates may be impaired. Such issuers may not have more
traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by
refinancing. The risk of loss due to default in payment of
interest or repayment of principal by such issuers is
significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior
indebtedness.

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 all or a major portion.
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 these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these 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 participate in various legal proceedings or
take possession of and manage assets securing the issuer's
obligations on such securities. This could 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. The ability of a holder of a tax-exempt security to
enforce the terms of that security in a bankruptcy proceeding may
be more limited than would be the case with respect to securities
of private issuers. 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 and payment-in-
kind bonds do not pay current interest in cash, their value is
subject to greater fluctuation in response to changes in market
interest rates than bonds that 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 in cash. The fund is required to
accrue interest income on such investments and to distribute such
amounts at least annually to shareholders even though such bonds
do not pay current interest in cash. Thus, it may be necessary
at times for the fund to liquidate investments in order to
satisfy its dividend requirements.

To the extent the fund invests in 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. This may be particularly true with respect to tax-
exempt securities, as 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.

Investments in Miscellaneous Fixed-Income Securities

Unless otherwise specified in the prospectus or elsewhere in this
SAI, if the fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), 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 or
more than 35% of its assets in IOs and POs under normal market
conditions.

Private Placements

The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on
resale as a matter of contract or under federal securities laws.
Because there may be relatively few potential purchasers for such
investments, especially 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. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.

Loan Participations

The fund may invest in "loan participations." By purchasing a
loan participation, the fund acquires some or all of the interest
of a bank or other lending institution in a loan to a particular
borrower. Many such loans are secured, and most impose
restrictive covenants which must be met by the borrower.

The loans in which the fund may invest are typically made by a
syndicate of banks, represented by an agent bank which has
negotiated and structured the loan and which is responsible
generally for collecting interest, principal, and other amounts
from the borrower on its own behalf and on behalf of the other
lending institutions in the syndicate and for enforcing its and
their other rights against the borrower. Each of the lending
institutions, including the agent bank, lends to the borrower a
portion of the total amount of the loan, and retains the
corresponding interest in the loan.

The fund's ability to receive payments of principal and interest
and other amounts in connection with loan participations held by
it will depend primarily on the financial condition of the
borrower. The failure by the fund to receive scheduled interest
of principal payments on a loan participation would adversely
affect the income of the fund and would likely reduce the value
of its assets, which would be reflected in a reduction in the
fund's net asset value. Banks and other lending institutions
generally perform a credit analysis of the borrower before
originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit
analysis, but will perform its own investment analysis of the
borrowers. Putnam Management's analysis may include
consideration of the borrower's financial strength and
experience, and managerial experience, debt coverage, additional
borrowing requirements or debt maturity schedules, changing
financial conditions, and responsiveness to changes in business
conditions and interest rates. Because loan participations in
which the fund may invest are not generally rated by independent
credit rating agencies, a decision by the fund to invest in a
particular loan participation will depend almost exclusively on
Putnam Management's credit analysis, and that of the original
lending institutions, of the borrower.

Loan participations may be structured in different forms,
including novations, assignments, and participating interests.
In a novation, the fund assumes all of the rights of a lending
institution in a loan, including the right to receive payments of
principal and interest and other amounts directly from the
borrower and to enforce its rights as a lender directly against
the borrower. The fund assumes the position of a co-lender with
other syndicate members. As an alternative, the fund may
purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely
upon the assigning bank to demand payment and enforce its rights
against the borrower, but would otherwise be entitled to all of
such bank's rights in the loan. The fund may also purchase a
participating interest in a portion of the rights of a lending
institution in a loan. In such case, it will be entitled to
receive payments of principal, interest, and premium, if any, but
will not generally be entitled to enforce its rights directly
against the agent bank or the borrower, but must rely for that
purpose on the lending institution. The fund may also acquire a
loan participation directly by acting as a member of the original
lending syndicate.

The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to
collect and pass on to the fund such payments and to enforce the
fund's rights under the loan. As a result, an insolvency,
bankruptcy, or reorganization of the lending institution may
delay or prevent the fund from receiving principal, interest, and
other amounts with respect to the underlying loan. When the fund
is required to rely upon a lending institution to pay to the fund
principal, interest, and other amounts received by it, Putnam
Management will also evaluate the creditworthiness of the lending
institution.

The borrower of a loan in which the fund holds a participation
interest may, either at its own election or pursuant to terms of
the loan documentation, prepay amounts of the loan from time to
time. There is no assurance that the fund will be able to
reinvest the proceeds of any loan prepayment at the same interest
rate or on the same terms as those of the original loan
participation.

Corporate loans in which the fund may purchase a loan
participation are made generally to finance internal growth,
mergers, acquisitions, stock repurchases, leveraged buy-outs, and
other corporate activities. Under current market conditions,
most of the corporate loan participations purchased by the fund
will represent interests in loans made to finance highly
leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the
borrowers in such transactions may make such loans especially
vulnerable to adverse changes in economic or market conditions.
In addition, loan participations generally are subject to
restrictions on transfer, and only limited opportunities may
exist to sell such participations in secondary markets. As a
result, the fund may be unable to sell loan participations at a
time when it may otherwise be desirable to do so or may be able
to sell them only at a price that is less than their fair market
value.

Certain of the loan participations acquired by the fund may
involve revolving credit facilities under which a borrower may
from time to time borrow and repay amounts up to the maximum
amount of the facility. In such cases, the fund would have an
obligation to advance its portion of such additional borrowings
upon the terms specified in the loan participation. To the
extent that the fund is committed to make additional loans under
such a participation, it will at all times hold and maintain in a
segregated account liquid assets in an amount sufficient to meet
such commitments. Certain of the loan participations acquired by
the fund may also involve loans made in foreign currencies. The
fund's investment in such participations would involve the risks
of currency fluctuations described above with respect to
investments in the foreign securities.

Mortgage Related Securities

The fund may invest in mortgage-backed securities, including
collateralized mortgage obligations ("CMOs") and certain stripped
mortgage-backed securities. CMOs and other mortgage-backed
securities represent a participation in, or are secured by,
mortgage loans.

Mortgage-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike
traditional debt securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount comes
due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these
prepayments will result in early payment of the applicable
mortgage-related securities. In that event the fund may be
unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as
high a yield as the mortgage-related securities. Consequently,
early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price
and yield volatility than that experienced by traditional fixed-
income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage
and other social and demographic conditions. During periods of
falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. During periods of rising interest rates, the
rate of mortgage prepayments usually decreases, thereby tending
to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, the
fund may not be able to realize the rate of return it expected.

Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates. Prepayments may also significantly shorten
the effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of these securities, subjecting them to
a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.

Prepayments may cause losses on securities purchased at a
premium. At times, some of the mortgage-backed securities in
which the fund may invest will have higher than market interest
rates and therefore will be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.

CMOs may be issued by a U.S. government agency or instrumentality
or by a private issuer. Although payment of the principal of,
and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by the U.S. government or its
agencies or instrumentalities, these CMOs represent obligations
solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any
other person or entity.

Prepayments could cause early retirement of CMOs. CMOs are
designed to reduce the risk of prepayment for investors by
issuing multiple classes of securities, each having different
maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated
among the several classes in various ways. Payment of interest
or principal on some classes or series of CMOs may be subject to
contingencies or some classes or series may bear some or all of
the risk of default on the underlying mortgages. CMOS of
different classes or series are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs,
subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt
securities, and, therefore, potentially increasing the volatility
of the fund.

Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of
the interest and principal distributions on a pool of mortgage
loans. The fund may invest in both the interest-only or "IO"
class and the principal-only or "PO" class. The yield to
maturity on an IO class of stripped mortgage-backed securities is
extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's
yield to maturity to the extent it invests in IOs. If the assets
underlying the IO experience greater than anticipated prepayments
of principal, the fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase
in value if prepayments are greater than anticipated and decline
if prepayments are slower than anticipated.

The secondary market for stripped mortgage-backed securities may
be more volatile and less liquid than that for other mortgage-
backed securities, potentially limiting the fund's ability to buy
or sell those securities at any particular time.

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 the 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 may 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 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
objective(s) 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. 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.
<PAGE>
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.

Foreign-traded options are subject to many of the same risks
presented by internationally-traded securities. In addition,
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 for hedging and non-hedging purposes, such as to
manage the effective duration of the fund's portfolio or as a
substitute for direct investment. 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. If the fund is unable to enter into
a closing transaction, the amount of the fund's potential loss is
unlimited. 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 liquid assets. 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.
<PAGE>
The fund does not intend to purchase or sell futures or related
options for other than hedging purposes, if, as a result, the sum
of the initial margin deposits on the fund's existing futures and
related options positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the fund's net
assets.

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 various
factors affecting securities markets, including interest rates.
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.

The use of options and futures strategies also involves the risk
of imperfect correlation among movements in the prices of the
securities underlying the futures and options purchased and sold
by the fund, of the options and futures contracts themselves,
and, in the case of hedging transactions, of the securities which
are the subject of a hedge. The successful use of these
strategies further depends on the ability of Putnam Management to
forecast interest rates and market movements correctly.

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 position held by the fund, the fund may
seek to close out such 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. 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 securities held in its portfolio,
and the prices of the fund's 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 particular
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.

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(s). The fund may also purchase and sell options on
index futures contracts.

For example, the Standard & Poor's 500 Composite 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. 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 is also subject to
Putnam Management's ability to predict movements in the direction
of the market. For example, 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 profitable position 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. Since foreign securities are normally
denominated and traded in foreign currencies, the value of the
fund's assets may be affected favorably or unfavorably by changes
in currency exchange rates, exchange control regulations, foreign
withholding taxes and restrictions or prohibitions on the
repatriation of foreign currencies. There may be less
information publicly available about a foreign company than about
a U.S. company, and foreign companies are not generally subject
to accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The
securities of some foreign companies are less liquid and at times
more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
fund's assets held abroad) and expenses not present in the
settlement of domestic investments.

In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the
fund's ability to invest in securities of certain issuers located
in those foreign countries. Special tax considerations apply to
foreign securities.

The risks described above, including the risks of nationalization
or expropriation of assets, are typically increased to the extent
that the fund invests in issuers located in less developed and
developing nations, whose securities markets are sometimes
referred to as "emerging securities markets." Investments in
securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in
many of these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and
economic stability characteristic of more developed countries.
Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized and
expropriated the assets of private companies.

In addition, unanticipated political or social developments may
affect the value of the fund's investments in these countries and
the availability to the fund of additional investments in these
countries. The small size, limited trading volume and relative
inexperience of the securities markets in these countries may
make the fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and the
fund may be required to establish special custodial or other
arrangements before making investments in these countries. There
may be little financial or accounting information available with
respect to issuers located in these countries, and it may be
difficult as a result to assess the value or prospects of an
investment in such issuers.

Foreign Currency Transactions

Unless otherwise specified in the prospectus or Part I of this
SAI, the fund may engage without limit in currency exchange
transactions, including purchasing and selling foreign currency,
foreign currency options, foreign currency forward contracts and
foreign currency futures contracts and related options, 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. If conditions warrant, for transaction
hedging purposes 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. A foreign currency forward contract is a negotiated
agreement to exchange currency at a future time at a rate or
rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded
contracts and have margin requirements. In addition, for
transaction hedging purposes the fund may also purchase or sell
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies.
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
<PAGE>
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.

The fund may engage in position hedging to protect against a
decline in the value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in the value of the currency in which the
securities the fund intends to buy are denominated, when the fund
holds cash or short-term investments). For position hedging
purposes, the fund may purchase or sell foreign currency futures
contracts, foreign currency forward contracts and options on
foreign currency futures contracts and on foreign currencies on
exchanges or in over-the-counter markets. In connection with
position hedging, the fund may also purchase or sell foreign
currency on a spot basis.

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. See "Risk factors in options
transactions" above.
<PAGE>
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.

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, forward contracts and futures
contracts) 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, forward contracts and
futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.

The value of a foreign currency option, forward contract or
futures contract 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, forward contracts and
futures contracts, 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.
<PAGE>
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.

The decision as to whether and to what extent the fund will
engage in foreign currency exchange transactions will depend on a
number of factors, including prevailing market conditions, the
composition of the fund's portfolio and the availability of
suitable transactions. Accordingly, there can be no assurance
that the fund will engage in foreign currency exchange
transactions at any given time or from time to time.

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 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 of the risks described above. Foreign currency
options are traded primarily in the over-the-counter market,
although options on foreign currencies are also 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.

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 currencies 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 delegation 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;
<PAGE>
(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.
<PAGE>
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 as interest excludable from
shareholders' 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.
<PAGE>
Hedging transactions. If the fund engages in hedging
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 (i) a
dividend to the extent of the fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), (ii) thereafter as a return of capital to the extent of
the recipient's basis in the shares, and (iii) thereafter as gain
from the sale or exchange of a capital asset. 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.
<PAGE>
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. Distributions from capital gains are
made after applying any available capital loss carryovers. 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 SAI or
incorporated by reference into this SAI.

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 "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."

A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not include
rents and royalties received by the foreign corporation from
active business and certain income received from related persons.

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 shares of
the same fund 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 under-reported 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 correct
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.
<PAGE>
MANAGEMENT

Trustees Name (Age)

*+George Putnam (70), 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., Freeport Copper and Gold, Inc., McMoRan
Oil and Gas, Inc., General Mills, Inc., Houghton Mifflin Company,
Marsh & McLennan Companies, Inc. and Rockefeller Group, Inc.

+William F. Pounds (68), Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of EG&G, Inc., IDEXX Laboratories, Inc.,
Perseptive Biosystems, Inc., Management Sciences for Health,
Inc., and Sun Company, Inc.

Jameson A. Baxter (53), Trustee. President, Baxter Associates,
Inc. (a management and financial consultant). Director of
Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta
Corporation. Chairman Emeritus of the Board of Trustees, Mount
Holyoke College.

+Hans H. Estin (68), Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.

John A. Hill (54), Trustee. Chairman and Managing Director,
First Reserve Corporation (a registered investment adviser).
Director, Maverick Tube Corporation, PetroCorp Incorporated,
Snyder Oil Corporation, Weatherford Enterra, Inc. (an oil field
service company) and various First Reserve Funds.

Ronald J. Jackson (52), Trustee. Former Chairman, President and
Chief Executive Officer of Fisher-Price, Inc., Director of Safety
1st, Inc., Trustee of Salem Hospital and the Peabody Essex
Museum.

Elizabeth T. Kennan (58), Trustee. President Emeritus and
Professor, Mount Holyoke College. Director, the Kentucky Home
Life Insurance Companies, NYNEX Corporation, Northeast Utilities
and Talbots. Trustee of the University of Notre Dame.

*Lawrence J. Lasser (53), 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.

+Robert E. Patterson (51), Trustee. Executive Vice President and
Director of Acquisitions, Cabot Partners Limited Partnership (a
registered investment adviser).

*Donald S. Perkins (69), Trustee. Director of various
corporations, including AON Corp., Cummins Engine Company, Inc.,
Current Assets L.L.C., Illinova and Illinois Power Company,
Inland Steel Industries, Inc., LaSalle Street Fund, Inc., Lucent
Technologies Inc., Springs Industries, Inc. (a textile
manufacturer), and Time Warner Inc.

*#George Putnam III (45), Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information) and New
Generation Advisers, Inc. (a registered investment adviser).

Eli Shapiro (80), Trustee. Alfred P. Sloan Professor of
Management, Emeritus, Alfred P. Sloan School of Management,
Massachusetts Institute of Technology. Former Trustee of the
Putnam funds (1984-1990).

*A.J.C. Smith (62), Trustee. Chairman and Chief Executive
Officer, Marsh & McLennan Companies, Inc. Director, Trident
Corp.

W. Nicholas Thorndike (63), Trustee. Director of various
corporations and charitable organizations, including Courier
Corporation, Data General Corporation, Bradley Real Estate, Inc.,
and Providence Journal Co.

Officers Name (Age)

Charles E. Porter (58), Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Management.

Patricia C. Flaherty (49), Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Management.

William N. Shiebler (54), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director of Putnam Mutual Funds.

Gordon H. Silver (49), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. and Putnam
Management.

John R. Verani (57), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.

Paul M. O'Neil (43), Vice President. Vice President of Putnam
Investments, Inc. and Putnam Management.

John D. Hughes (61), Senior Vice President and Treasurer.

Beverly Marcus (52), Clerk and Assistant Treasurer.

*Trustees who are or may be deemed to be "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 the
fund. See "Additional officers" in Part I of this SAI. 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. Prior to 1993, Mr. Jackson was
Chairman of the Board, President and Chief Executive Officer of
Fisher-Price, Inc. Prior to January, 1992, Ms. Baxter was Vice
President and Principal, Regency Group, Inc. and Consultant, The
First Boston Corporation. Prior to May, 1991, Dr. Pounds was
Senior Advisor to the Rockefeller Family and Associates, Chairman
of Rockefeller Trust Company and Director of Rockefeller Group,
Inc. During the past five years Dr. Shapiro has provided
economic and financial consulting services to various clients.

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 and information
concerning retirement guidelines for the Trustees, see "Charges
and expenses" in Part I of this SAI.

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 and its affiliates

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 $113 billion in assets
in over 6.2 million shareholder accounts at June 30, 1996. 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, 1996, Putnam Management and its affiliates managed
nearly $149 billion in assets, including over $17 billion in tax-
exempt securities and over $66 billion in retirement plan assets.

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, custodian fees and transfer
agency fees paid or allowed by the fund.

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 "Charges and expenses" in Part I of this
SAI. 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 SAI (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. For the purpose of determining any such limitation on
Putnam Management's compensation, expenses of the fund shall not
reflect the application of commissions or cash management credits
that may reduce designated fund expenses. The terms of any
expense limitation from time to time in effect are described in
either the prospectus or Part I of this SAI.

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 Putnam funds, 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.
<PAGE>
The amount of this reimbursement for the fund's most recent
fiscal year is included in "Charges and Expenses" in Part I of
this SAI. 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.

Personal Investments by Employees of Putnam Management

Employees of Putnam Management are permitted to engage in
personal securities transactions, subject to requirements and
restrictions set forth in Putnam Management's Code of Ethics.
The Code of Ethics contains provisions and requirements designed
to identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the funds. Among other things, the Code
of Ethics, consistent with standards recommended by the
Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the
submission of duplicate broker confirmations and quarterly
reporting of securities transactions. Additional restrictions
apply to portfolio managers, traders, research analysts and
others involved in the investment advisory process. Exceptions
to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate
personnel.

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 "Charges and expenses" in Part I
of this SAI 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 "Charges and expenses" in Part I
of this SAI 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 on the basis of the number of shareholder accounts,
the number of transactions and the assets of the fund. 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 shareholder service components demonstrated that
Putnam Investor Services tied for highest scores, with two other
mutual fund companies, 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 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 "Charges and expenses" in Part I of this SAI 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 and other fixed-income securities
and index options held by the fund are priced as of their close
of trading at 4:15 p.m.
<PAGE>
Securities for which market quotations are readily available are
valued at prices which, in the opinion of 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 securities are valued at the mean between the
last reported bid and asked prices. Short-term investments
having remaining maturities of 60 days or less are valued 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 valued at fair value on the
basis of valuations furnished by pricing services, 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 SAI contains additional
information which may be of interest to investors.

Class A shares and class M shares are generally 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 SAI
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 or class
M 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 B shares will automatically convert into class A shares at
the end of the month eight years after the purchase date. 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 condition that such conversions
will not constitute taxable events for Federal tax purposes.

Class Y shares, which are not subject to sales charges or a CDSC,
are available only to certain defined contribution plans. See
the prospectus that offers class Y shares for more information.

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.
<PAGE>
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized 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 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 all other 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 is subject to additional
requirements. In the case of Putnam American Government Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation
Funds, Putnam Capital Appreciation Fund, Putnam Diversified
Equity Trust, Putnam Diversified Income Trust II, Putnam Equity
Income Fund, Putnam Europe Growth Fund, The Putnam Fund for
Growth & Income, Putnam Funds Trust, Putnam Global Governmental
Income Trust, Putnam Global Natural Resources Fund, Putnam Growth
and Income Fund II, Putnam High Yield Advantage Fund, Putnam
Intermediate U.S. Government Income Fund, Putnam International
Growth Fund, Putnam Investment Funds, Putnam Investment-Grade
Bond Fund, Putnam Municipal Income Fund, Putnam OTC Emerging
Growth Fund, Putnam Preferred Income Fund, Putnam Tax Exempt
Income Fund and Putnam Tax-Free Income 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 objective(s) 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 The Nasdaq Stock Market,
Inc. 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 on The Nasdaq Stock Market, Inc. 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
without an initial sales charge or a CDSC in connection with the
acquisition of substantially all of the securities owned by other
investment companies or personal holding companies, and the CDSC
will be waived on redemptions of shares arising out of death or
post-purchase disability or in connection with certain
withdrawals from IRA or other retirement plans. Up to 12% of the
value of shares subject to a systematic withdrawal plan may also
be redeemed each year without a CDSC. The fund may sell class M
shares at net asset value to members of qualified groups. See
"Group purchases of class A and class M shares" below.

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.
<PAGE>
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 of 1986, as amended (the
"Code"));

(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including tax-
exempt organizations qualifying under Section 403(b)(7) (a
"403(b) plan") of the Code; 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 of Intention. 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 of Intention 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 of Intention 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 of Intention
which are eligible for purchase under a Statement of Intention
(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.

Group purchases of class A and class M shares. Members of
qualified groups may purchase class A shares of the fund at a
group sales charge rate of 4.50% 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. Members of qualified
groups may also purchase class M shares at net asset value.

To receive the class A or class M group rate, group members must
purchase 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 shares directly to
Putnam Investor Services. Purchases of 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 shares purchased under the class A group discount
are included in calculating the purchased amount for the purposes
of these requirements.

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, with respect to the class
A discount only, 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) with respect to the class A discount
only, 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
<PAGE>
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, with respect to the class A
discount only, 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 participant-
directed qualified retirement plans with at least 200 eligible
employees, or prior to December 1, 1995, a plan sponsored by an
employer or by affiliated employers which have at least 750
employees and, beginning December 1, 1995, the fund may sell
class M shares at net asset value to participant-directed
qualified retirement plans with at least 50 eligible employees.

A participant-directed qualified retirement plan participating in
a "multi-fund" program approved by Putnam Mutual Funds may
include amounts invested in the other mutual funds participating
in such program for purposes of determining whether the plan may
purchase class A shares at net asset value based on the size of
the purchase as described in the prospectus. These investments
will also be included for purposes of the discount privileges and
programs described above.

Additional information about participant-directed qualified
retirement 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
after July 31, 1996 by a participant-directed qualified
retirement plan (including a plan with at least 200 eligible
employees) that initially invested less than $20 million in
Putnam funds and other investments managed By Putnam Management
or its affiliates and that redeems 90% of more of the amount
initially within two years after its initial purchase are subject
to a CDSC of 1.00%. Similarly, class A shares purchased at net
asset value by any investor other than a participant-directed
qualified retirement plan 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 purchased by certain
investors (including participant-directed qualified retirement
plans with more than 200 eligible employees) 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. Each subsequent one-year
measuring period for these purposes will begin 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 with at least 200 eligible
employees, or, prior to December 1, 1995, a plan sponsored by an
employer with more than 750 employees), Putnam Mutual Funds pays
commissions during each one-year measuring period, determined as
described above, at the rate of 1.00% of the first $2 million,
0.80% of the next $1 million and 0.50% thereafter, except that
commissions on sales prior to December 1, 1995 are based on
cumulative purchases durholders of a company; (v)
with respect to the class A discount
only, 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
<PAGE>
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, with respect to the class A
discount only, 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
mmissions if the shares are
redeemed within two years.

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

All shares. Investors who set up an Automatic Cash Withdrawal
Plan ("ACWP") for a 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 an ACWP and recalculated
thereafter on a pro rata basis at the time of each ACWP payment.
Therefore, shareholders who have chosen an 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.

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, joint or Uniform Transfers to Minors Act accounts, in
the event of death or post-purchase disability of a shareholder,
for the purpose of paying benefits pursuant to tax-qualified
retirement plans ("Benefit Payments"), or, in the case of living
trust accounts, in the event of the death or post-purchase
disability of the settlor of the trust). Benefit 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) of the Code
or from a 403(b) plan due to death, disability, retirement or
separation from service. These waivers may be changed at any
time. Additional waivers may apply to IRA accounts opened prior
to February 1, 1994.

DISTRIBUTION PLANS

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 SAI 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.
<PAGE>
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 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 1 year after the date of the
check.

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. 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 sell shares" in the
prospectus. Money market funds and certain other funds will not
issue share certificates. A shareholder may send to Putnam
Investor Services any certificates which have been previously
issued 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.

Reinstatement Privilege

An investor who has redeemed shares of the fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
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. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of class B shares, the eight-year period for conversion to
class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. 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 the Reinstatement 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 paying the distribution 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 the fund paying
the distribution 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.
<PAGE>
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 ("ACWP"). An investor who owns or
buys shares of the fund valued at $10,000 or more at the current
public offering price may open an ACWP 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 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 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 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 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 plan at any
time. A 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.
<PAGE>
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.
<PAGE>
STANDARD PERFORMANCE MEASURES

Yield and total return data for the fund may from time to time be
presented in Part I of this SAI 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 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 the Government National Mortgage Association ("GNMAs"),
based on cost). Dividends on equity securities are accrued daily
at their stated dividend rates. The amount of expenses used in
determining the fund's yield includes, in addition to expenses
actually accrued by the fund, an estimate of the amount of
expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.

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 highlights" 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, generally reflecting
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, including year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
<PAGE>
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 in its broad investment class as
determined by Morningstar, Inc. Morningstar ratings cover
a variety of performance periods, including 1-year, 3-
year, 5-year, 10-year and overall performance. The
performance factor for the overall rating is a
weighted-average assessment of the fund's 1-year, 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 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. The fund may from time to time refer to results
published in various periodicals, including Barrons, Financial
World, Forbes, Fortune, Investor's Business Daily, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and
The Wall Street Journal.

Independent, unmanaged indexes, such as those listed below, may
be used to present a comparative benchmark of fund performance.
The performance figures of an index reflect changes in market
prices, reinvestment of all dividend and interest payments and,
where applicable, deduction of foreign withholding taxes, and do
not take into account brokerage commissions or other costs.
Because the fund is a managed portfolio, the securities it owns
will not match those in an index. Securities in an index may
change from time to time.

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.

The Dow Jones Industrial Average is an index of 30 common
stocks frequently used as a general measure of stock
market performance.

The Dow Jones Utilities Average is an index of 15 utility
stocks frequently used as a general measure of stock
market performance.

CS First Boston High Yield Index is a market-weighted
index including publicly traded bonds having a rating
below BBB by Standard & Poor's and Baa by Moody's.

The Lehman Brothers Aggregate Bond Index is an index
composed of securities from The Lehman Brothers
Government/Corporate Bond Index, The Lehman Brothers
Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a
broad market measure for fixed-income securities.

The Lehman Brothers Asset-Backed Securities Index is an
index composed of credit card, auto, and home equity
loans. Included in the index are pass-through, bullet
(noncallable), and controlled amortization structured debt
securities; no subordinated debt is included. All
securities have an average life of at least one year.

The Lehman Brothers Corporate Bond Index is an index of
publicly issued, fixed-rate, non-convertible
investment-grade domestic corporate debt securities
frequently used as a general measure of the performance of
fixed-income securities.

The Lehman Brothers Government/Corporate Bond Index is an
index of publicly issued U.S. Treasury obligations, debt
obligations of U.S. government agencies (excluding
mortgage-backed securities), fixed-rate, non-convertible,
investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt
issued by foreign governmental entities or international
agencies used as a general measure of the performance of
fixed-income securities.

The Lehman Brothers Intermediate Treasury Bond Index is an
index of publicly issued U.S. Treasury obligations with
maturities of up to ten years and is used as a general
gauge of the market for intermediate-term fixed-income
securities.
<PAGE>
The Lehman Brothers Long-Term Treasury Bond Index is an
index of publicly issued U.S. Treasury obligations
(excluding flower bonds and foreign-targeted issues) that
are U.S. dollar-denominated and have maturities of 10
years or greater.

The Lehman Brothers Mortgage-Backed Securities Index
includes 15- and 30-year fixed rate securities backed by
mortgage pools of the Government National Mortgage
Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.

The Lehman Brothers Municipal Bond Index is an index of
approximately 20,000 investment-grade, fixed-rate
tax-exempt bonds.

The Lehman Brothers Treasury Bond Index is an index of
publicly issued U.S. Treasury obligations (excluding
flower bonds and foreign-targeted issues) that are U.S.
dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $100 million.

The Morgan Stanley Capital International World Index is an
index of approximately 1,482 equity securities listed on
the stock exchanges of the United States, Europe, Canada,
Australia, New Zealand and the Far East, with all values
expressed in U.S. dollars.

The Morgan Stanley Capital International EAFE Index is an
index of approximately 1,045 equity securities issued by
companies located in 18 countries and listed on the stock
exchanges of Europe, Australia, and the Far East. All
values are expressed in U.S. dollars.

The Morgan Stanley Capital International Europe Index is
an index of approximately 627 equity securities issued by
companies located in one of 13 European countries, with
all values expressed in U.S. dollars.

The Morgan Stanley Capital International Pacific Index is
an index of approximately 418 equity securities issued by
companies located in 5 countries and listed on the
exchanges of Australia, New Zealand, Japan, Hong Kong,
Singapore/Malaysia. All values are expressed in U.S.
dollars.

The NASDAQ Industrial Average is an index of stocks traded
in The Nasdaq Stock Market, Inc. National Market System.
<PAGE>
The Russell 2000 Index is composed of the 2,000 smallest
securities in the Russell 3000 Index, representing
approximately 7% of the Russell 3000 total market
capitalization. The Russell 3000 Index is composed of
3,000 large U.S. companies ranked by market
capitalization, representing approximately 98% of the U.S.
equity market.

The Salomon Brothers Long-Term High-Grade Corporate Bond
Index is an index of publicly traded corporate bonds
having a rating of at least AA by Standard & Poor's or Aa
by Moody's and is frequently used as a general measure of
the performance of fixed-income securities.

The Salomon Brothers Long-Term Treasury Index is an index
of U.S. government securities with maturities greater than
10 years.

The Salomon Brothers World Government Bond Index is an
index that tracks the performance of the 14 government
bond markets of Australia, Austria, Belgium Canada,
Denmark, France, Germany, Italy, Japan, Netherlands,
Spain, Sweden, United Kingdom and the United States.
Country eligibility is determined by market capitalization
and investability criteria.

The Salomon Brothers World Government Bond Index (non
$U.S.) is an index of foreign government bonds calculated
to provide a measure of performance in the government bond
markets outside of the United States.

Standard & Poor's 500 Composite Stock Price Index is an
index of common stocks frequently used as a general
measure of stock market performance.

Standard & Poor's 40 Utilities Index is an index of 40
utility stocks.

Standard & Poor's/Barra Value Index is an index
constructed by ranking the securities in the Standard &
Poor's 500 Composite Stock Price Index by price-to-book
ratio and including the securities with the lowest price-
to-book ratios that represent approximately half of the
market capitalization of the Standard & Poor's 500
Composite Stock Price Index.

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.
<PAGE>
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
Schedules:

(1) Financial Statements:

Statements of assets and liabilities -- July
31,

1996(a) .
Statements of operations -- year ended July
31, 1996(a) .
Statements of changes in net assets -- years
ended July 31, 1996 and
1995(a) .
Financial highlights(a)(b).
Notes to financial statements(a).

(2) Supporting Schedules:

Schedule I -- Portfolios of investments owned
-- July 31, 1996(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 --
Incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's
Registration Statement.
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. Class M Specimen share certificate for Putnam
Tax-Free High Yield Fund -- Incorporated by
reference to Post-Effective Amendment No. 11
to the Registrant's Registration Statement.
4e. Class M Specimen share certificate for Putnam
Tax-Free Insured Fund -- Incorporated by
reference to Post-Effective Amendment No. 12
to the Registrant's Registration Statement.
5. Management Contract for Putnam Tax-Free
Income Trust dated November 20, 1996 --
Exhibit 1.
6a. Distributors' Contract for Putnam Tax-Free
Insured Fund dated May 6, 1994 --Incorporated
by reference to Post-Effective Amendment No.
11 to the Registrant's Registration
Statement.
Distributors' Contract for Putnam Tax-Free
High Yield Fund -- Incorporated by reference
to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement.
6b. Form of Specimen Dealer Sales Contract --
Incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement.
6c. Form of Specimen Financial Institution Sales
Contract -- Incorporated by reference to
Post-Effective Amendment No. 8 to the
Registrant's Registration Statement.
7. Trustee Retirement plan dated October 4,
1996 -- Exhibit 2.
8. 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. 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 -- Exhibit
3 .
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investment
Management, Inc. to the Registrant --
Incorporated by reference to Post-Effective
Amendment No. 12 to the Registrant's
Registration Statement.
14. Not applicable.
15a. Class A Distribution Plan and Agreement for
Putnam Tax-Free Insured Fund dated September
19, 1993 -- Incorporated by reference to
Post-Effective Amendment No. 10 to the
Registrant's Registration Statement.
15b. Class B Distribution Plan and Agreement for
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.
15c. Class A Distribution Plan and Agreement for
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.
15d. Class B Distribution Plan and Agreement for
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.
15e. Class M Distribution Plan and
Agreement for Putnam Tax-Free High Yield Fund
-- Incorporated by reference to Post-
Effective Amendment No. 11 to the
Registrant's Registration Statement.
15f. Class M Distribution Plan and
Agreement for Putnam Tax-Free Insured Fund --
Incorporated by reference to Post-Effective
Amendment No. 12 to the Registrant's
Registration Statement.
15g. Form of Specimen Dealer Service Agreement --
Incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement.
15h. Form 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 High Yield
Fund -- Exhibit 4.
16b. Schedules for computation of performance
quotations for Putnam Tax-Free Insured Fund -
- Exhibit 5.
17a. Financial Data Schedule for Putnam Tax-Free
Insured Fund - Class A shares -- Exhibit
6 .
17b. Financial Data Schedule for Putnam Tax-Free
Insured Fund - Class B shares -- Exhibit
7 .
17c. Financial Data Schedule for Putnam Tax-Free
Insured Fund - Class M shares -- Exhibit
8 .
17d. Financial Data Schedule for Putnam Tax-Free
High Yield Fund - Class A shares -- Exhibit
9 .
17e. Financial Data Schedule for Putnam Tax-Free
High Yield Fund - Class B shares -- Exhibit
10 .
17f. Financial Data Schedule for Putnam Tax-Free
High Yield Fund - Class M shares -- Exhibit
11 .
18. Rule 18f-3(d) Plan -- Incorporated by
reference to Post-Effective Amendment No. 12
to the Registrant's Registration Statement.

Item 25. Persons Controlled by or under Common Control with
Registrant

None.

Item 26. Number of Holders of Securities

As of October 31, 1996 the number of each fund's
record holders of each class of securities of the Registrant is
as follows:

Number of record holders
------------------------------
Class A Class B Class M
------- ------- -------

Putnam Tax-Free High Yield Fund 17,531 38,339 295
Putnam Tax-Free Insured Fund 5,606 9,523 23

Item 27. Indemnification

The information required by this item is incorporated
herein by reference from the Registrant's Initial
Registration Statement on Form N-1A under the Investment Company
Act of 1940 (File No. 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

Manjit S. Bakshi Prior to October, 1995, Fidelity
Vice President Management & Research Company, 82
Devonshire St., Boston, MA 02110

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

Robert R. Beck Director, Charles Bridge Publishing,
Senior Vice President 85 Main St., Watertown, MA 02172

Janet S. Becker Prior to July, 1995, National Account
Assistant Vice President Manager for Booz-Allen & Hamilton,
American Express Travel Management
Services, 100 Cambridge Park Drive,
02140; Prior to August, 1994,
Account Manager, Hilton at Dedham
Place, Dedham, MA 02026

Matthew G. Bevin Prior to February, 1995, Consultant,
Assistant Vice President SEI Corporation, 680 East Swedesford
Road, Wayne, PA 19807

Thomas Bogan Prior to November, 1994, Analyst
Senior Vice President Lord, Abbett & Co., 767 Fifth
Avenue, New York, NY 10153

John A. Boselli Prior to April, 1996, Senior Manager,
Vice President Price Waterhouse LLP, 200 E.
Randolph Drive, Chicago, IL 60601

Susan M. Braid Prior to October, 1995, Manager,
Vice President Pioneer Group, Inc., 60 State St.,
Boston, MA 02109

Brian E. Broyles Prior to September, 1995, Accounts
Assistant Vice President Payable Manager, Entex Information
Services, Six International Drive,
Rye Brook, NY 10573

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

Robert W. Burke Member-Executive Committee, The Ridge
Senior Managing Director Club, Country Club Road, Sandwich,
MA 02563; Member-Advisory Board,
Cathedral High School, 74 Union Park
St., So. Boston, MA 02118

Peter A. Capodilupo Prior to June, 1996, Chief Human
Vice President Resources Officer, Harvard Business
School, Soldiers Field Rd., Boston,
MA 02163

Susan Chapman Prior to June, 1995, Vice President,
Senior Vice President Forbes, Walsh, Kelly & Company,
Inc., 17 Battery Place, New York, NY
10004

Louis F. Chrostowski Prior to August, 1995, Manager of
Vice President Compensation and Benefits, Itek
Optical Systems, 10 MacGuire Rd.,
Lexington, MA 02173

C. Beth Cotner Director, The Lyric Stage Theater, 140
Senior Vice President Clarendon St., Boston, MA; Prior to
September, 1995, Executive Vice
President, Director of U.S. Equity
Funds, Kemper Financial Services,
120 S. LaSalle St., Chicago, IL
60603

Peter J. Curran Prior to January, 1996, Vice President
Senior Vice President ITT Sheraton Director Worldwide
Staffing, ITT Sheraton Corporation,
60 State St., Boston, MA 02109

Judith S. Deming Prior to May, 1995, Asset Manager,
Assistant Vice President Fidelity Management & Research
Company, 82 Devonshire St., Boston,
MA 02109

Theodore J. Deutz Prior to January, 1995, Senior Vice
Vice President President, Metropolitan West
Securities, Inc. 10880 Wilshire
Blvd., Suite 200, Los Angeles, CA
90024

Michael G. Dolan Chairman-Finance Council, St. Mary's
Assistant Vice President Parish, 44 Myrtle St., Melrose, MA
02176; Member, School Advisory
Board, St. Mary's School, 44 Myrtle
St., Melrose, MA 02176

Andrea Donnelly Prior to March, 1996, Equity Trader,
Assistant Vice President Hellman Jordan Management Company,
Inc., 75 State St., Suite 2420,
Boston, MA 02109

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

Ian C. Ferguson
Senior Managing Director Prior to April, 1996, Chief
Executive Officer, HSBC Asset
Management, Ltd., 6 Bevis Marks,
London, England

Michael T. Fitzgerald Prior to September, 1994, Senior
Senior Vice President Vice President, Vantage Global
Advisers, 1201 Morningside Dr.,
Manhattan Beach, CA 90266

Brian J. Fullterton Prior to November, 1995, Vice
Senior Vice President President, Pension and 401(k)
Derivatives Marketing, J.P. Morgan,
60 Wall Street, New York, NY 10260

Roland Gillis Prior to March, 1995, Vice President
Senior Vice President and Senior Portfolio Manager,
Keystone Group, Inc., 200 Berkeley
St., Boston, MA 02116

C. Kim Goodwin Prior to May, 1996, Vice President
Senior Vice President Prudential Mutual Fund Investment
Management, 751 Broad St., Newark,
NJ 07101

J. Peter Grant Trustee, The Dover Church, Dover, MA
Senior Vice President 02030

Jill Grossberg Prior to March, 1995, Associate
Assistant Vice President Counsel, 440 Financial Group of
and Associate Counsel Worcester, Inc., 440 Lincoln St.,
Worcester, MA 01653

Paul E. Haagensen Director, Haagensen Research
Senior Vice President Foundation, 630 West 168th St., New
York, NY 10032

Matthew C. Halperin Prior to April, 1996, Portfolio
Senior Vice President Manager, Allstate Insurance, 3075
Sanders Road, Northbrook, IL 60062

Richard Harris Prior to October, 1995, Senior Vice
Vice President President, Smith Mitchell Investment
Group, 135 Main St., San Francisco,
CA 94105; Prior to January, 1995,
Managing Director, Dean Witter
Reynolds, Inc., 101 California St.,
San Francisco, CA 94941

Deborah R. Healey Director and Secretary, Edwin Warren,
Senior Vice President Inc., Rte. 100, Waitsfield, VT 05673

Daniel Herbert Prior to April, 1996, Vice President
Vice President and Analyst, Keystone Group, Inc.,
200 Berkeley St., Boston, MA 02116

Pamela Holding Prior to May, 1995, Senior Securities
Vice President Analyst, Kemper Financial Services,
Inc., 120 South LaSalle St.,
Chicago, IL 60603

Thomas J. Hoey Prior to April, 1996, Securities
Vice President Analyst, Driehaus Capital
Management, Inc., 25 East Erie St.,
Chicago, IL 60610

Joseph Joseph Prior to October, 1994, Managing
Vice President Director, Vert Independent Capital
Research, 53 Wall St., New York, NY
10052

Omid Kamshad Prior to January, 1996, Investment
Senior Vice President Director, Lombard Odier, 13
Southampton Place, London, England,
WC1; Prior to May, 1995, Director,
Baring Asset Management, 155
Bishopsgate, London, England EC23XY

Mary E. Kearney Trustee, Massachusetts Eye and Ear
Managing Director Infirmary, 243 Charles St., Boston,
MA 02114; Prior to February, 1995,
Partner, Price Waterhouse, 160
Federal St., Boston, MA 02110
<PAGE>
Paula Kienert Prior to June, 1995, Senior Reference
Assistant Vice President Librarian, Fidelity Investments, 82
Devonshire Street, Boston, MA 02109

John P. Kihn Prior to April, 1996, Associate
Vice President Portfolio Manager, Colonial
Management Associates, Inc., One
Financial Center, Boston, MA 02110
Chief Financial Officer, Bergman
Research Group, Inc., 640 Bailey
Road, Pittsburg, CA 94565

D. William Kohli Prior to September, 1994, Executive
Managing Director Vice President and Co-Director of
Global Bond Management, Franklin
Advisors/Templeton Investment
Counsel, 777 Mariners Island Blvd.,
San Mateo, CA 94404

Peter B. Krug Prior to January, 1995, Owner and
Vice President Director, Griswold Special Care, 42
Ethan Allen Drive, Acton, MA 01720

Catherine A. Latham Prior to August, 1995, Director of
Vice President Human Resources, Electronic Data
Systems, 1601 Trapello Rd., Waltham,
MA 02254

Kevin Lemire Prior to March, 1995, Corporate
Assistant Vice President Facilities Manager, Bose
Corporation, The Mountain,
Framingham, MA 01701; Prior to June,
1994, Facilities Manager, The
Pioneer Group, 60 State St., Boston,
MA 02109

Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020; Board Member,
Artery Business Committee, One
Beacon Street, Boston, MA 02108;
Board of Managers, Investment and
Finance Committees, Beth Israel
Hospital, 330 Brookline Avenue,
Boston, MA 02215; Board of
Governors, Executive Committee,
Investment Company Institute, 1401
H. St., N.W., Suite 1200,
Washington, DC 20005; Board of
Overseers, Museum of Fin Arts, 465
Huntington Ave., Boston, MA 02115;
Board Member, Trust for City Hall
Plaza, Three Center Plaza, Boston,
MA 02108; Board Member, The Vault
Coordinating Committee, c/o John
Hancock Mutual Life Insurance
Company, Law Sector, T-55, P.O. Box
111, Boston, MA 02117

James W. Lukens Prior to February, 1995, Vice
Senior Vice President President of Institutional
Marketing, Keystone Group, Inc., 200
Berkeley St., Boston, MA 02116

Kevin Maloney Trustee, Town of Hanover, NH, Trustee
Managing Director of Trust Funds, Hanover, NH 03755;
President and Board Member,
Hampshire Cooperative Nursery
School, Dartmouth College Highway,
Hanover, NH 03755; Prior to April,
1995, Associate Professor, Amos Tuck
School of Business, Dartmouth
College, Hanover, NH 03255

Helen Mazareas Prior to May, 1995, Librarian,
Assistant Vice President Scudder, Stevens & Clark, 2
International Place, Boston, MA
02110

Alexander J. McAuley Prior to June, 1995, Vice President,
Senior Vice President Deutsche Bank Securities Corp. -
Deutsche Asset Management, 1290
Avenue of the Americas, New York, NY
10019

William F. McGue Member, Advisory Committee, Academy
Managing Director of Finance, 2 Oliver St., Boston, MA
02109

Carol McMullen Prior to June, 1995, Senior Vice,
Managing Director President and Senior Portfolio
Manager, Baring Asset Management,
125 High Street, Boston, MA 02110

Sandeep Mehta Prior to May, 1996, Vice President,
Vice President Wellington Management Co., 100
Vanguard Blvd., Malvern, PA 19355

Darryl Mikami Prior to June, 1995, Vice President,
Senior Vice President Fidelity Management & Research
Company, 82 Devonshire St., Boston,
MA 02109

Carol H. Miller Board Member, The Lyric Stage Theater,
Assistant Vice President 140 Clarendon St., Boston, MA; Prior
to July, 1995, Business Development
Officer, Bank of Boston -
Connecticut, 100 Pearl St.,
Hartford, CT 06101

Seung H. Minn Prior to June, 1995, Vice President
Vice President Portfolio Management and Research,
Templeton Quantitative Advisors,
Inc., 31 W. 52nd St., New York, NY
10019

Maziar Minovi Prior to January, 1995, Associate
Vice President Privatization Specialist, The
International Bank for
Reconstruction and Development, 1818
H St. N.W., Washington, DC 20433

Jeanne L. Mockard Trustee, The Bryn Mawr School, 109
Senior Vice President W. Melrose Avenue, Baltimore, MD
21210

Kenneth Mongtomery Prior to July, 1995, Senior Vice
Managing Director President and Director of World Wide
Sales, Chemcial Banking Corporation,

Paul G. Murphy Prior to January, 1995, Section
Assistant Vice President Manager, First Data Corp., 53 State
Street, Boston, MA 02109

Lois O'Brien Prior to March, 1996, Director,
Assistant Vice President Training and Development, J. Baker,
Inc., 555 Turnpike St., Canton, MA
02021

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

Keith Plapinger Vice Chairman and Trustee, Advent
Vice President School, 17 Brimmer St., Boston, MA

Jane E. Price Prior to February, 1995, Associate
Assistant Vice President ERISA Attorney, Hale & Dorr,
60 State St., Boston, MA 02109
<PAGE>
Charles E. Porter Director, The Boston Fulbright
Executive Vice President Committee, 99 Garden St., Cambridge,
MA; Trustee, Anatolia College and
The American College of
Thessaloniki, 555 10 Pycea,
Thessaloniki, Greece

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

Keith Quinton Director, Eleazar, Inc., West Wheelock
Senior Vice President St., Hanover, NH 03755; Prior to
July, 1995, Vice President,
Falconwood Securities Corporation,
565 5th Avenue, New York, NY 10017

Paul T. Quistberg Prior to July, 1995, Assistant
Assistant Vice President Investment Officer, The Travelers
Insurance Group., One Tower Square,
Hartford, CT 06101

Kimberly A. Raynor Prior to April, 1996, Principal,
Vice President Principal, Scudder, Stevens & Clark,
2 International Place, Boston, MA
02110

Thomas Rosalanko Prior to February, 1995, Senior
Senior Vice President Account Manager, SEI Corporation,
680 East Swedesford Road, Wayne, PA
19807

Michael Scanlon Prior to February, 1995, Senior
Assistant Vice President Financial Analyst, Massachusetts
Financial Services, 500 Boylston
St., Boston, MA 02116

Justin M. Scott Director, DSI Properties (Neja) Ltd.
Managing Director Epping Rd., Reydon, Essex CM19 5RD;
Director, DSI Management (Neja)
Ltd., Epping Rd., Reydon, Essex CM19
5RD

Max S. Senter General Partner, M.S. Senter & Sons
Senior Vice President Partnership, 4900 Fayetteville, Rd.,
Raleigh, NC 27611

Robert M. Shafto Prior to January, 1995, Account
Assistant Vice President Manager, IBM Corporation, 404 Wyman
St., Waltham, MA 02254

Gordon H. Silver Trustee, Wang Center for the
Managing Director Performing Arts, 270 Tremont St.,
Boston, MA 02116

Diedre West-Smith Prior to January, 1995, Senior Finance
Assistant Vice President Officer, BayBank, 3 Universal Office
Park, Waltham, MA 02254

Margaret Smith Prior to September, 1995, Vice
Senior Vice President President, State Street Research,
One Financial Center, Boston, MA
02111

Erin J. Spatz Prior to May, 1996, Vice
Vice President President, Pioneering Management
Organization, 60 State St., Boston,
MA 02109

Steven Spiegel Director, Ultra Corp., 29 East
Senior Managing Director Madison St., Chicago, IL 60602;
Trustee, Babson College, One College
Drive, Wellesley, MA 02157; Prior to
December, 1994, Managing
Director/Retirement, Lehman
Brothers, Inc., 200 Vesey St., World
Financial Center, New York, NY 10285

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

James H. Steggall Prior to May, 1995, Senior Municipal
Assistant Vice President Analyst, Colonial Management
Associates, Inc., One Financial
Center, Boston, MA 02111; Prior to
May, 1994, Controller, Wheelabrator
Environmental Systems, Libery Lane,
Hampton, NH 03842

Karen Stewart Prior to May, 1995, Equity Research
Assistant Vice President Analyst, Chancellor Capital
Management, 1166 Avenue of the
Americas, New York, NY 10036

Roger Sullivan Prior to December, 1994, Vice
Senior Vice President President, State Street Research &
Management Co., One Financial
Center, Boston, MA 02111

Robert Swift Prior to August, 1995, Far East Team
Senior Vice President Leader and Portfolio Manager, IAI
International/Hill Samuel Investment
Advisors, 10 Fleet Place, London,
England

Jerry H. Tempelman Prior to May, 1994, Senior Money
Assistant Vice President Market Trader, State Street Bank &
Trust Co., 225 Franklin, Street,
Boston, MA 02110

Michael Temple Prior to June, 1995, Vice President,
Vice President Duff & Phelps, 55 East Monroe,
Chicago, IL 60613

John A. Thompson Prior to September, 1995, Senior
Vice President Trader, John Hancock Mutual Life
Insurance Company, 200 Clarendon
St., Boston, MA 02117

Hillary F. Till Prior to May, 1994, Fixed-Income
Vice President Derivative Trader, Bank of Boston,
100 Federal Street, Boston, MA 02109

Lisa L. Trubiano Prior to July, 1995, Senior Marketing
Vice President Consultant, John Hancock Mutual Life
Insurance Company, 200 Clarendon
St., Boston, MA 02117

Elizabeth A. Underhill Prior to August, 1994, Vice President
Senior 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

Herbert S. Wagner, III Prior to August, 1995, Investment
Assistant Vice President The First National Bank of Chicago,
One First National Plaza, Chicago,
IL 60670
<PAGE>
Francis P. Walsh Prior to November, 1994, Research
Vice President Analyst, Furman, Selz, Inc. 230 Park
Avenue, New York, NY 10169

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 Retirement Fund, Putnam California Tax Exempt
Income Trust, Putnam California Tax Exempt Money Market Fund,
Putnam Capital Appreciation Fund, Putnam Capital Manager Trust,
Putnam Convertible Income-Growth Trust, Putnam Diversified Equity
Trust, Putnam Diversified Income Trust, Putnam Diversified Income
Trust II, Putnam Equity Income Fund, Putnam Europe Growth Fund,
Putnam Federal Income Trust, Putnam Florida Tax Exempt Income
Fund, Putnam Funds Trust, The George Putnam Fund of Boston,
Putnam Global Governmental Income Trust, Putnam Global Growth
Fund, Putnam Global Natural Resources Fund, Putnam Growth Fund,
The Putnam Fund for Growth and Income, Putnam Growth and Income
Fund II, Putnam Health Sciences Trust, Putnam High Yield Trust,
Putnam High Yield Advantage Fund, Putnam High Yield Municipal
Trust, Putnam Income Fund, Putnam Intermediate Tax Exempt Fund,
Putnam Intermediate U.S. Government Income Fund, Putnam
Investment Funds, Putnam Investors Fund, Putnam International
Growth Fund, Putnam Massachusetts Tax Exempt Income Fund, Putnam
Michigan Tax Exempt Income Fund, Putnam Minnesota Tax Exempt
Income Fund, 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 Trust, Putnam New York Tax Exempt Money Market
Fund, Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio
Tax Exempt Income Fund, Putnam OTC Emerging Growth Fund, Putnam
Pennsylvania Tax Exempt Income Fund, Putnam Preferred Income
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, Putnam Voyager Fund II.<PAGE>

(b) The directors and officers of the Registrant's principal underwriter are
listed below. The principal business address of each person is
One Post Office Square, Boston,
MA 02109:

Positions and Offices Positions and Offices
Name with Underwriter with Registrant

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
Steven E. Asher Senior Vice President None
Scott A. Avery Vice President None
Christian E. Aymond Vice President None
Hallie L. Baron Assistant Vice President None
Ira G. Baron Senior Vice President None
John L. Bartlett Senior Vice President None
Dale Beardon Senior Vice President None
Steven M. Beatty Vice President None
Deborah A. Beaudette Assistant Vice President None
Matthew F. Beaudry Vice President None
John J. Bent Vice President None
Thomas A. Beringer Vice President None
Sharon A. Berka Vice President None
Kathleen A. Blackman Vice President None
Maureen L. Boisvert Vice President None
John F. Boneparth Managing Director None
Keith R. Bouchard Vice President None
Linda M. Brady Assistant Vice President None
Leslee R. Bresnahan Senior Vice President None
James D. Brockelman Senior Vice President None
Joel S. Brookman Assistant Vice President None
Dale R.C. Brown Assistant Vice President None
Brian E. Broyles Assistant Vice President None
Gail D. Buckner Senior Vice President None
Robert W. Burke Senior Managing Director None
Susan D. Cabana Vice President None
Ellen S. Callahan Vice President None
Thomas C. Callahan Assistant Vice President None
Peter J. Campagna Vice President None
Peter A. Capodilupo Vice President None
Robert Capone Vice President None
Patricia A. Cartwright Assistant Vice President None
Janet Casale-Sweeney Vice President None
Stephen J. Chaput Assistant Vice President None
Steven F. Charlton Assistant Vice President None
Louis F. Chrostowski Vice President None
Daniel J. Church Vice President None
James E. Clinton Assistant Vice President None
John C. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Vice President None
Clare D. Connelly Vice President None
Donald A. Connelly Senior Vice President None
Karen E. Connolly Assistant Vice President None
Barry M. Conyers Assistant Vice President None
Anna Coppola Vice President None
F. Nicholas Corvinus Senior Vice President None
Thomas A. Cosmer Vice President None
Michele A. Cranston Vice President None
Chad H. Cristo Assistant Vice President None
Peter J. Curran Senior Vice President None
Jessica E. Dahill Vice President None
Kenneth L. Daly Senior Vice President None
Edward H. Dane Vice President None
Nancy M. Days Assistant Vice President None
Pamela De Oliveira-Smith Assistant Vice President None
Lisa M. DeMont Assistant Vice President None
Richard D. DeSalvo Vice President None
Joseph C. DeSimone Assistant Vice President None
Daniel J. Delianedis Vice President None
Judith S. Deming Assistant Vice President None
Teresa F. Dennehy Assistant Vice President None
Karen E. DiStasio Vice President None
Michael G. Dolan Assistant Vice President None
Scott M. Donaldson Vice President None
Emily J. Durbin Vice President None
David B. Edlin Senior Vice President None
James M. English Senior Vice President None
Vincent Esposito Managing Director None
Mary K. Farrell Assistant Vice President None
Michael J. Fechter Vice President None
Susan H. Feldman Vice President None
Paul F. Fichera Senior Vice President None
C. Nancy Fisher Senior Vice President None
Mitchell B. Fishman Senior Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Brian J. Fullerton Senior Vice President None
Samuel F. Gagliardi Vice President None
Karen M. Gardner Assistant Vice President None
Judy S. Gates Vice President None
Richard W. Gauger Assistant Vice President None
Joseph P. Gennaco Vice President None
Stephen E. Gibson Managing Director None
Mark P. Goodfellow Assistant Vice President None
Robert Goodman Managing Director None
Mark D. Goodwin Assistant Vice President None
Anthony J. Grace Assistant Vice President None
Linda K. Grace Assistant Vice President None
Robert G. Greenly Vice President None
Jill Grossberg Assistant Vice President None
Denise Grove Assistant Vice President None
Jeffrey P. Gubala Vice President None
James E. Halloran Vice President None
Thomas W. Halloran Vice President None
Meghan C. Hannigan Assistant Vice President None
Bruce D. Harrington Assistant Vice President None
Craig W. Hartigan Vice President None

Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
Joanne Heyman Assistant Vice President None
Bess J.M. Hochstein Vice President None
Jeremiah K. Holly, Sr. Vice President None
Maureen A. Holmes Assistant Vice President None
Paula J. Hoyt Assistant Vice President None
William J. Hurley Senior Vice President None
Gregory E. Hyde Senior Vice President None
Dwight D. Jacobsen Senior Vice President None
Douglas B. Jamieson Senior Managing Director, Director None
Jay M. Johnson Vice President None
Kevin M. Joyce Senior Vice President None
Karen R. Kay Senior Vice President None
Mary E. Kearney Managing Director None
John P. Keating Vice President None
A. Siobahn Kelly Assistant Vice President None
Brian J. Kelly Vice President None
Anne Kinsman Assistnat Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Assistant Vice President None
Linda G. Kraunelis Assistant Vice President None
Howard H. Kreutzberg Senior Vice President None
Marjorie B. Krieger Assistant Vice President None
Charles Lacasia Assistant Vice President None
Arthur B. Laffer, Jr. Vice President None
Catherine A. Latham Vice President None
James D. Lathrop Vice President None
Charles C. Ledbetter Vice President None
Kevin Lemire Assistant Vice President None
Anthony J. Leonard Vice President None
Eric S. Levy Vice President None
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
David M. Lifsitz Assistant Vice President None
David R. Lilien Vice President None
Ann Marie Linehan Assistant Vice President None
Lisa M. Litant Assistant Vice President None
Thomas W. Littauer Managing Director None
Maura A. Lockwood Vice President None
Rufino R. Lomba Vice President None
Peter V. Lucas Senior Vice President None
Robert F. Lucey Senior Managing Director, Director None
Kathryn A. Lucier Assistant Vice President None
Ann Malatos Assistant Vice President None
Bonnie Mallin Vice President None
Frederick S. Marius Assistant Vice President None
Anne B. McCarthy Assistant Vice President None
Paul McConville Vice President None
McDermott, Daniel E. Assistant Vice President None
Walter S. McFarland Vice President None
Mark J. McKenna Senior Vice President None
Gregory J. McMillan Vice President None
Claye A. Metelmann Vice President None
Bart D. Miller Vice President None
Jeffery M. Miller Senior Vice President None
Trisha A. Miller Senior Vice President None
Ronald K. Mills Vice President None
Kimberly A. Monahan Vice President None
John L. Moore, III Vice President None
Peter M. Moore Assistant Vice President None
Mitchell Moret Senior Vice President None
Barry L. Mosher Assistant Vice President None
Donald E. Mullen Vice President None
Paul G. Murphy Assistant Vice President None
Brendan R. Murray Vice President None
Robert Nadherny Vice President None
Alexander L. Nelson Managing Director None
John P. Nickodemus Vice President None
Kristen P. O'Brien Vice President None
Kevin L. O'Shea Senior Vice President None
Nathan D. O'Steen Assistant Vice President None
Joseph R. Palombo Managing Director None
Scott A. Papes Vice President None
Cynthia O. Parr Vice President None
Samuel W. Perry Vice President None
John G. Phoenix Vice President None
Joseph Phoenix Senior Vice President None
Keith Plapinger Vice President None
Douglas H. Powell Vice President None
Howard B. Present Senior Vice President None
Jane E. Price Assistant Vice President None
Scott M. Pulkrabek Vice President None
George Putnam Director Chairman & President
Kimberly Raynor Vice President None
Debra V. Rothman Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Thomas C. Rowley Vice President None
Charles A. Ruys de Perez Senior Vice President None
Deborah A. Ryan Assistant Vice President None
Louise I. Santosuosso Assistant Vice President None
Debra J. Sarkisian Assistant Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Assistant Vice President None
Karl W. Saur Vice President None
Michael Scanlon Assistant Vice President None
Shannon D. Schofield Vice President None
Christine A. Scordato Vice President None
Joseph W. Scott Assistant Vice President None
John B. Shamburg Vice President None
Kathleen G. Sharpless Managing Director None
William N. Shiebler Director and President Vice President
Robert J. Shull, II Vice President None
Mark J. Siebold Assistant Vice President None
Gordon H. Silver Senior Managing Director Vice President
John Skistimas, Jr. Assistant Vice President None
Steven Spiegel Senior Managing Director None
Nicholas T. Stanojev Senior Vice President None
Paul R. Stickney Vice President None
John B. Stillwagon Assistant Vice President None
Eric J. Studer Assistant Vice President None
Brian L. Sullivan Vice President None
Guy Sullivan Seniior Vice President None
Kevin J. Sullivan Vice President None
Moira Sullivan Vice President None
Maureen C. Tallon Vice President None
James S. Tambone Managing Director None
B. Iris Tanner Assistant Vice President None
Louis Tasiopoulos Managing Director None
David S. Taylor Vice President None
John R. Telling Vice President None
Cynthia Tercha Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi Assistant Vice President None
Bonnie L. Troped Vice President None
Christine M. Twigg Assistant Vice Presient None
Larry R. Unger Vice President None
Douglas J. Vander Linde Senior Vice President None
Deirdre West-Smith Assistant Vice President None
Edward F. Whalen Vice President None
J. Bennett White Vice President None
Kirk E. Williamson Senior Vice President None
Leigh T. Williamson Vice President None
Jane Wolfson Vice President None
Benjamin I. Woloshin Vice President None
William H. Woolverton Senior Vice President None
Laura J. Zografos Vice President None
<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. 14
to the Registration Statement on Form N-1A (File No. 2-98790)
(the "Registration Statement") of our reports dated September
13, 1996 and September 16, 1996 , respectively,
relating to the financial statements and financial highlights
appearing in the July 31, 1996 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
November 27, 1996

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 relevant series 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
therewith, 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 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/ Ronald J. Jackson
- --------------- ------ Trustee
July 11, 1996
Ronald J. Jackson

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to rule 485(b) under the
Securities Act of 1933 and 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 27th day of
November, 1996 .

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

John D. Hughes Senior 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

Ronald J. Jackson Trustee

Elizabeth T. Kennan Trustee

Lawrence J. Lasser Trustee

Robert E. Patterson Trustee

Donald S. Perkins Trustee

William F. Pounds Trustee

George Putnam, III Trustee

Eli Shapiro Trustee

A.J.C. Smith Trustee

W. Nicholas Thorndike Trustee

By: Gordon H. Silver, as Attorney-
in-Fact
November 27, 1996

PUTNAM TAX-FREE INCOME TRUST

MANAGEMENT CONTRACT

Management Contract dated as of July 26, 1985, as amended
and restated as of November 20, 1996 between PUTNAM TAX-FREE
INCOME TRUST, a Massachusetts business trust (the "Fund"), and
PUTNAM INVESTMENT MANAGEMENT, INC., a Massachusetts 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, 0.40% of the
next $5 billion; 0.375% of the next $5 billion, 0.355% of the
next $5 billion; 0.34% of the next $5 billion and 0.33% of any
excess over $21.5 billion. 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, 0.45% of the next $5 billion;
0.425% of the next $5 billion; 0.405% of the next $5 billion;
0.39% of the next $5 billion and 0.38% of any excess over $21.5
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
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 the close of business on the second
anniversary of its execution, or upon 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 (the "1940 Act"0 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. TERMINATION OF PRIOR CONTRACT.

This Contract shall become effective as of its date, and
supersedes the Management Contract dated July 1, 1994.

9. 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

RETIREMENT PLAN
FOR THE
TRUSTEES OF THE PUTNAM FUNDS

1. General; effective date. This Retirement Plan For The
Trustees Of The Putnam Funds is intended to provide, on the terms
and conditions specified below, cash retirement benefits to
certain individuals who have served as trustees ("Trustees") of
the Funds. Except as provided at Section 12 below, the Plan is
effective with respect to retirements occurring on or after
January 1, 1996.

2. Statement of Purpose. The purpose of this Plan is to
assist the Funds in attracting and retaining highly qualified
individuals to serve as Trustees of the Putnam Funds by providing
a form of deferred compensation which is competitive with
compensation practices of other major investment company
complexes as well as those of major business corporations and
which recognizes the benefits to the Funds and of having Trustees
with many years of experience with the affairs of the Funds.

3. Defined terms. When used in the Plan, the following
terms shall have the meanings set forth in this Section:

- "Administrator": such committee, consisting solely of
Trustees who are not "interested persons" of the Funds
within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, as may be designated
from time to time by the Trustees to administer the
Plan.

- "Service": active service as a Trustee for one or more
of the Funds, including service prior to the Effective
Date. For purposes of this definition, service for an
entity that was a Fund at the time of such service
shall not be disregarded merely because the entity
later ceases to be a Fund. A Participant who dies
prior to retirement or who retires by reason of total
and permanent disability (as determined by the
Administrator) shall be deemed to have served at least
one hundred twenty (120) months of Service regardless
of his or her actual period of service.

- "Effective Date": the date specified in the second
sentence of Section 1.

- "Final Average Remuneration": the quotient obtained by
dividing (i) a Participant's total retainer and meeting
fees paid to the individual by the Funds for the last
thirty-six (36) months of the individual's service as a
Trustee, by (ii) three.

- "Fund": any of the Putnam Funds, other than any such
Fund that has either (i) elected by vote of a majority
of its Trustees who are not "interested persons" of the
Fund (as defined above) not to participate in the Plan,
or (ii) terminated its participation in the Plan in
accordance with Section 14(c).

- "Participant": a Trustee with at least sixty (60)
months of Service.

- "Plan": the Retirement Plan For The Trustees Of The
Putnam Funds set forth herein, as the same may from
time to time be amended and in effect.

- "Retirement": ceasing to be an active Trustee
(regardless of whether service to one or more Funds
continues in a capacity other than as a Trustee) for
any reason other than (i) termination for cause as
determined by the Administrator, or (ii) death. The
terms "retire," "retires" and "retired" shall be
similarly construed.

- "Trustee": a trustee of any of the Funds.

4. Eligibility for retirement benefit. Each Participant
shall receive the normal retirement benefit specified in Section
5 below commencing in the calendar year next following the date
of retirement.

5. Form and amount of retirement benefit. The retirement
benefit payable to a Participant shall be an annual cash payment
equal to fifty percent (50%) of the Participant's Final Average
Remuneration. Such retirement benefit shall be paid on January
15 of each calendar year commencing with the year specified in
Section 4 above and continuing for the lesser of (i) a number of
years equal to the Participant's years of Service (rounded to the
nearest whole year) or (ii) the lifetime of the Participant.

6. Death benefit. The only death benefits payable under
the Plan shall be those described in this Section:

(a) If a Participant dies after retirement but before
ten (10) annual retirement benefit payments have been made,
the Participant's designated beneficiary shall be entitled
to receive an annual death benefit, in the same amount,
payable on January 15 of each year for the lesser of (i) the
remainder, if any, of the period specified in clause (i) of
Section 5 above or (ii) the remainder of such 10-year
period.

(b) If a Participant dies before retirement, there
shall be paid to his or her designated beneficiary an annual
death benefit equal in amount to the annual retirement
benefit specified in Section 5 above. The death benefit
described in this paragraph (b) shall be paid on January 15
of each year commencing in the calendar year next following
the Participant's death for a number of years equal to the
lesser of (i) the period specified in clause (i) of Section
5 above or (ii) ten (10) years.

(c) The Administrator in its discretion may commute any
death benefit under this Section to an immediate lump sum
payment or may otherwise accelerate such payments, in each
case applying such reasonable discount rates as it deems
appropriate.

7. Designation of beneficiary. For purposes of Section 6
above, a Participant's designated beneficiary shall be such
person or persons, including a trust, as the Participant shall
have designated in writing on a form acceptable to and delivered
to the Administrator. In the absence of an effective beneficiary
designation governing the payment of any portion of the death
benefit described in Section 6 above, payment of such portion
shall be made to the Participant's estate, which shall be deemed
to be the Participant's designated beneficiary for all purposes
hereunder. If the person designated as the beneficiary to
receive any portion of the death benefit should die prior to
completion of payments to such beneficiary without the
Participant having made effective provision (by a designation
delivered to the Administrator as hereinabove prescribed) for a
successor or contingent beneficiary, payment of such portion or
the remainder thereof shall be made to the decedent beneficiary's
estate.

8. Agreement not to compete, etc. Eligibility for and
payment of benefits under the Plan is conditioned on agreement by
the Participant (i) to refrain from engaging in any business
activity in competition with the Funds, and (ii) not to disclose
any proprietary or otherwise confidential information pertaining
to the Funds. Any breach by an active or retired Trustee of the
agreement or conditions specified in the preceding sentence shall
be grounds for termination or reduction by the Administrator of
benefits under the Plan.

9. Nature of rights. Nothing in the Plan shall be
construed as requiring the Funds, or any of them, to set aside or
to segregate any assets of any kind to meet any of its
obligations hereunder or otherwise to fund the Plan. The rights
of persons claiming benefits under the Plan shall be no greater
than those of general unsecured creditors of a Fund, and no such
person shall have any right in or to any specific assets of any
Fund. All rights to benefits under the Plan shall be construed
and interpreted consistent with the continued qualification of
each Fund as a registered investment company under the Investment
Company Act of 1940, as amended.

10. Rights non-assignable. No Participant, beneficiary or
other person shall have any right to assign, pledge, encumber, or
otherwise alienate or transfer any right to receive benefits or
payments hereunder or any other interest under the Plan, in whole
or in part, and any attempt by any such person to effectuate such
an assignment, pledge, encumbrance, or other alienation or
transfer shall be null and void.

11. No rights to continuation of status. Nothing in the
Plan shall be construed as giving any individual a right to
continue to serve as a Trustee of the Funds, or any of them, or
to receive any particular level of remuneration for any such
service.

12. Application of Plan to certain persons. This Plan
supersedes in its entirety the voluntary retirement program
heretofore maintained by the Funds and any benefits previously
authorized under such program but not yet paid for periods
commencing on or after January 1, 1996. Reference is made to
those former Trustees listed on Schedule A hereto who retired
prior to the effective date of this Plan and who are currently
receiving benefits under such voluntary retirement program. In
addition, reference is made to a current Trustee listed on
Schedule B hereto who previously received certain retirement
benefits under such voluntary retirement program following such
Trustee's initial retirement from the Funds. Each person listed
on Schedules A or B shall be entitled to a retirement benefit in
the amount and payable in accordance with the terms of the Plan
except that, to the extent inconsistent with the generally
applicable provisions of the Plan, the specific provisions of
Schedule A and B shall control.

13. Payment of benefits. Benefits shall be paid by the
Funds, in cash, upon direction by the Administrator. The
Administrator shall allocate the obligation to make payments with
respect to a Trustee under the Plan for any calendar year among
the Funds in proportion to their respective cumulative
liabilities accrued with respect to such Trustee's participation
in the Plan for financial reporting purposes or on such other
reasonable basis as the Administrator may determine.

14. Amendment and termination.

(a) Amendment. The Plan may be amended at any time by the
Administrator. No amendment shall reduce the benefits or future
benefits of any Trustee who has retired, and in the case of a
participant who is still an active Trustee no amendment shall
reduce the amount such Trustee would have been entitled to
receive if he or she had ceased to serve as a Trustee immediately
prior to such amendment.

(b) Termination of the Plan as a whole. The Plan as a
whole may be terminated by the Administrator. Upon termination
of the plan as a whole, benefits in pay status shall continue to
be paid. Any Participant not yet in pay status shall continue to
be entitled to a benefit equal to the benefit to which he or she
would have been entitled had retirement as a Trustee occurred
immediately prior to such Plan termination. Notwithstanding the
foregoing, in its discretion the Administrator may commute and
pay as a single lump sum payment any benefits remaining payable
upon termination of the Plan as a whole, and in determining such
lump sum amounts the Administrator may apply such reasonable
discount factors and mortality assumptions as it determines in
its discretion.

(c) Termination by individual Fund. A Fund may terminate
its participation in the Plan at any time by vote of a majority
of its Trustees who are not "interested persons" of the Fund (as
defined under "Administrator" in Section 3 above), provided that
upon any such termination such Fund shall remain liable for its
allocable share of the benefits to which Participants would have
been entitled is the Plan as a whole had been terminated as of
the date of such individual termination, as determined by the
Administrator in its sole discretion.

As Adopted October 4, 1996

ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2624
(617) 951-7000

November 27, 1996

Putnam Tax-Free Income Trust (the "Trust")
One Post Office Square
Boston, Massachusetts 02109

Gentlemen:

You have informed us that you propose to offer and sell from
time to time 3,584,893 shares of beneficial interest in Putnam
Tax-Free Insured Fund, a series of the Trust (the "Shares"), for
cash or securities at the net asset value per share, determined
in accordance with your Bylaws, which Shares are in addition to
your shares of beneficial interest which you have previously
offered and sold or which you are currently offering.

We have examined copies of (i) your Agreement and
Declaration of Trust as on file at the office of the Secretary of
State of The Commonwealth of Massachusetts, which provides for an
unlimited number of authorized shares of beneficial interest, and
(ii) your Bylaws, which provide for the issue and sale by the
Fund of such Shares.

We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating offerings and sales of securities.

Based upon the foregoing, we are of the opinion that:

1. The Trust is a legally organized and validly existing
voluntary association with transferable shares of beneficial
interest under the laws of The Commonwealth of Massachusetts and
is authorized to issue an unlimited number of shares of
beneficial interest.

2. Upon the issue of any of the Shares referred to in the
first paragraph hereof for cash or securities at net asset value,
and the receipt of the appropriate consideration therefor as
provided in your Bylaws, such Shares so issued will be validly
issued, fully paid and nonassessable by the Trust.
<PAGE>

ROPES & GRAY

Putnam Tax-Free Income Trust -2- November 27, 1996

The Trust is an entity of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law,
shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trust or its
Trustees. The Agreement and Declaration of Trust provides for
allocation of the assets and liabilities of the Trust among its
portfolio series, and further provides for indemnification out of
the property of a portfolio series for all loss and expense of
any shareholder of such portfolio series held personally liable
for the obligations of such portfolio series solely by reason of
his being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the assets of the
relevant portfolio series would be unable to meet its
obligations.

We understand that this opinion is to be used in connection
with the registration of the Shares for offering and sale
pursuant to the Securities Act of 1933, as amended, and the
provisions of Rule 24e-2 under the Investment Company Act of
1940, as amended. We consent to the filing of this opinion with
and as a part of Post-Effective Amendment No. 14 to your
Registration Statement No. 2-98790.

Very truly yours,

/s/ Ropes & Gray

Ropes & Gray

SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS

Fund name: Putnam Tax-Free High Yield Fund -- Class A Shares
Fiscal period ending: July 31, 1996
Inception date (if less than 10 years of performance): 9/20/93

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 N/A $1,000

ERV = Ending Redeemable Value $1,007 N/A $1,060

T = Average Annual
Total Return 0.70% N/A 2.06%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $3,199,917

Expenses $362,256

Reimbursement $0

Average shares 38,196,483

NAV $14.05

Sales Charge 4.75%

POP $14.75

Yield at POP 6.12%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

6.12% 6.12%
------ = ------ = 10.13%
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, 1996
Inception date (if less than 10 years of performance):

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 $1,001 $1,393 $2,022

T = Average Annual
Total Return 0.11% 6.85% 7.30%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $8,458,817

Expenses $1,713,029

Reimbursement $0

Average shares 100,943,786

NAV $14.05

Maximum Contingent Deferred
Sales Charge 5.0%

Yield at NAV 5.78%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

5.78% 5.78%
------ = ------ = 9.57%
1-39.6% .604%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS

Fund name: Putnam Tax-Free High Yield Fund -- Class M Shares
Fiscal period ending: July 31, 1996
Inception date (if less than 10 years of performance): 12/29/94

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 N/A $1,000

ERV = Ending Redeemable Value $1,020 N/A $1,115

T = Average Annual
Total Return 2.05% N/A 7.10%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $57,894

Expenses $8,945

Reimbursement $0

Average shares 691,352

NAV $14.04

Sales Charge 3.25%

POP $14.51

Yield at POP 5.93%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

5.93% 5.93%
------ = ------ = 9.82%
1-39.6% .604%

SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS

Fund name: Putnam Tax-Free Insured Fund -- Class A Shares
Fiscal period ending: July 31, 1996
Inception date (if less than 10 years of performance): 9/20/93

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 N/A $1,000

ERV = Ending Redeemable Value $1,010 N/A $1,056

T = Average Annual
Total Return 1.03% N/A 1.93%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $956,841

Expenses $142,369

Reimbursement $0

Average shares 13,125,204

NAV $14.94

Sales Charge 4.75%

POP $15.69

Yield at POP 4.79%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

4.79% 4.79%
------ = ------ = 7.93%
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, 1996
Inception date (if less than 10 years of performance):

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 $1,004 $1,345 $1,969

T = Average Annual
Total Return 0.44% 6.12% 7.01%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $1,736,158

Expenses $447,067

Reimbursement $0

Average shares 23,789,202

NAV $14.96

Maximum Contingent Deferred
Sales Charge 5.0%

Yield at NAV 4.39%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

4.39% 4.39%
------ = ------ = 7.76%
1-39.6% .604%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS

Fund name: Putnam Tax-Free Insured Fund -- Class M Shares
Fiscal period ending: July 31, 1996
Inception date (if less than 10 years of performance): 6/1/95

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 N/A $1,000

ERV = Ending Redeemable Value $1,023 N/A $1,104

T = Average Annual
Total Return 2.30% N/A 1.19%*

*Life of fund, if less than 10 years

YIELD

Formula:

Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares

Interest and Dividends $1,537

Expenses $307

Reimbursement $0

Average shares 21,096

NAV $14.94

Sales Charge 3.25%

POP $15.44

Yield at POP 4.57%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD

Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)

4.57% 4.57%
------ = ------ = 7.57%
1-39.6% .604%

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 Class A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 519,775,484
<INVESTMENTS-AT-VALUE> 544,127,866
<RECEIVABLES> 25,676,152
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 569,804,018
<PAYABLE-FOR-SECURITIES> 13,606,409
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,493,512
<TOTAL-LIABILITIES> 18,099,921
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 528,250,789
<SHARES-COMMON-STOCK> 13,178,237
<SHARES-COMMON-PRIOR> 12,400,211
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (254,588)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (556,986)
<ACCUM-APPREC-OR-DEPREC> 24,264,882
<NET-ASSETS> 551,704,097
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35,027,354
<OTHER-INCOME> 0
<EXPENSES-NET> 7,178,330
<NET-INVESTMENT-INCOME> 27,849,024
<REALIZED-GAINS-CURRENT> 7,015,645
<APPREC-INCREASE-CURRENT> (3,721,338)
<NET-CHANGE-FROM-OPS> 31,143,331
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,229,355)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,576,738
<NUMBER-OF-SHARES-REDEEMED> (3,174,889)
<SHARES-REINVESTED> 376,177
<NET-CHANGE-IN-ASSETS> (9,996,426)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7,395,395)
<OVERDISTRIB-NII-PRIOR> (524,841)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,321,088
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,614,054
<AVERAGE-NET-ASSETS> 190,861,397
<PER-SHARE-NAV-BEGIN> 14.86
<PER-SHARE-NII> .81
<PER-SHARE-GAIN-APPREC> .08
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.81)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.94
<EXPENSE-RATIO> .90
<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 Class B AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 519,775,484
<INVESTMENTS-AT-VALUE> 544,127,866
<RECEIVABLES> 25,676,152
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 569,804,018
<PAYABLE-FOR-SECURITIES> 13,606,409
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,493,502
<TOTAL-LIABILITIES> 18,099,921
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 528,250,789
<SHARES-COMMON-STOCK> 23,691,137
<SHARES-COMMON-PRIOR> 25,380,060
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (254,588)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (556,986)
<ACCUM-APPREC-OR-DEPREC> 24,264,882
<NET-ASSETS> 551,704,097
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35,027,354
<OTHER-INCOME> 0
<EXPENSES-NET> 7,178,330
<NET-INVESTMENT-INCOME> 27,849,024
<REALIZED-GAINS-CURRENT> 7,015,645
<APPREC-INCREASE-CURRENT> (3,721,338)
<NET-CHANGE-FROM-OPS> 31,143,331
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,514,787)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,390,957
<NUMBER-OF-SHARES-REDEEMED> (5,808,443)
<SHARES-REINVESTED> 728,563
<NET-CHANGE-IN-ASSETS> (9,996,426)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7,395,395)
<OVERDISTRIB-NII-PRIOR> (524,841)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,321,088
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,614,054
<AVERAGE-NET-ASSETS> 373,004,827
<PER-SHARE-NAV-BEGIN> 14.87
<PER-SHARE-NII> .71
<PER-SHARE-GAIN-APPREC> .09
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.71)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.96
<EXPENSE-RATIO> 1.58
<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 Class M AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 519,775,484
<INVESTMENTS-AT-VALUE> 544,127,866
<RECEIVABLES> 25,676,152
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 569,804,018
<PAYABLE-FOR-SECURITIES> 13,606,409
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,493,512
<TOTAL-LIABILITIES> 18,099,921
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 528,250,789
<SHARES-COMMON-STOCK> 21,735
<SHARES-COMMON-PRIOR> 1,163
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (254,588)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (556,986)
<ACCUM-APPREC-OR-DEPREC> 24,264,882
<NET-ASSETS> 551,704,097
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35,027,354
<OTHER-INCOME> 0
<EXPENSES-NET> 7,178,330
<NET-INVESTMENT-INCOME> 27,849,024
<REALIZED-GAINS-CURRENT> 7,015,645
<APPREC-INCREASE-CURRENT> (3,721,338)
<NET-CHANGE-FROM-OPS> 31,143,331
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,865)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,526
<NUMBER-OF-SHARES-REDEEMED> (3,700)
<SHARES-REINVESTED> 746
<NET-CHANGE-IN-ASSETS> (9,996,426)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7,395,395)
<OVERDISTRIB-NII-PRIOR> (524,841)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,321,088
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,614,054
<AVERAGE-NET-ASSETS> 237,744
<PER-SHARE-NAV-BEGIN> 14.86
<PER-SHARE-NII> .76
<PER-SHARE-GAIN-APPREC> .08
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.76)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.94
<EXPENSE-RATIO> 1.19
<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 High
Yield Fund Class A AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 1,927,171,916
<INVESTMENTS-AT-VALUE> 1,937,673,632
<RECEIVABLES> 46,341,271
<ASSETS-OTHER> 27,820
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,984,042,723
<PAYABLE-FOR-SECURITIES> 204,085
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,800,652
<TOTAL-LIABILITIES> 12,004,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,007,599,887
<SHARES-COMMON-STOCK> 38,481,129
<SHARES-COMMON-PRIOR> 33,600,985
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (428,650)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (45,634,967)
<ACCUM-APPREC-OR-DEPREC> 10,501,716
<NET-ASSETS> 1,972,037,986
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 139,031,636
<OTHER-INCOME> 0
<EXPENSES-NET> 25,364,282
<NET-INVESTMENT-INCOME> 113,667,354
<REALIZED-GAINS-CURRENT> 15,016,204
<APPREC-INCREASE-CURRENT> (28,204,166)
<NET-CHANGE-FROM-OPS> 100,479,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (32,034,038)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,029,114
<NUMBER-OF-SHARES-REDEEMED> (9,324,390)
<SHARES-REINVESTED> 1,175,420
<NET-CHANGE-IN-ASSETS> 58,241,707
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,337,732)
<OVERDIST-NET-GAINS-PRIOR> (58,261,178)
<GROSS-ADVISORY-FEES> 10,591,058
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,011,824
<AVERAGE-NET-ASSETS> 512,885,166
<PER-SHARE-NAV-BEGIN> 14.14
<PER-SHARE-NII> .90
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> (.89)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.05
<EXPENSE-RATIO> .84
<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 High
Yield Fund Class B AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 1,927,171,916
<INVESTMENTS-AT-VALUE> 1,937,673,632
<RECEIVABLES> 46,341,271
<ASSETS-OTHER> 27,820
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,984,042,723
<PAYABLE-FOR-SECURITIES> 204,085
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,800,652
<TOTAL-LIABILITIES> 12,004,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,007,599,887
<SHARES-COMMON-STOCK> 101,150,560
<SHARES-COMMON-PRIOR> 101,591,475
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (428,650)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (45,634,967)
<ACCUM-APPREC-OR-DEPREC> 10,501,716
<NET-ASSETS> 1,972,037,986
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 139,031,636
<OTHER-INCOME> 0
<EXPENSES-NET> 25,364,282
<NET-INVESTMENT-INCOME> 113,667,354
<REALIZED-GAINS-CURRENT> 15,016,204
<APPREC-INCREASE-CURRENT> (28,204,166)
<NET-CHANGE-FROM-OPS> 100,479,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (80,787,224)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,982,574
<NUMBER-OF-SHARES-REDEEMED> (30,078,430)
<SHARES-REINVESTED> 2,654,941
<NET-CHANGE-IN-ASSETS> 58,241,707
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,337,732)
<OVERDIST-NET-GAINS-PRIOR> (58,261,178)
<GROSS-ADVISORY-FEES> 10,591,058
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,011,824
<AVERAGE-NET-ASSETS> 1,445,733,531
<PER-SHARE-NAV-BEGIN> 14.14
<PER-SHARE-NII> .80
<PER-SHARE-GAIN-APPREC> (.09)
<PER-SHARE-DIVIDEND> (.80)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.05
<EXPENSE-RATIO> 1.50
<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 Class M AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 1,927,171,916
<INVESTMENTS-AT-VALUE> 1,937,673,632
<RECEIVABLES> 46,341,271
<ASSETS-OTHER> 27,820
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,984,042,723
<PAYABLE-FOR-SECURITIES> 204,085
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,800,652
<TOTAL-LIABILITIES> 12,004,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,007,599,887
<SHARES-COMMON-STOCK> 711,019
<SHARES-COMMON-PRIOR> 164,963
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (428,650)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (45,634,967)
<ACCUM-APPREC-OR-DEPREC> 10,501,716
<NET-ASSETS> 1,972,037,986
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 139,031,636
<OTHER-INCOME> 0
<EXPENSES-NET> 25,364,282
<NET-INVESTMENT-INCOME> 113,667,354
<REALIZED-GAINS-CURRENT> 15,016,204
<APPREC-INCREASE-CURRENT> (28,204,166)
<NET-CHANGE-FROM-OPS> 100,479,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (327,003)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 603,316
<NUMBER-OF-SHARES-REDEEMED> (74,012)
<SHARES-REINVESTED> 16,752
<NET-CHANGE-IN-ASSETS> 58,241,707
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,337,732)
<OVERDIST-NET-GAINS-PRIOR> (58,261,178)
<GROSS-ADVISORY-FEES> 10,591,058
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,011,824
<AVERAGE-NET-ASSETS> 5,509,644
<PER-SHARE-NAV-BEGIN> 14.13
<PER-SHARE-NII> .84
<PER-SHARE-GAIN-APPREC> (.08)
<PER-SHARE-DIVIDEND> (.85)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.04
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>