PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II, 497, 1995-04-07

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II
497, 1995-04-07

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PROSPECTUS
OCTOBER 1,
1994 , AS REVISED APRIL
1, 1995

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II
PUTNAM OHIO TAX EXEMPT INCOME FUND II
CLASS A , B AND M SHARES
INVESTMENT STRATEGY: TAX-ADVANTAGED

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

Each Fund invests primarily in a portfolio of State Tax Exempt
Securities, which may include securities of issuers other than
the relevant state and its political subdivisions.

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

BOSTON*LONDON*TOKYO
<PAGE>

ABOUT THE FUNDS

Expenses summary
3

..........................................................

Financial highlights
6
..........................................................</
R>
Objectives

11
..........................................................</
R>
How objectives are pursued

11
.........................................................
.
Risk factors
14

..........................................................

How performance is shown
21
.........................................................
.
How the Funds are managed
22
.........................................................
.
Organization and history
23

ABOUT YOUR INVESTMENT

Alternative sales arrangements
25

......................................................... <
/R>
How to buy shares

26
.........................................................

Distribution Plans
31
.........................................................</R
>
How to sell shares

32
.........................................................

How to exchange shares
34
.........................................................

How the Funds value their shares
34

.........................................................
How distributions are made; tax information
35

ABOUT PUTNAM INVESTMENTS, INC.
39

APPENDIX

Tax-exempt security ratings
40 <PAGE>
ABOUT THE FUNDS

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing in
each Fund. The following table summarizes your maximum
transaction costs from investing in each Fund and expenses
incurred in its 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
<PAGE>
<TABLE>
<CAPTION>

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

Class B Shares

Class M Shares

Putnam Putnam Putnam Putnam
Massachusetts Michigan Minnesota Ohio
Tax Exempt Tax Exempt Tax Exempt Tax Exempt
Income Income Income Income
Fund II Fund II Fund II Fund II
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Management Fees 0.60% 0.60% 0.60% 0.60%
12b-1 Fees 0.50% 0.50% 0.50% 0.50%
Other Expenses 0.16% 0.19% 0.23% 0.19%
Total Fund Operating Expenses 1.26% 1.29% 1.33% 1.29%
/TABLE
<PAGE>
The tables are provided to help you understand the expenses of
investing in each Fund and your share of the operating expenses
which that Fund incurs. The expense information for Class B
shares shown in the table has been annualized, except for "Other
expenses," which have been restated based on information for
Class A shares. Actual management fees for Class B shares of the
Massachusetts, Michigan, Minnesota and Ohio Funds were 0.52%,
0.52%, 0.51% and 0.51%, respectively; actual Class B 12b-1 fees
for each Fund were 0.75%; actual "Other expenses for
Class B shares of the Massachusetts, Michigan, Minnesota and Ohio
Funds were 0.14%, 0.15%, 0.21% and 0.16%, respectively ;
and actual total operating expenses for Class B shares of
the Massachusetts, Michigan, Minnesota and Ohio Funds were 1.41%,
1.42%, 1.47% and 1.42%, respectively. The 12b-1 fees for each
Fund for Class M shares shown in the table reflect the amount to
which the Trustees currently limit payments under the Class M
Distribution Plans. For Class M shares, management fees and
"Other expenses" are estimated based on the operating expenses
for each Fund's Class A shares.
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES

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

1 year 3 years 5 years 10 years

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II

CLASS A $57 $77 $98 $160
CLASS B $66 $81 $108 $174***
CLASS M $45 $71 $99 $180

PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II

CLASS A $57 $78 $100 $163
CLASS B $67 $82 $109 $177***
CLASS M $45 $72 $101 $183

PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II

CLASS A $58 $79 $102 $167
CLASS B $67 $83 $111 $181***
CLASS M $46 $73 $103 $187

PUTNAM OHIO TAX EXEMPT INCOME FUND II

CLASS A $57 $78 $100 $163
CLASS B $67 $82 $109 $177***
CLASS M $49 $83 $119 $221
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Your investment of $1,000 would incur the following expenses, assuming 5% annual return
but no redemption:

1 year 3 years 5 years 10 years

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II

CLASS A $57 $77 $98 $160
CLASS B $16 $51 $88 $174***
CLASS M $45 $71 $99 $180

PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II

CLASS A $57 $78 $100 $163
CLASS B $17 $52 $89 $177***
CLASS M $45 $72 $101 $183

PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II

CLASS A $58 $79 $102 $167
CLASS B $17 $53 $91 $181***
CLASS M $46 $73 $103 $187

PUTNAM OHIO TAX EXEMPT INCOME FUND II

CLASS A $57 $78 $100 $163
CLASS B $16 $51 $88 $175***
CLASS M $49 $83 $119 $221

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

* 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 as part of an investment of
$1 million or more. See "How to buy shares - Class
A shares."

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

FINANCIAL HIGHLIGHTS

The tables on the following pages present per share financial
information for Class A and B shares of each Fund. No Class M
shares were outstanding during these periods. This
information has been audited and reported on by each Fund's
independent accountants. The Report of Independent Accountants
and financial statements included in each Fund's Annual Report to
shareholders for the 1994 fiscal year are incorporated by
reference into this Prospectus. Each Fund's Annual Report, which
contains additional unaudited performance information, is
available without charge upon request. On March 9, 1992, Putnam
Michigan Tax Exempt Income Fund II, Putnam Minnesota Tax Exempt
Income Fund II and Putnam Ohio Tax Exempt Income Fund II acquired
the net assets of Putnam Michigan Tax Exempt Income Fund, Putnam
Minnesota Tax Exempt Income Fund and Putnam Ohio Tax Exempt
Income Fund, respectively. On May 11, 1992, Putnam Massachusetts
Tax Exempt Income Fund II acquired the net assets of Putnam
Massachusetts Tax Exempt Income Fund. The value of portfolio
securities acquired as a result of the above acquisitions has
been excluded from security purchases in determining the
portfolio turnover of each Fund for the fiscal year ended May 31,
1992.

(THE TABLE FOR MASSACHUSETTS TAX EXEMPT INCOME FUND II IS
INCORPORATED BY REFERENCE FROM POST-EFFECTIVE AMENDMENT NO. 14 TO
THE FUND'S REGISTRATION STATEMENT, FILE NO. 33-5416.)

(THE TABLE FOR MICHIGAN TAX EXEMPT INCOME FUND II IS
INCORPORATED BY REFERENCE FROM POST-EFFECTIVE AMENDMENT NO. 14 TO
THE FUND'S REGISTRATION STATEMENT, FILE NO. 33-8923.)

(THE TABLE FOR MINNESOTA TAX EXEMPT INCOME FUND II IS
INCORPORATED BY REFERENCE FROM POST-EFFECTIVE AMENDMENT NO. 14 TO
THE FUND'S REGISTRATION STATEMENT, FILE NO. 33-8916.)

(THE TABLE FOR OHIO TAX EXEMPT INCOME FUND II IS INCORPORATED
BY REFERENCE FROM POST-EFFECTIVE AMENDMENT NO. 14 TO THE FUND'S
REGISTRATION STATEMENT, FILE NO. 33-8924.)
<PAGE>
OBJECTIVES

EACH FUND SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM
FEDERAL INCOME TAX AND PERSONAL INCOME TAX OF ITS RESPECTIVE
STATE AS PUTNAM INVESTMENT MANAGEMENT , INC., THE FUND'S
INVESTMENT MANAGER ("PUTNAM MANAGEMENT") BELIEVES IS
CONSISTENT WITH PRESERVATION OF CAPITAL. None of the Funds is
intended to be a complete investment program, and there is no
assurance that any Fund will achieve its objective.

HOW OBJECTIVES ARE PURSUED

BASIC INVESTMENT STRATEGY

EACH FUND SEEKS ITS OBJECTIVE BY INVESTING AT LEAST 80% OF ITS
NET ASSETS IN STATE TAX EXEMPT SECURITIES (WHICH ARE DESCRIBED
BELOW), EXCEPT WHEN INVESTING FOR DEFENSIVE PURPOSES DURING TIMES
OF ADVERSE MARKET CONDITIONS. Under current law, to the extent
distributions by a Fund are derived from interest on State Tax
Exempt Securities and are designated as such , they shall be
exempt from federal income tax (and, with respect to state
tax, in the case of the Minnesota Fund, provided at least 95%
of that Fund's total exempt-interest dividends are derived from
interest obligations of the State of Minnesota and its agencies,
instrumentalities and political subdivisions) and personal
income tax in the relevant state. Each Fund may also invest from
time to time in securities exempt only from federal income tax
and in taxable obligations described below under "Alternative
investment strategies" to the extent permitted by its investment
policies, or hold its assets in cash or money market instruments.

Each Fund's investments will be limited to securities rated at
the time of purchase not lower than the five highest grades
assigned by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa,
A, Baa or Ba) and Standard & Poor's Corporation ("S& P")
(AAA, AA, A, BBB or BB), or unrated securities which Putnam
Management determines are of comparable quality. Securities
rated Ba or BB are considered to have speculative elements, with
large uncertainties or major risk exposures to adverse
conditions. Putnam Management expects that each Fund will
generally invest in State Tax Exempt Securities of longer
maturities (10 years or more), but each Fund may invest in State
Tax Exempt Securities having a broad range of maturities. During
fiscal 1994, 100% of each Fund's distributions were exempt from
federal income tax and personal income tax of its respective
state.

INTEREST INCOME FROM CERTAIN TYPES OF STATE TAX EXEMPT SECURITIES
MAY BE SUBJECT TO FEDERAL ALTERNATIVE MINIMUM TAX FOR
INDIVIDUALS . It is a fundamental policy of each Fund to
exclude these securities from the term "State Tax Exempt
Securities" for purposes of determining compliance with the 80%
test described above. More generally, corporations may be
subject to federal alternative minimum tax on a portion of
the exempt-interest dividends they receive from a Fund
.

Each Fund may trade its portfolio investments seeking short-term
profits. In pursuing its objective, a Fund may, to a limited
extent, buy and sell financial futures contracts and related
options and may enter into forward commitments and repurchase
agreements. These incidental investment practices, which may
produce taxable income or capital gains and involve special
risks, are described below.

At times Putnam Management may judge that conditions in the
markets for State Tax Exempt Securities make pursuing a Fund's
basic investment strategy inconsistent with the best interests of
its shareholders. At such times Putnam Management may without
limit temporarily use alternative strategies, primarily
designed to reduce fluctuations in the value of a Fund's assets.
In implementing these "defensive" strategies, a Fund may invest
without limit in taxable obligations, including:
obligations of the U.S. government, its agencies or
instrumentalities; obligations issued by governmental issuers in
other states, the interest on which would be exempt from federal
income tax; other debt securities rated within the four highest
grades by either Moody's or S & P; commercial paper rated
in the highest grade by either rating service (Prime-1 or A-1+,
respectively); certificates of deposit and bankers' acceptances;
repurchase agreements with respect to any of the foregoing
investments; or any other securities that Putnam Management
considers consistent with such defensive strategies. It is
impossible to predict when, or for how long, a Fund will use such
alternative strategies.

STATE TAX EXEMPT SECURITIES

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

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

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

INVESTMENTS IN PREMIUM SECURITIES

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

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

EACH FUND MAY INVEST IN BOTH HIGHER-RATED AND LOWER-RATED STATE
TAX EXEMPT SECURITIES. The values of lower-rated securities
generally fluctuate more than those of higher-rated securities.
In addition, the lower rating reflects a greater possibility that
the financial condition of the issuer, or adverse changes in
general economic conditions, or both, may impair the ability of
the issuer to make payments of income and principal. In addition,
under such circumstances the values of such securities may be
more volatile, and the markets for such securities may be less
liquid, than those for higher-rated securities, and a Fund may as
a result find it more difficult to determine the fair value of
such securities. A Fund will not purchase State Tax Exempt
Securities rated both Ba by Moody's and BB by S&P at the
time of purchase, or, if unrated, determined to be of comparable
quality if, as a result, more than 25% of the Fund's total assets
would be invested in securities of that quality. The rating
services' descriptions of the five highest grades of debt
securities and other rating information are included in this
Prospectus. A Fund will not necessarily dispose of a security
when its rating is reduced below its rating at the time of
purchase, although Putnam Management will monitor the investment
to determine whether continued investment in the security will
assist in meeting that Fund's investment objective.

Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis.
However, the amount of information about the financial condition
of an issuer of State Tax Exempt Securities may not be as
extensive as that which is made available by corporations whose
securities are publicly traded. When a Fund invests in State Tax
Exempt Securities in the lower rating categories, the achievement
of that Fund's goals is more dependent on Putnam Management's
ability than would be the case if that Fund were investing in
State Tax Exempt Securities in the higher rating categories.
Investors should consider carefully their ability to assume the
risks of owning shares of a mutual fund which may invest in
securities in certain of the lower rating categories.
<PAGE>
<TABLE>
<CAPTION>

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

PUTNAM PUTNAM PUTNAM PUTNAM
MASSACHUSETTS MICHIGAN MINNESOTA OHIO
TAX EXEMPT TAX EXEMPT TAX EXEMPT TAX EXEMPT
INCOME FUND II INCOME FUND II INCOME FUND II INCOME FUND II

------------------------- -------------------------- ------------------------ ------------------------
UNRATED UNRATED UNRATED UNRATED
RATED SECURITIES RATED SECURITIES RATED SECURITIES RATED SECURITIES
SECURITIES OF COMPARABLE SECURITIES OF COMPARABLE SECURITIES OF COMPARABLE SECURITIES OF COMPARABLE
AS PERCENTAGE QUALITY, ASAS PERCENTAGE QUALITY, ASAS PERCENTAGE QUALITY, ASAS
PERCENTAGE QUALITY, AS
OF FUND'S PERCENTAGE OF OF FUND'S PERCENTAGE OF OF FUND'S PERCENTAGE OF OF FUND'S PERCENTAGE OF
RATINGS ASSETS FUND'S ASSETS ASSETS FUND'S ASSETS ASSETS FUND'S ASSETS ASSETS FUND'S ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

"AAA"/"Aaa" 35.81% - 45.28% - 25.84% - 47.54% -
"AA"/"Aa" 6.69% - 3.67% - 20.53% - 10.89% -
"A"/"A" 23.19% - 12.47% 3.08% 34.48% - 5.08% -
"BBB"/"Baa" 15.28% 5.59% 19.54% 6.45% 9.72% 4.40% 20.32% 9.35%
"BB"/"Ba " - 14.44% 1.77% 7.20% - 5.03% 1.85% 4.97%
"B"/"B" - - 0.54% - - -
------ ------ ------ ------ ------- ------ ------ ------
80.97% 19.03% 83.27% 16.73% 90.57% 9.43% 85.68% 14.32%
- ------------------------------------------------------------------------------------------------------------------------
FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH INVESTMENTS BY THE FUNDS IN SECURITIES IN THE LOWER
RATING CATEGORIES, SEE THE STATEMENT OF ADDITIONAL INFORMATION.
/TABLE
<PAGE>

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

Certain securities held by a Fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by a 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.

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

The secondary market for State Tax Exempt Securities is
generally less liquid than that for taxable fixed-income
securities, particularly for securities in the lower
rating categories. Thus it may be more difficult to value
or to buy and sell certain securities from time to
time.

SINCE THE FUNDS INVEST PRIMARILY IN STATE TAX EXEMPT SECURITIES,
THE VALUE OF EACH FUND'S SHARES MAY BE ESPECIALLY AFFECTED BY
FACTORS PERTAINING TO THE ECONOMY OF ITS RELEVANT STATE AND OTHER
FACTORS SPECIFICALLY AFFECTING THE ABILITY OF ISSUERS OF STATE
TAX EXEMPT SECURITIES TO MEET THEIR OBLIGATIONS. As a result,
the value of each Fund's shares may fluctuate more widely than
the value of shares of a portfolio investing in securities
relating to a number of different states. The ability of state,
county or local governments to meet their obligations will depend
primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental
issuers of State Tax Exempt Securities may be affected from time
to time by economic, political and demographic conditions that
effect the particular state. In addition, constitutional or
statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of federal, state
and local aid to issuers of State Tax Exempt Securities may also
affect their ability to meet their obligations. Payments of
principal and interest on special obligation securities will
depend on the economic condition of the facility or specific
revenue source from whose revenues the payments will be made,
which in turn could be affected by economic, political and
demographic conditions in the particular state. Any reduction in
the actual or perceived ability of an issuer of State Tax Exempt
Securities to meet its obligations (including a reduction in the
rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations
and could affect adversely the values of other State Tax Exempt
Securities as well.

DIVERSIFICATION AND CONCENTRATION POLICIES

EACH FUND IS A SEPARATE "DIVERSIFIED" INVESTMENT COMPANY UNDER
THE INVESTMENT COMPANY ACT OF 1940. This means that with respect
to 75% of its total assets, a Fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). Thus a Fund may invest up to 25% of its
total assets in the securities of any one issuer. Because of the
relatively small number of issuers of State Tax Exempt
Securities, a Fund is more likely to invest a higher percentage
of its assets in the securities of a single issuer than
would an investment company which invests in voting securities.
This practice involves an increased risk of loss to that
Fund if the issuer is unable to make interest or principal
payments or if the market value of such securities were to
decline.

NO FUND WILL INVEST MORE THAN 25% OF ITS TOTAL ASSETS IN
ANY ONE INDUSTRY. Governmental issuers of State Tax Exempt
Securities are not considered part of any "industry." However,
State Tax Exempt Securities backed only by the assets and
revenues of nongovernmental users may for this purpose (and
for diversification purposes discussed above) be deemed to be
issued by such nongovernmental users . Thus, the 25%
limitation would apply to such obligations.

It is nonetheless possible that a Fund may invest more than 25%
of its assets in a broader segment of the market for State 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
such obligations could be supported by the credit of governmental
users or by the credit of nongovernmental users engaged in a
number of industries, economic, business, political and other
developments generally affecting the revenues of such issuers
(for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors
affecting the demand for their services or products) may have a
general adverse effect on all State Tax Exempt Securities in such
a market segment.

Each Fund reserves the right to invest more than 25% of its
assets in industrial development and private activity
bonds .

PORTFOLIO TURNOVER

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

FINANCIAL FUTURES AND RELATED OPTIONS

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

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

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

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

Other investment practices

Each Fund may also engage to a limited extent in the following
investment practices, some of which may result in realization of
taxable income or capital gains and each of which involves
certain special risks. The Statement of Additional Information
contains more detailed information about these practices,
including limitations designed to reduce these risks.

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

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP EACH FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT A FUND
FROM investing more than: (a) 5% of its total assets in the
securities of any one issuer (other than obligations of the U.S.
government or its agencies or instrumentalities, and State Tax
Exempt Securities);* (b) 5% of its net assets in securities of
any issuers if the parties responsible for payment, together with
any predecessors, have been in operation for less than three
consecutive years (except obligations of the U.S. government, its
agencies and instrumentalities and obligations backed by the
full faith, credit and taxing power of any person
authorized to issue State Tax Exempt Securities); (c) 15% of its
net assets in securities restricted as to resale, excluding
restricted securities that have been determined by the
Funds' Trustees (or the person designated by them
to make such determinations) to be readily marketable;* (d) 25%
of its total assets in any one industry (other than State Tax
Exempt Securities backed by governmental issuers and obligations
of the U.S. government, its agencies or instrumentalities);* or
(e) 15% of its net assets in securities that are not readily
marketable, securities restricted as to resale (excluding
securities determined by the Funds' Trustees (or
the person designated by the Fund's Trustees to make such
determinations) to be readily marketable), and repurchase
agreements maturing in more than seven days.

Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the Statement of
Additional Information for the full text of these policies and
the Funds' other fundamental investment policies. Except
for investment policies designated as fundamental in this
Prospectus or the Statement, and the policy that under normal
market conditions at least 80% of each Fund's net assets will be
invested in State Tax Exempt Securities (other than securities
which may be subject to federal alternative minimum tax), the
investment policies described in this Prospectus and in the
Statement are not fundamental investment policies. The
Trustees may change any non-fundamental investment policies
without shareholder approval. As a matter of policy, the
Trustees would not materially change a Fund's investment
objective without shareholder approval.

HOW PERFORMANCE IS SHOWN

EACH FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT A FUND. "Yield" for each class
of shares is calculated by dividing the annualized net investment
income per share of such class during a recent 30-day period by
the maximum public offering price per share of such class on the
last day of that period. For this purpose, net investment income
is calculated in accordance with SEC regulations and may differ
from net investment income as determined for financial reporting
purposes. SEC regulations require that net investment income be
calculated on a "yield-to-maturity" basis, which has the effect
of amortizing any premiums or discounts in the current market
value of fixed-income securities. The current dividend rate is
based on net investment income as determined for
financial statement purposes, which may not reflect amortization
in the same manner. See "How objectives are pursued --
Investments in premium securities." Yield reflects the
deduction of the maximum initial sales charge in the case of
Class A and Class M shares, but does not reflect the
deduction of any contingent deferred sales charge in the case of
Class B shares. "Tax-equivalent" yield for each class of shares
shows the effect on performance of the tax-exempt status of
distributions received from a 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 Fund'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 a Fund invested at
the maximum public offering price (in the case of Class A and
Class M shares) or reflecting the deduction of any applicable
contingent deferred sales charge (in the case of Class B shares).
Total return may also be presented for other periods or based on
investment at reduced sales charge levels. Any quotation of
investment performance not reflecting the maximum initial sales
charge or contingent deferred sales charge would be reduced if
such sales charge were used.

ALL DATA IS BASED ON A FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of a Fund's portfolio, a Fund's operating
expenses and which class of shares you purchase .
Investment performance also often reflects the risks associated
with a Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results
to those of other mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. Each Fund's performance may be
compared to various indices. See the Statement of Additional
Information.

HOW THE FUNDS ARE MANAGED

THE TRUSTEES OF EACH FUND ARE RESPONSIBLE FOR GENERALLY
OVERSEEING THE CONDUCT OF THAT FUND'S BUSINESS. Subject to such
policies as the Trustees of each Fund may determine, Putnam
Management furnishes a continuing investment program for each
Fund and makes investment decisions on its behalf. Subject to
the control of the Trustees, Putnam Management also manages each
Fund's other affairs and business. Triet Nguyen, Senior Vice
President of Putnam Management and Vice President of Putnam
Massachusetts Tax Exempt Income Fund II and Howard K.
Manning, Senior Vice President of Putnam Management and Vice
President of Putnam Michigan Tax Exempt Income Fund II and Putnam
Minnesota Tax Exempt Income Fund II , are primarily
responsible for the day-to-day management of the
respective Fund's portfolio. Richard P. Wyke, Senior
Vice President of Putnam Management, is primarily responsible for
the day-to-day management of Putnam Ohio Tax Exempt Income Fund
II. Mr. Nguyen has had these responsibilities since 1989,
Mr. Manning since 1993 and Mr. Wyke since
1995 . Messrs. Nguyen , Manning and Wyke have
been employed by Putnam Management since 1985 ,
1986 and 1987 , respectively.

Each Fund 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). Each Fund also reimburses Putnam
Management for the compensation and related expenses of certain
officers of that Fund and their staff who provide administrative
services to that Fund. The total reimbursement is determined
annually by the Trustees.

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

ORGANIZATION AND HISTORY

Each Fund is a separate Massachusetts business trust (a "Trust").
Putnam Massachusetts Tax Exempt Income Fund II was organized on
March 7, 1986. Each of Putnam Michigan Tax Exempt Income Fund
II, Putnam Minnesota Tax Exempt Income Fund II and Putnam Ohio
Tax Exempt Income Fund II was organized on September 2, 1986. A
copy of each Fund's Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of
State of The Commonwealth of Massachusetts.

Each Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of each Fund may, without shareholder
approval, be divided into two or more series of such shares
representing separate investment portfolios. 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.
Each Fund's shares are currently divided into three
classes.

Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when required by law or as determined by the
Trustees. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if a Fund were
liquidated, would receive the net assets of that Fund. A Fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although none of the Funds is 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 each Fund's Agreement and
Declaration of Trust.
<PAGE>
Although each Fund is offering only its own shares in this
Prospectus, it is possible that a Fund might become liable for
any misstatement in the Prospectus about another Fund. The
Trustees of each Fund have considered this factor in approving
the use of a single prospectus.

If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), a Fund may choose to redeem your shares
and pay you for them. You will receive at least 30 days' written
notice before a Fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. A 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 FUNDS' TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, M.I.T.; JAMESON ADKINS BAXTER, President, Baxter
Associates, Inc.; HANS H. ESTIN, Vice Chairman, North American
Management Corp. ; JOHN A. HILL, Principal and Managing
Director, First Reserve Corporation; ELIZABETH T. KENNAN,
President, Mount Holyoke College; LAWRENCE J. LASSER,* Vice
President of the Putnam funds. President, Chief Executive
Officer and Director of Putnam Investments, Inc. and Putnam
Management. Director, Marsh & McLennan Companies, Inc.; ROBERT
E. PATTERSON, Executive Vice President, Cabot Partners Limited
Partnership; DONALD S. PERKINS, * Chairman of the Board and
Director of Kmart Corporation and Director of various
corporations, including AT&T and Time Warner Inc.; GEORGE
PUTNAM, III,* President, New Generation Research, Inc.; A.J.C.
SMITH,* Chairman, Chief Executive Officer and Director, Marsh &
McLennan Companies, Inc.; and W. NICHOLAS THORNDIKE, Director of
various corporations and charitable organizations, including
Data General Corporation, Bradley Real Estate, Inc. and
Providence Journal Co. Also, Trustee of Massachusetts
General Hospital and Eastern Utilities Associates.
The Funds' 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 Fund, Putnam Management or
Putnam Mutual Funds.

ABOUT YOUR INVESTMENT

ALTERNATIVE SALES ARRANGEMENTS

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

CLASS A SHARES. An investor who purchases Class A shares pays a
sales charge at the time of purchase. As a result, Class A shares
are not subject to any charges when they are redeemed (except for
sales at net asset value in excess of $1 million which are
subject to a contingent deferred sales charge). Certain
purchases of Class A shares qualify for reduced sales charges.
Class A shares currently bear a 12b-1 fee at the annual rate of
0.20% of each Fund's average net assets attributable to Class A
shares. See "How to buy shares - Class A shares."

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

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

WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider Class A
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. Sales personnel may receive different
compensation depending on which class of shares they sell.
Shares may only be exchanged for shares of the same class of
another Putnam fund. See "How to exchange shares . "

HOW TO BUY SHARES

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

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

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

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

CLASS A SHARES .

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

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

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

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

CLASS B SHARES .

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

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

0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and thereafter NONE
<PAGE>
In determining whether a CDSC is payable on any redemption, a
Fund will first redeem shares not subject to any charge, and then
shares held longest during the six-year period. For this
purpose, the amount of any increase in a share's value above its
initial purchase price is not regarded as a share exempt
from the CDSC. Thus, when a share that has appreciated in
value is redeemed during the relevant period, a CDSC is
assessed on its initial purchase price. For information on how
sales charges are calculated if you exchange your shares, see
"How to exchange shares." Putnam Mutual Funds receives the
entire amount of any CDSC you pay.

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

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

SALES CHARGE
AS A PERCENTAGE OF: AMOUNT OF SALES
------------------- CHARGE REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE OFFERING PRICE*
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 50,000 3.36% 3.25% 3.00%
$50,000 but less than $100,000 2.30 2.25 2.00
100,000 but less than 250,000 1.52 1.50 1.25
250,000 but less than 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
- ---------------------------------------------------------------------------------------
/TABLE
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers.
The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.

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

GENERAL

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

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

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

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

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

DISTRIBUTION PLANS

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

In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares of the Funds and the
maintenance of shareholder accounts, Putnam Mutual Funds makes
quarterly payments to qualifying dealers based on the average net
asset value of Class A shares of the Funds which are attributable
to shareholders for whom the dealers are designated as the dealer
of record. This calculation excludes until one year after
purchase shares purchased at net asset value by shareholders
investing $1 million or more and by participant-directed
qualified retirement plans sponsored by employers with more than
750 employees ("NAV Shares"), except for shares owned by certain
investors investing $1 million or more that have made
arrangements with Putnam Mutual Funds and whose dealer of record
waived the sales commission. Except as stated below, Putnam
Mutual Funds makes such payments at the annual rate of 0.15% of
the average net asset value of Class A shares outstanding as of
March 9, 1992 (for the Michigan, Minnesota and Ohio Funds) and as
of May 11, 1992 (for the Massachusetts Fund) and 0.20% of the
average net asset value of Class A shares acquired after such
dates (including Class A shares acquired through reinvestment of
distributions.) For participant-directed qualified retirement
plans initially investing less than $20 million in Putnam funds
and other investments managed by Putnam Management or its
affiliates, Putnam Mutual Funds' payments to qualifying dealers
on NAV Shares are 100% of the rate stated above if average plan
assets in Putnam funds (excluding money market funds) during the
quarter are less than $20 million, 60% of the stated rate if
average plan assets are at least $20 million but less than $30
million, and 40% of the stated rate if average plan assets are
$30 million or more. For all other participant-directed
qualified retirement plans purchasing NAV Shares, Putnam Mutual
Funds makes quarterly payments to qualifying dealers at the
annual rate of 0.10% of the average net asset value of such
shares.

CLASS B AND CLASS M DISTRIBUTION PLANS. The Class B
and the Class M Plans provide for payments by each Fund to
Putnam Mutual Funds at the annual rate of up to 1.00% of each
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 Plan and the Class M plan
to the annual rate of 0.85% and 0.50%, respectively, of
such assets. Should the Trustees decide in the future to
approve payments in excess of these amounts , shareholders
will be notified and this Prospectus will be revised.

Although Class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested (including a prepaid service fee of 0.20% of the
amount invested) to dealers who sell Class B shares. These
commissions are not paid on exchanges from other Putnam funds and
sales to investors exempt from the CDSC. The amount paid to
dealers at the time of the sale of Class M shares is set forth
above under "How to buy shares -- Class M shares." In
addition, in order to further compensate dealers (including, for
this purpose, certain financial institutions) for services
provided in connection with sales of Class B shares and Class
M shares and the maintenance of shareholder accounts, Putnam
Mutual Funds makes quarterly payments to qualifying dealers based
on the average net asset value of Class B shares and Class
M shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record, except for the
first year's service fees, which are prepaid as described above.
Putnam Mutual Funds makes such payments at an annual rate
of 0.20% of such average net asset value of Class B
shares and Class M shares, as the case may be. Putnam Mutual
Funds also pays to dealers, as additional compensation with
respect to the sale of Class M shares, 0.20% of such average net
asset value of Class M shares . For Class M shares, the
total annual payment to dealers equals 0.40% 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 each Fund's
shares, including the payments to dealers mentioned above.
Putnam Mutual Funds may suspend or modify such payments
to dealers . Such payments are also subject to the
continuation of each Fund's 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 your Fund any day the New York Stock
Exchange is open, either directly to the Fund or through your
investment dealer. A 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 your 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 of a Fund having a net asset value
of $100,000 or more, the signatures of the registered owners or
their legal representatives must be guaranteed by a bank,
broker-dealer or certain other financial institutions. See the
Statement of Additional Information for more information about
where to obtain a signature guarantee. Stock power forms are
available from your investment dealer, Putnam Investor Services
and many commercial banks. If you want your redemption proceeds
sent to an address other than your address as it appears on
Putnam's records, a signature guarantee is required. Putnam
Investor Services usually requires additional documentation for
the sale of shares by a corporation, partnership, agent or
fiduciary, or a surviving joint owner. Contact Putnam Investor
Services for details.

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

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

SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge
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 and using the schedule of any fund into or
from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares.
For purposes of computing the CDSC, the length of time you have
owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.

To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
Exchange Authorization Forms are available by calling or writing
Putnam Investor Services. For federal income tax purposes, an
exchange is treated as a sale of shares and generally results in
a capital gain or loss. A Telephone Exchange Privilege is
currently available for amounts up to $500,000. Putnam Investor
Services' procedures for telephonic transactions are described
above under "How to sell shares." The Telephone Exchange
Privilege is not available if you were issued certificates for
shares which remain outstanding. Ask your investment dealer or
Putnam Investor Services for prospectuses of other Putnam funds.
Shares of certain Putnam funds are not available to residents of
all states.
<PAGE>
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 a Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege.

HOW THE FUNDS VALUE THEIR SHARES

EACH 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 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 (including State 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. Each Fund believes that reliable market
quotations generally are not readily available for purposes of
valuing its portfolio securities. As a result, it is likely that
most of the valuations provided by such pricing service will be
based upon fair value determined on the basis of the factors
listed above. Non-tax-exempt securities for which market
quotations are readily available are 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.
<PAGE>
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

EACH 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 of a
Fund, less accrued expenses, computed in each case since the most
recent determination of net asset value. Normally, a Fund pays
distributions of net interest income monthly. A 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 for the Michigan,
Minnesota and Ohio Funds. Distributions paid by a Fund with
respect to Class A shares will generally be greater than those
paid with respect to Class B and Class M shares because
expenses attributable to Class B and Class M shares will
generally be higher.

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

YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions in additional shares of your Fund without a sales
charge; (2) receive distributions from net interest income in
cash while reinvesting net capital gains distributions, if any,
in additional shares of your Fund without a sales charge; or (3)
receive all distributions in cash. You can change your
distribution option by notifying Putnam Investor Services in
writing. If you do not select an option when you open your
account, all distributions will be reinvested. All distributions
not paid in cash will be reinvested in shares of the class on
which the 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 your Fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in that Fund. Similarly, if
correspondence sent by a Fund or Putnam Investor Services is
returned as "undeliverable," Fund distributions will
automatically be reinvested in the Fund or in another Putnam
fund.

FEDERAL TAXES

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

Distributions designated by the Funds 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 a Fund may have on the taxation
of your benefits. In addition, an investment in a Fund may
result in liability for federal alternative minimum tax and state
and local taxes, both for individual and corporate shareholders.

The Funds may at times purchase State Tax Exempt Securities at a
discount from the price at which they were initially issued. For
federal income tax purposes, some or all of the market discount
will be included in the Funds' ordinary income and will be
taxable as such to shareholders when it is distributed to them.

Each Fund's 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 to
you as such, regardless of how long you have held your shares.
Distributions will be taxable as described above whether received
in cash or in shares through the reinvestment of distributions.

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

STATE TAXES

GENERAL. Except as described below, to the extent not tax-
exempt under each state's income tax purposes (and
Michigan intangibles and single business tax), your proportionate
share of distributions from a Fund's net investment income and
short-term capital gains, if any, will be taxable as ordinary
income, whether you take them in cash or reinvest them in
additional shares of that Fund (except that distributions
reinvested in shares of the Michigan Fund are exempt from
Michigan intangibles tax).

MASSACHUSETTS. Distributions received from Putnam Massachusetts
Tax Exempt Income Fund II are exempt from Massachusetts personal
income tax to the extent that they are derived from interest on
Massachusetts State Tax Exempt Securities and are designated as
such. The Fund has obtained a tax ruling which recognizes for
Massachusetts personal income tax purposes the tax exempt
character of gains realized by the Fund on the sale of certain
Massachusetts State Tax Exempt Securities when those gains are
distributed to shareholders and designated as such.

Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to Massachusetts
corporate excise tax.

MICHIGAN. Distributions received from Putnam Michigan Tax Exempt
Income Fund II are exempt from Michigan personal income tax and
Michigan intangibles tax to the extent they are derived from
interest on Michigan State Tax Exempt Securities, under the
current position of the Michigan Department of Treasury. Such
distributions, if received in connection with a shareholder's
business activity, may, however, be subject to Michigan single
business tax. See the Statement of Additional Information. For
Michigan personal income tax, intangibles tax and single business
tax purposes, Fund distributions attributable to any source other
than interest on Michigan State Tax Exempt Securities will be
fully taxable. Fund distributions may be subject to the uniform
city income tax imposed by certain Michigan cities.

MINNESOTA. Shareholders of Putnam Minnesota Tax Exempt Income
Fund II who are individuals, estates or trusts will not be
subject to Minnesota personal income tax on Fund distributions to
the extent that such distributions qualify as exempt-interest
dividends and represent interest income attributable to interest
on Minnesota State Tax Exempt Securities, provided that at least
95% of the Fund's total exempt-interest dividends are derived
from interest on obligations of the State of Minnesota and its
agencies, instrumentalities and political subdivisions.

Exempt-interest dividends attributable to interest on certain
private activity bonds issued after August 7, 1986 will be
included in Minnesota "alternative taxable income" of
individuals, estates and trusts for purposes of computing
Minnesota's alternative minimum tax.

Losses of individuals, estates and trusts that are disallowed or
treated as long-term losses under current federal law by reason
of the shareholder's receipt of exempt-interest dividends or
capital gain dividends, respectively, are treated similarly under
Minnesota law, notwithstanding, in the case of exempt-interest
dividends, that such dividends may not be fully excludible from
Minnesota gross income.

Fund distributions are not excluded in determining the Minnesota
franchise tax on corporations measured by net income or the
Minnesota alternative minimum tax on corporations.

OHIO. Distributions received from Putnam Ohio Tax Exempt Income
Fund II are exempt from Ohio personal income tax, Ohio school
district income taxes and Ohio municipal income taxes to the
extent they are derived from interest on obligations issued by
the State of Ohio or its political subdivisions or authorities
("Ohio State Securities"), provided that the Fund continues to
qualify as a regulated investment company for federal income tax
purposes and that at all times at least 50% of the value of the
total assets of the Fund consist of Ohio State Securities or
similar obligations of other states or their subdivisions. It is
assumed for purposes of this discussion of Ohio taxation that
these requirements are satisfied. All distributions received from
the Fund are excluded from the net income base of the Ohio
corporation franchise tax to the extent that they are either
exempt from federal income tax or derived from interest on Ohio
State Securities, but the Fund's shares will be included in the
computation of net worth for purposes of such tax.

Distributions of capital gain with respect to shares of the Fund
will be exempt from Ohio personal income tax, Ohio school
district income taxes, and Ohio municipal income taxes, and will
be excluded from the net income base of the Ohio corporation
franchise tax, in each case to the extent that such distributions
are attributable to profit made on the sale, exchange or other
disposition by the Fund of Ohio State Securities. Distributions
that are attributable to interest on obligations of the United
States or of any authority, commission, or instrumentality of the
United States ("Federal Securities") or obligations of Puerto
Rico, the Virgin Islands, or Guam or their authorities or
instrumentalities ("Territorial Securities") will be exempt from
Ohio personal income tax, Ohio school district income taxes, and
Ohio municipal income taxes, and are excluded from the net income
base of the Ohio corporation franchise tax, in each case to the
same extent that such interest would be so exempt or excluded if
the obligations were held directly by the shareholders.
<PAGE>
GENERAL

The foregoing is a summary of certain federal and state
income tax consequences of investing in a Fund. You should
consult your tax adviser to determine the precise effect of an
investment in that Fund on your particular tax situation
(including possible liability for alternative minimum tax and for
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 each Fund and
of other Putnam funds. Putnam Fiduciary Trust Company is each
Fund's custodian. Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, is each Fund's investor servicing and
transfer agent.

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

APPENDIX

TAX-EXEMPT SECURITY RATINGS

The ratings services' descriptions of the tax-exempt securities
in which the Funds will invest are:

MOODY'S INVESTORS SERVICE, INC.:

BONDS

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

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

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

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

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

Moody's ratings for state and municipal notes and other short-
term loans are designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-
term credit risk and long-term risk. Factors affecting the
liquidity of the borrower are uppermost in importance in short-
term borrowing, while various factors of the first importance in
bond risk are of lesser importance in the short run. Loans
bearing the MIG 1 designation are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG 2
designation are of high quality, with margins of protection ample
although not so large as in the preceding group.

STANDARD & POOR'S CORPORATION:

BONDS

AAA -- Debt rated AAA has the highest rating assigned by Standard
& Poor's to a debt obligation. 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 highest rated issues
only in small degree.

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

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

BB -- Debt rated BB 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.

RATINGS OF CORPORATE OBLIGATIONS

The Moody's corporate obligations ratings of Aaa, Aa, A and Baa
and the Standard & Poor's corporate obligations ratings of AAA,
AA, A and BBB do not differ materially from those set forth above
for tax-exempt securities.

RATINGS OF COMMERCIAL PAPER
The commercial paper ratings of A-1+ by Standard & Poor's and
Prime-1 by Moody's are the highest commercial paper ratings of
the respective agencies. The issuer's earnings, quality of long-
term debt, management and industry position are among the factors
considered in assigning such ratings.
<PAGE>
MAKE THE MOST OF YOUR PUTNAM PRIVILEGES

As a Putnam mutual fund shareholder, you have access to a number
of services that can help you build a more effective and flexible
financial program. Here are some of the ways you can use these
privileges to make the most of your Putnam mutual fund
investment.

SYSTEMATIC INVESTMENT PLAN

Invest as much as you wish ($25 or more) on any day of the month
except for the 29th, 30th, or 31st. The amount will be
automatically transferred from your checking or savings account.

SYSTEMATIC WITHDRAWAL

Make regular withdrawals of $50 or more monthly, quarterly, or
semiannually from an account valued at $10,000 or more. You may
establish your withdrawal on any day of the month except for the
29th, 30th, or 31st.

SYSTEMATIC EXCHANGE

Transfer assets automatically from one Putnam account to another
on a regular, prearranged basis. There is no additional charge
for this service.

FREE EXCHANGE PRIVILEGE

Exchange money between Putnam funds in the same class of shares
without charge. The exchange privilege allows you to adjust your
investments as your objectives change. A signature guarantee is
required for exchanges of more than $500,000.

DIVIDENDS PLUS

Diversify your portfolio by investing dividends and other
distributions from one Putnam fund automatically into another at
net asset value.

STATEMENT OF INTENTION

To reduce a front-end sales charge, you agree to invest a minimum
dollar amount over 13 months. Depending on your fund, the
minimum is $25,000, $50,000, or $100,000. Whenever you make an
investment under this arrangement, you or your investment advisor
should notify Putnam that a Statement of Intention is in effect.

Investors may not maintain, within the same fund, simultaneous
plans for systematic investment or exchange and systematic
withdrawal or exchange. These privileges are subject to change
or termination.

For more information about any of these services and privileges,
call your investment advisor or a Putnam customer service
representative toll free at 1-800-225-1581.
<PAGE>
PUTNAM FAMILY OF FUNDS

PUTNAM GROWTH FUNDS

Putnam Asia Pacific Growth Fund
Putnam Diversified Equity Trust
Putnam Europe Growth Fund
Putnam Global Growth Fund
Putnam Health Sciences Trust
Putnam Investors Fund
Putnam Natural Resources Fund
Putnam New Opportunities Fund
Putnam OTC Emerging Growth Fund
Putnam Overseas Growth Fund
Putnam Vista Fund
Putnam Voyager Fund

PUTNAM GROWTH AND INCOME FUNDS

Putnam Convertible Income-Growth Trust
Putnam Dividend Growth Fund
Putnam Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Putnam Growth & Income Fund II
Putnam Managed Income Trust
Putnam Utilities Growth and Income Fund

PUTNAM INCOME FUNDS

Putnam Adjustable Rate U.S. Government Fund
Putnam American Government Income Fund
Putnam Balanced Government Fund
Putnam Diversified Income Trust
Putnam Federal Income Trust
Putnam Global Governmental Income Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam Preferred Income Fund*
Putnam U.S. Government Income Trust
<PAGE>
PUTNAM TAX-FREE INCOME FUNDS

Putnam Intermediate Tax Exempt Fund
Putnam Municipal Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
Putnam STATE TAX-FREE INCOME FUNDS+
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio, and Pennsylvania

LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments seeking to help maximize your return and
reduce your risk.

THE THREE PORTFOLIOS:
Balanced Portfolio
Conservative Portfolio
Growth Portfolio

PUTNAM MONEY MARKET FUNDS
Putnam Money Market Fund
Putnam California Tax Exempt Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Tax Exempt Money Market Fund

*Formerly Putnam Corporate Asset Trust
+Not available in all states.

Please call your financial advisor or Putnam to obtain a
prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Read it carefully
before you invest or send money.

<PAGE>
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II
PUTNAM OHIO TAX EXEMPT INCOME FUND II

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

Michigan and Ohio Funds
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109

Massachusetts and Minnesota Funds
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
<PAGE>
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581 <PAGE>

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II
PUTNAM MICHIGAN TAX EXEMPT IN COME FUND II
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II
PUTNAM OHIO TAX EXEMPT INCOME FUND II

FORM N-1A
PART B

STATEMENT OF ADDITIONAL INFOR MATION
OCTOBER 1, 1994

, AS REVISED APRIL 1, 1995

This Statement of Additional Information is not a Prospectus and
is only authorized for distribution when accompanied or preceded
by the Prospectus of the Funds dated October 1, 1994, as revised
from time to time. This Statement contains information which may
be useful to investors but which is not included in the
Prospectus. If a Fund has more than one form of current
Prospectus, each reference to the Prospectus in this Statement
shall include all of that Fund's Prospectuses, unless otherwise
noted. The Statement should be read together with the applicable
Prospectus. Investors may obtain a free copy of the applicable
Prospectus from Putnam Investor Services, Mailing address: P.O.
Box 41203, Providence, RI 02940-1203.

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

PART I
PAGE

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

INVESTMENT RESTRICTIONS OF THE FUNDS . . . . . . . . . . . . . .
. . . .I-5

FUND CHARGES AND EXPENSES. . . . . . . . . . . . . . . . . . . .
. . . .I-8

INVESTMENT PERFORMANCE OF THE FUNDS. . . . . . . . . . . . . . .
. . . I-16

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . I-34

EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES . . . .
. . . I-36

ADDITIONAL OFFICERS OF THE FUNDS . . . . . . . . . . . . . . . .
. . . I-40

INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . .
. I-41

PART II

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II
PUTNAM OHIO TAX EXEMPT INCOME FUND II

STATEMENT OF ADDITIONAL INFORMATION
PART I

STATE TAX EXEMPT SECURITIES

GENERAL DESCRIPTION. As used in the Prospectus and in this
Statement, the term "State Tax Exempt Securities" refers to debt
obligations issued by a state and its political subdivisions (for
example, counties, cities, towns, districts and authorities) and
their agencies, instrumentalities or other governmental units,
the interest from which is, in the opinion of bond counsel,
exempt from both federal income tax and the personal income tax
of the state specified in the Fund's name. Such obligations 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 State Tax Exempt Securities may
be issued include the refunding of outstanding obligations or
obtaining funds for general operating expenses. Short-term State
Tax Exempt Securities are generally issued by state and
local governments and public authorities as interim financing in
anticipation of tax collection. 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 to obtain
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 State Tax Exempt Securities if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax
and the personal income tax of the state specified in the Fund's
name, except that, for purposes of measuring compliance with each
Fund's policy of investing at least 80% of its net assets in
State Tax Exempt Securities, private activity bonds will not be
treated as State Tax Exempt Securities if they could give rise to
interest subject to federal alternative minimum tax in the hands
of individuals. Other types of private activity bonds, the
proceeds of which are used for the construction, repair or
improvement of, or to purchase equipment for, privately operated
industrial or commercial facilities, may constitute State Tax
Exempt Securities, although the current federal tax laws place
substantial limitations on the size of such issues. State 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.

STAND-BY COMMITMENTS. When a Fund purchases State Tax Exempt
Securities, it has the authority to acquire stand-by commitments
from banks and broker-dealers with respect to those State Tax
Exempt Securities. A stand-by commitment may be considered a
security independent of the State 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 State Tax Exempt Security to a third
party at any time. Each Fund expects that stand-by commitments
generally will be available without the payment of direct or
indirect consideration. None of the Funds expect to assign any
value to stand-by commitments.

YIELDS. The yields on State 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 State 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
and Standard & Poor's represent their opinions as to the quality
of the State 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, State 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 State Tax Exempt Securities
or changes in the investment objectives of investors. Subsequent
to purchase by a Fund, an issue of State 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 a Fund.
Neither event will require the elimination of an investment from
a Fund's portfolio, but Putnam Management will consider such an
event in its determination of whether a Fund should continue to
hold an investment in its portfolio.

"MORAL OBLIGATION" BONDS. Each Fund does not currently intend to
invest in so-called "moral obligation" bonds, where payment 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 a Fund.

ADDITIONAL RISKS. Securities in which each Fund may invest,
including State Tax Exempt Securities, are subject to the
provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the federal Bankruptcy
Code, and to laws, if any, which may be enacted by Congress or
the appropriate state legislature extending the time for
repayment of principal or payment of interest, or both, or
imposing other constraints upon enforcement of such obligations.
There is also the possibility that as a result of litigation or
other conditions the power or ability of issuers to meet their
obligations for the payment of interest and repayment of
principal on their State 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 industrial development bonds and other types
private activity bonds. Such limits may affect
the future supply and yields of these types of State 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 State Tax Exempt Securities for investment by
a Fund and the value of that Fund's portfolio could be materially
affected by such changes in law, the Trustees of that Fund would
reevaluate its investment objective and policies and consider
changes in the structure of that Fund or its dissolution.

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

INVESTMENT RESTRICTIONS OF THE FUNDS

AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED
WITHOUT A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING
SECURITIES, EACH FUND MAY NOT AND WILL NOT:

(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its 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 its total assets (taken at current
value) 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 options on financial futures contracts and on
futures contracts.

(4) Make short sales of securities or maintain a short sale
position for the account of the Fund unless at all times when a
short position is open it 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 certain
federal securities laws.

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

(7) Purchase or sell commodities or commodity contracts, except
that the Fund may write and purchase options on financial futures
contracts and buy and sell financial futures contracts.

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

(9) Invest in securities of any issuer if, to the knowledge of
the Fund, officers and Trustees of the Fund and officers and
directors of Putnam Management who beneficially own more than
0.5% of the shares or securities of that issuer together 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, its agencies or instrumentalities or to
State Tax Exempt Securities.

(11) Acquire more than 10% of the voting securities of any
issuer.

(12) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities and State Tax
Exempt Securities, except obligations backed only by the assets
and revenues of nongovernmental issuers) if as a result of such
purchase more than 25% of the Fund's total assets would be
invested in any one industry.

(13) Purchase securities restricted as to resale, 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 Fund (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 the Fund's
shares of beneficial interest.

IT IS CONTRARY TO EACH FUND'S PRESENT POLICY, WHICH MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL, TO:

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

(2) Invest in warrants (other than warrants acquired by the Fund
as part of a unit or attached to securities at the time of
purchase).

(3) Invest in securities of any issuer if the party responsible
for payment, together with any predecessors, has been in
operation for less than three consecutive years and, as a result
of the investment, 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 United
States or its agencies or instrumentalities, or to any obligation
for the payment of which is pledged the faith, credit and taxing
power of any person authorized to issue State Tax Exempt
Securities.

(4) Invest in the securities of other registered open-end
investment companies, except as they may be acquired as part of a
merger or consolidation or acquisition of assets.

Although certain of the Funds' fundamental investment
restrictions permit a Fund 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 each Fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of a Fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy.

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

For purposes of the Funds' diversification policies, as described
in the Prospectus, the issuer of a State Tax Exempt Security is
determined on a case by case basis based generally on the nature
and extent of the obligations of the entity or entities in
question to make (or provide funds for) payment of interest and
principal with respect to such State Tax Exempt Security. In
this regard, any State Tax Exempt Security guaranteed or
otherwise backed by the full faith and credit of a
governmental entity would generally be considered to represent
separate securities issued by such guaranteeing entity and by the
primary obligor. However, a guarantee of a State Tax Exempt
Security shall not be deemed to be a security issued by the
guarantor if the value of all State Tax Exempt Securities
guaranteed by the guarantor and owned by the Fund is less than
10% of the value of the total assets of the Fund. State Tax
Exempt Securities backed only by the assets and revenues of
nongovernmental users will be deemed to be issued by such
nongovernmental users.

FUND CHARGES AND EXPENSES

MANAGEMENT FEES

Under each Fund's Management Contract dated July 11, 1991, a Fund
pays a quarterly fee to Putnam Management based on the average
net assets of that Fund, as determined at the close of each
business day during the quarter, at an annual rate of 0.60% of
the first $500 million of average net assets, 0.50% of the next
$500 million, 0.45% of the next $500 million and 0.40% of any
amount over $1.5 billion. For the 1992, 1993 and 1994 fiscal
years, pursuant to each Fund's Management Contract, the Funds
incurred fees in the following amounts (which reflect reductions
due to expense limitations in effect during certain periods): <PAGE>
<TABLE>
<CAPTION>

1992 1993 1994
-------------------------------- ----------------------------- ---------------------------------
MGMT. MGMT. MGMT.
FEE REFLECTING A FEE REFLECTING A FEE REFLECTING A
PAID REDUCTION OF PAID REDUCTION OF PAID REDUCTION OF
----- ------------ ----- ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Massachusetts
Tax Exempt $301,944 $44,320 $1,085,405 $0 $1,549,215 $0
Income Fund II

Michigan Tax
Exempt $176,355 $47,589 $573,363 $0 $782,934 $0
Income Fund II

Minnesota Tax
Exempt $107,298 $66,863 $432,104 $0 $589,840 $0
Income Fund II

Ohio Tax Exempt
Income Fund II $262,597 $55,579 $957,541 $0 $1,206,826 $0
/TABLE
<PAGE>
<TABLE>
<CAPTION>

BROKERAGE COMMISSIONS

Most purchases and sales of portfolio investments are with underwriters of or dealers in State Tax Exempt Securities and
other tax-exempt securities, acting as principal. Accordingly, the Funds do not ordinarily pay significant brokerage
commissions. During fiscal 1992, 1993 and 1994, the Funds incurred brokerage commissions on agency transactions and
underwriting commissions on underwritten transactions in the following amounts:

BROKERAGE UNDERWRITING
COMMISSIONS COMMISSIONS
ON AGENCY TRANSACTIONS ON UNDERWRITTEN TRANSACTIONS
------------------------ ------------------------ ----

1992 1993 1994 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Massachusetts
Tax Exempt $0 $0 $9,696 $73,500 $418,313 $958,344
Income Fund II

Michigan Tax
Exempt $0 $100 $0 $30,818 $121,500 $599,713
Income Fund II

Minnesota Tax
Exempt $0 $0 $1,095 $34,250 $81,625 $367,495
Income Fund II

Ohio Tax
Exempt $0 $0 $6,063 $20,400 $164,500 $597,953
Income Fund II

/TABLE
<PAGE>
In fiscal 1994 Putnam Management, on behalf of Putnam
Massachusetts Tax Exempt Income Fund II, placed underwritten
transactions having an approximate aggregate dollar value of
$1,178,610,000 (1.85% of the Fund's underwritten
transactions, on which approximately $9,000 of commissions were
paid) with brokers and dealers to recognize research, statistical
and quotation services Putnam Management considered to be
particularly useful to it and its affiliates.

In fiscal 1994 Putnam Management, on behalf of Putnam Michigan
Tax Exempt Income Fund II, placed underwritten transactions
having an approximate aggregate dollar value of $1,412,752,500
(1.88% of the Fund's underwritten transactions, on which
approximately $11,250 of commissions were paid) with brokers and
dealers to recognize research, statistical and quotation services
Putnam Management considered to be particularly useful to it and
its affiliates.

In fiscal 1994 Putnam Management, on behalf of Putnam Minnesota
Tax Exempt Income Fund II, placed underwritten transactions
having an approximate aggregate dollar value of $972,500,000
(1.70% of the Fund's underwritten transactions, on which
approximately $6,250 of commissions were paid) with brokers and
dealers to recognize research, statistical and quotation services
Putnam Management considered to be particularly useful to it and
its affiliates.

In fiscal 1994 Putnam Management, on behalf of Putnam Ohio Tax
Exempt Income Fund II, placed underwritten transactions having an
approximate aggregate dollar value of $4,497,033,900 (4.64% of
the Fund's agency and underwritten transactions, on which
approximately $28,031 of commissions were paid) with brokers and
dealers to recognize research, statistical and quotation services
Putnam Management considered to be particularly useful to it and
its affiliates.

<PAGE>
ADMINISTRATIVE EXPENSE REIMBURSEMENT

Each Fund reimbursed Putnam Management in the following amounts
for administrative services in fiscal 1994, including the
following amounts for compensation of certain officers of that
Fund and contributions to the Putnam Investments, Inc. Profit
Sharing Retirement Plan for their benefit:

ADMINISTRATIVE COMPENSATION
SERVICES AND CONTRIBUTIONS
-------------- -----------------

Massachusetts Tax Exempt Income
Fund II $6,747 $6,425
Michigan Tax Exempt Income Fund II $5,817 $5,607
Minnesota Tax Exempt Income Fund II $5,637 $5,373
Ohio Tax Exempt Income Fund II $6,362 $6,074

TRUSTEE FEES

Each Trustee of a Fund receives an annual fee and 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. During fiscal 1994, the Funds
incurred the following Trustees fees:

AGGREGATE
ANNUAL TRUSTEE TRUSTEE FEES
FEE PAID IN 1994
------------- -------------

Massachusetts Tax Exempt Income
Fund II $780 $12,987
Michigan Tax Exempt Income Fund II $710 $11,388
Minnesota Tax Exempt Income Fund II $690 $8,493
Ohio Tax Exempt Income Fund II $1,090 $11,208

OWNERSHIP OF FUND SHARES

At August 31, 1994, the officers and Trustees of each Fund as a group
owned less than 1% of the outstanding shares of either class of that
Fund, and to the knowledge of each Fund no person owned of record or
beneficially 5% or more of the shares of either class of a Fund
except Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561,
New Brunswick, New Jersey, 08989-0561 owned of record 5.9% and
6.1%, respectively, of the Class A and Class B shares of the
Massachusetts Fund, 5.2% of the Class B shares of the Minnesota Fund
and 7.5% of the Class B shares of the Ohio Fund. No Class M shares
were outstanding at August 31, 1994.
<PAGE>
<TABLE>
<CAPTION>

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

During fiscal 1992, 1993 and 1994, each Fund incurred the following fees to Putnam Mutual Funds in sales charges on
sales of Class A shares of that Fund:

SALES CHARGES
RECEIVED SALES CHARGES
BY PUTNAM MUTUAL AFTER DEALER
FUNDS CONCESSIONS
-------------------------------
- -----------------------------------
1992 1993 1994 1992 1993 1994
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Massachusetts Tax Exempt Income Fund II $1,150,303 $2,093,315 $1,740,049 $89,014 $155,124
$140,316
Michigan Tax Exempt Income Fund II $614,160 $1,116,865 $935,249 $65,848 $58,296
$65,629
Minnesota Tax Exempt Income Fund II $439,667 $1,030,088 $670,795 $49,444 $47,238
$41,915
Ohio Tax Exempt Income Fund II $789,447 $1,399,258 $1,129,631 $95,851 $68,352
$73,168

/TABLE
<PAGE>
<TABLE>
<CAPTION>

CONTINGENT DEFERRED SALES CHARGES
RECEIVED BY PUTNAM MUTUAL FUNDS
---------------------------------
1992 1993 1994
<S> <C> <C> <C>
Massachusetts Tax Exempt Income Fund II $0 $1,722 $10,092
Michigan Tax Exempt Income Fund II $0 $0 $0
Minnesota Tax Exempt Income Fund II $0 $0 $27
Ohio Tax Exempt Income Fund II $0 $0 $0

/TABLE
<PAGE>

During fiscal 1994, the Massachusetts, Michigan, Minnesota and
Ohio Funds incurred $490,082, $250,872, $189,269 and $383,968,
respectively, in 12b-1 fees to Putnam Mutual Funds pursuant to
each Fund's Class A Distribution Plan.

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

During fiscal 1994, Putnam Mutual Funds received $34,720, $3,489,
$4,372 and $9,032 in contingent deferred sales charges upon
redemptions of Class B shares of the Massachusetts, Michigan,
Minnesota and Ohio Funds, respectively. During fiscal 1994, the
Massachusetts, Michigan, Minnesota and Ohio Funds incurred
$103,211, $39,506, $28,571 and $72,223, respectively, in 12b-1
fees to Putnam Mutual Funds pursuant to each Fund's Class B
Distribution Plan.

INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES

During the 1994 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:

Massachusetts Tax Exempt Income Fund II $268,424
Michigan Tax Exempt Income Fund II $149,317
Minnesota Tax Exempt Income Fund II $122,455
Ohio Tax Exempt Income Fund II $258,199

<PAGE>
INVESTMENT PERFORMANCE OF THE FUNDS

STANDARD PERFORMANCE MEASURES

Each Fund's tax-exempt yield for the thirty-day period ended May
31, 1994 for Class A shares was 5.38%, 5.44%, 5.10% and 4.73% for
the Massachusetts, Michigan, Minnesota and Ohio Funds,
respectively. A shareholder in a combined 46.85%
federal/Massachusetts tax bracket would have to earn 10.12% from
a taxable investment to produce an after-tax yield equal to the
Massachusetts Fund's tax-exempt yield of 5.38%. A shareholder in
a 42.38% combined federal/Michigan tax bracket would have to earn
9.44% from a taxable investment to produce an after-tax yield
equal to the Michigan Fund's tax-exempt yield of 5.44%. A
shareholder in a 44.73% combined federal/Minnesota tax
bracket would have to earn 9.23% from a taxable investment to
produce an after-tax yield equal to the Minnesota Fund's
tax-exempt yield of 5.10%. A shareholder in a 44.13% combined
federal/Ohio tax bracket would have to earn 8.47% from a taxable
investment to produce an after-tax yield equal to the Ohio Fund's
tax-exempt yield of 4.73%. The average annual total
return for the Class A shares of the Massachusetts, Michigan,
Minnesota and Ohio Funds for the one-year period ended May 31,
1994 was -2.97%, -2.78%, -2.28% and -2.95%, respectively, and for
the life of each Fund (compounded annually) for Class A shares
through May 31, 1994 was +7.68%, +6.62%, +6.18% and +6.53%,
respectively. Investment performance is adjusted to reflect
the deduction of the maximum sales charge of 4.75%. Each
Fund's tax-exempt yield for the thirty-day period ended May 31,
1994 for Class B shares was 4.96%, 5.03%, 4.65% and 4.27% for the
Massachusetts, Michigan, Minnesota and Ohio Funds, respectively.
A shareholder in a 46.85% combined federal/Massachusetts tax
bracket would have to earn 9.33% from a taxable investment to
produce an after-tax yield equal to the Massachusetts Fund's
tax-exempt yield of 4.96%. A shareholder in a 42.38% combined
federal/Michigan tax bracket would have to earn 8.73% from a
taxable investment to produce an after-tax yield equal to the
Michigan Fund's tax-exempt yield of 5.03%. A shareholder in a
44.73% combined federal/Minnesota tax bracket would have to earn
8.41% from a taxable investment to produce an after-tax yield
equal to the Minnesota Fund's tax-exempt yield of 4.65%. A
shareholder in a 44.13% combined federal/Ohio tax bracket
would have to earn 7.64% from a taxable investment to produce an
after-tax yield equal to the Ohio Fund's tax-exempt yield of
4.27%. The cumulative total return for the Class B shares of the
Massachusetts, Michigan, Minnesota and Ohio Funds for the life of
each Fund's class beginning July 15, 1993 through May 31, 1994
was -5.81%, -5.40%, -5.09% and -5.48%, respectively, adjusted to
reflect deduction of the applicable contingent deferred sales
charge of 5.00% and 4.00%. See "Other Performance Information"
below for the inception date of each class. No Class M shares
were outstanding at May 31, 1994. See "Standard Performance
Measures" in Part II of this Statement for information on how
each Fund's investment return is calculated.

PERFORMANCE RATINGS

For the 1994 fiscal year, the Class A shares of the Massachusetts
Fund were ranked 12 of 27 Massachusetts municipal debt funds, the
Class A shares of the Michigan Fund were ranked 11 of 22 Michigan
municipal debt funds, the Class A shares of the Minnesota Fund
were ranked 5 of 22 Minnesota municipal debt funds and the Class
A shares of the Ohio Fund were ranked 20 of 31 Ohio municipal
debt funds by Lipper Analytical Services, Inc. In addition, such
Class A shares were ranked 265, 254, 125 and 284, respectively,
of 574 municipal single state funds by Weisenberger's Management
Results. As of the end of the fiscal year, Class A shares of the
Massachusetts Fund were given a 5- star rating (out of 5 stars)
by Morningstar, Inc. and the Class A shares of the Michigan,
Minnesota and Ohio Funds were each given a 4-star rating (out of
5 stars) by Morningstar, Inc. For the 1994 fiscal year, the
Class B shares of the Funds were not ranked or rated. No
Class M shares were outstanding during fiscal 1994. See
"Comparison of Portfolio Performance" in Part II of this
Statement for information about how these rankings and ratings
are determined.

OTHER PERFORMANCE INFORMATION

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

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II

CUMULATIVE
MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUES
FISCAL OFFERING VALUE -------------------------------- AT YEAR-END
YEAR PRICE AT ------------------- FROM FROM WITH ALL
ENDED BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
MAY 31 OF YEAR OF YEAR YEAR INCOME GAINS REINVESTED
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1990 (1) $8.92 $8.50 $8.50 $0.349 ----- $8.85
1991 8.92 8.50 8.70 0.624 ----- 9.75
1992 9.13 8.70 9.02 0.613 $0.070 10.91
1993 9.47 9.02 9.55 0.587 0.007 12.31
1994 10.03 9.55 9.05 0.549 0.151 12.55
----- ------
Total distributions $2.722 $0.228

(1) Investment operations began October 23, 1989.

</TABLE>

PERCENTAGE CHANGES DURING LIFE OF CLASS A SHARES

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II

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

MAXIMUM OFFERING NET ASSET VALUE LEHMAN BROTHERS
PRICE TO NET TO NET MUNICIPAL CONSUMER
FISCAL ASSET VALUE ASSET VALUE BOND INDEX PRICE INDEX
YEAR ------------------- --------------------- ------------------- -----------------
ENDED CUMULA- CUMULA- CUMULA- CUMULA-
MAY 31 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990(1) - -0.7% - +4.2% - +4.5% - +2.9%
1991 +4.9 +9.3 +10.1 +14.7 +10.1 +15.1 +5.0 +8.0
1992 +6.7 +22.4 +12.0 +28.4 +9.8 +26.4 +3.0 +11.2
1993 +7.5 +38.0 +12.8 +44.9 +12.0 +41.5 +3.2 +14.8
1994 -3.0 +40.7 +1.9 +47.6 +2.5 +45.0 +2.3 +17.4

(1) Investment operations began October 23, 1989.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

CLASS A SHARES

PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II

CUMULATIVE
MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUES
FISCAL OFFERING VALUE -------------------------------- AT YEAR-END
YEAR PRICE AT ------------------- FROM FROM WITH ALL
ENDED BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
MAY 31 OF YEAR OF YEAR YEAR INCOME GAINS REINVESTED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1990 (1) $8.92 $8.50 $8.43 $0.335 ----- $8.77
1991 8.85 8.43 8.51 0.578 ----- 9.48
1992 8.93 8.51 8.80 0.558 ----- 10.45
1993 9.24 8.80 9.30 0.556 $0.005 11.75
1994 9.76 9.30 8.90 0.519 0.079 11.99
----- -----
Total distributions $2.546 $0.084

(1) Investment operations began October 23, 1989.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

PERCENTAGE CHANGES DURING LIFE OF CLASS A SHARES

PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II

----------------------------------------
MAXIMUM OFFERING NET ASSET VALUE LEHMAN BROTHERS
PRICE TO NET TO NET MUNICIPAL CONSUMER
FISCAL ASSET VALUE ASSET VALUE BOND INDEX PRICE INDEX
YEAR ------------------- --------------------- ------------------------------------
ENDED CUMULA- CUMULA- CUMULA- CUMULA-
MAY 31 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 (1) - -1.7% - +3.2% - +4.5% - +2.9%
1991 +3.0 +6.3 +8.1 +11.6 +10.1 +15.1 +5.0 +8.0
1992 +5.1 +17.2 +10.3 +23.0 +9.8 +26.4 +3.0 +11.2
1993 +7.0 +31.7 +12.4 +38.2 +12.0 +41.5 +3.2 +14.8
1994 -2.8 +34.4 +2.0 +41.0 +2.5 +45.0 +2.3 +17.4

(1) Investment operations began October 23, 1989.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

CLASS A SHARES

PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II

CUMULATIVE
MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUES
FISCAL OFFERING VALUE -------------------------------- AT YEAR-END
YEAR PRICE AT ------------------- FROM FROM WITH ALL
ENDED BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
MAY 31 OF YEAR OF YEAR YEAR INCOME GAINS REINVESTED
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1990 (1) $8.92 $8.50 $8.43 $0.338 ----- $8.77
1991 8.85 8.43 8.56 0.586 ----- 9.55
1992 8.99 8.56 8.74 0.555 ----- 10.39
1993 9.18 8.74 9.06 0.557 ----- 11.46
1994 9.51 9.06 8.79 0.509 ----- 11.76
----- -----
Total distributions $2.545

(1) Investment operations began October 23, 1989.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

PERCENTAGE CHANGES DURING LIFE OF CLASS A SHARES

PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II

----------------------------------------
MAXIMUM OFFERING NET ASSET VALUE LEHMAN BROTHERS
PRICE TO NET TO NET MUNICIPAL CONSUMER
FISCAL ASSET VALUE ASSET VALUE BOND INDEX PRICE INDEX
YEAR --------------- -------------- ------------- -------------
ENDED CUMULA- CUMULA- CUMULA- CUMULA-
MAY 31 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 (1) - -1.7% - +3.2% - +4.5% - +2.9%
1991 +3.7% +7.0 +8.8% +12.3 +10.1% +15.1 +5.0% +8.0
1992 +3.7 +16.5 +8.9 +22.3 +9.8 +26.4 +3.0 +11.2
1993 +5.0 +28.5 +10.3 +34.9 +12.0 +41.5 +3.2 +14.8
1994 -2.3 +31.8 +2.6 +38.3 +2.5 +45.0 +2.3 +17.4

(1) Investment operations began October 23, 1989.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

CLASS A SHARES

PUTNAM OHIO TAX EXEMPT INCOME FUND II

CUMULATIVE
MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUES
FISCAL OFFERING VALUE -------------------------------- AT YEAR-END
YEAR PRICE AT ------------------- FROM FROM WITH ALL
ENDED BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
MAY 31 OF YEAR OF YEAR YEAR INCOME GAINS REINVESTED
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1990 (1) $8.92 $8.50 $8.40 $0.350 ----- $8.75
1991 8.82 8.40 8.55 0.584 ----- 9.55
1992 8.98 8.55 8.78 0.570 ----- 10.47
1993 9.22 8.78 9.26 0.542 ----- 11.72
1994 9.72 9.26 8.80 0.523 $0.121 11.94
------ ------
Total distributions $2.569 $0.121

(1) Investment operations began October 23, 1989.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

PERCENTAGE CHANGES DURING LIFE OF CLASS A SHARES

PUTNAM OHIO TAX EXEMPT INCOME FUND II

----------------------------------------
MAXIMUM OFFERING NET ASSET VALUE LEHMAN BROTHERS
PRICE TO NET TO NET MUNICIPAL CONSUMER
FISCAL ASSET VALUE ASSET VALUE BOND INDEX PRICE INDEX
YEAR --------------- -------------- ------------- -------------
ENDED CUMULA- CUMULA- CUMULA- CUMULA-
MAY 31 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 (1) - -1.9% - +3.0% - +4.5% - +2.9%
1991 +3.9% +7.1 +9.1% +12.4 +10.1% +15.1 +5.0% +8.0
1992 +4.4 +17.4 +9.7 +23.2 +9.8 +26.4 +3.0 +11.2
1993 +6.6 +31.4 +11.9 +37.9 +12.0 +41.5 +3.2 +14.8
1994 -3.0 +33.9 +1.9 +40.5 +.2.5 +45.0 +2.3 +17.4

(1) Investment operations began October 23, 1989.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

CLASS B SHARES

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II

CUMULATIVE
NET ASSET DISTRIBUTIONS NET ASSET VALUE
VALUE ------------------- AT YEAR-END
FISCAL -------------------- FROM FROM WITH ALL
YEAR BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
ENDED OF YEAR YEAR INCOME GAINS REINVESTED
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/31/94 (1) $9.71 $9.05 $0.415 $0.151 $9.60

(1) Class B shares were offered beginning July 15, 1993.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

PERCENTAGE CHANGES DURING LIFE OF CLASS B SHARES

PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II

----------------- LEHMAN BROTHERS
NET ASSET VALUE MUNICIPAL
TO NET BOND CONSUMER
FISCAL ASSET VALUE INDEX PRICE INDEX
YEAR CUMULA- CUMULA- CUMULA-
ENDED ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/31/94 (1) ---- -1.1% ---- +0.8% ---- +2.2%

(1) Class B shares were offered beginning July 15, 1993.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

CLASS B SHARES

PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II

(1) Class B shares were offered beginning July 15, 1993.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

PERCENTAGE CHANGES DURING LIFE OF CLASS B SHARES

PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II

(1) Class B shares were offered beginning July 15, 1993.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

CLASS B SHARES

PUTNAM MINNESOTA TAX EXEMPT INCOME FUNDS II

(1) Class B shares were offered beginning July 15, 1993.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

PERCENTAGE CHANGES DURING LIFE OF CLASS B SHARES

PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II

(1) Class B shares were offered beginning July 15, 1993.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

CLASS B SHARES

PUTNAM OHIO TAX EXEMPT INCOME FUND II

(1) Class B shares were offered beginning July 15, 1993.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

PERCENTAGE CHANGES DURING LIFE OF CLASS B SHARES

PUTNAM OHIO TAX EXEMPT INCOME FUND II

(1) Class B shares were offered beginning July 15, 1993.

/TABLE
<PAGE>
The tables are not adjusted for any payments under each Funds'
Class A Distribution Plan prior to its implementation in fiscal
1992 or taxes payable on reinvested distributions or
for any contingent deferred sales charges which would be
applicable upon redemption of Class B shares . The total
values for the Funds as of the end of each period reflect
reinvestment of all distributions and all changes in net asset
value.

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

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

TAXES

The Prospectus describes generally the tax treatment of
distributions by the Funds. This section of the Statement and
the section entitled "Taxes" in Part II of this Statement include
additional information concerning certain state and federal tax
consequences of an investment in a Fund, respectively.

STATE TAXATION. That percentage of interest on indebtedness
incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, such as a
Fund, that is equal to the percentage of the Fund's distributions
from investment income and short-term capital gains that is
exempt from federal income tax, will not be deductible by the
investor for Minnesota personal income tax or Michigan single
business tax purposes. For Michigan personal income tax and
Michigan intangibles tax purposes, such interest deduction is
wholly disallowed.

To the extent that distributions are derived from interest on
Michigan State Tax Exempt Securities, such distributions will be
exempt from Michigan personal income tax and the Michigan
intangibles tax under the current position of the Michigan
Department of Treasury. Such distributions, if received in
connection with a shareholder's business activity, may
alternatively be subject to the Michigan single business tax.
For Michigan personal income tax, intangibles tax and single
business tax purposes, exempt-interest dividends attributable to
any investment other than Michigan State Tax Exempt Securities
will be fully taxable as will dividends arising from any source
other than exempt-interest irrespective of the investment to
which any such dividend is attributable.

More specifically, Michigan law provides an exemption from both
the Michigan personal income tax and the Michigan single business
tax with respect to interest paid to the owner of Michigan State
Tax Exempt Securities, and a corresponding exemption is provided
under the Michigan intangibles tax with respect to ownership of
such bonds. The Michigan Department of Treasury, in a ruling
letter dated December 19, 1986 and published in April, 1987,
revised a previous administrative position that shareholders of
an investment company other than a "unit investment trust" are to
be treated as the owners of shares in the investment company and
not as the owners of a proportionate share of the company's
assets. This revised position was reaffirmed in a ruling
published in March, 1989. The Michigan Fund is not a unit
investment trust, and accordingly shareholders will now, in the
view of the Michigan Department of Treasury, be treated as the
owners of the Fund's assets including the Fund's Michigan State
Tax Exempt Securities.

The Department has not addressed the question of whether the
distinction between ownership of tax-exempt obligations and
mutual fund shares may be accorded significance in connection
with application of the single business tax to investment company
distributions representing interest on obligations which are
exempt from federal income tax and Michigan tax.
<PAGE>
<TABLE>
<CAPTION>

EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES

The tables below show the effect of the tax status of Massachusetts, Michigan, Minnesota and Ohio Tax Exempt Securities
on the effective yield received by their holders under the federal income tax and Massachusetts, Michigan, Minnesota or
Ohio personal income tax laws, respectively, currently in effect for 1995 . The tables give the approximate yield
a taxable security must earn at various income levels to produce after-tax yields equivalent to those of the relevant
State Tax Exempt Securities yielding from 2.0% to 9.0% .
- ------------------------------------------------------------------------------------------------------------------

COMBINED
MASSACHUSETTS
TAXABLE INCOME* AND
FEDERAL TAX-EXEMPT YIELD
TAX --------------------------------------------- -
SINGLE JOINTRATE** 2% 3% 4% 5% 6% 7%
8% 9%
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EQUIVALENT TAXABLE YIELD

$ 0 - 23,350 $ 0 - 39,000 25.20% 2.67% 4.01% 5.35%
6.68% 8.02% 9.36% 10.70% 12.03%
23,351 - 56,550 39,001 - 94,250 36.64 3.16 4.73 6.31 7.89 9.47
11.05 12.63 14.20
56,551- 117,950*** 94,251- 143,600*** 39.28 3.29 4.94 6.59 8.23 9.88
11.53 13.18 14.82
117,951-256,500*** 143,601-256,500*** 43.68 3.55 5.33 7.10 8.88 10.65
12.43 14.20 15.98
256,501 and over*** 256,501 and over*** 46.85 3.76 5.64 7.53 9.41 11.29
13.17 15.05 16.93
- --------------------------------------------------------------------------------------------------------------------
* This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended(the "Code"). It
is assumed that taxable income as defined in the Code is the same as under the Massachusetts personal income tax
law. However, Massachusetts taxable income may differ due to differences in exemptions, itemized deductions, and
other items.

** For federal tax purposes, these combined rates reflect the applicable marginal rates on taxable income currently in
effect for 1995 . For Massachusetts tax purposes, these rates reflect the 12% Massachusetts rate applied to
non-Massachusetts bank interest. (These combined rates include the effect of deducting state taxes on your
federal return.)

*** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the
limitation on itemized deductions, based on adjusted gross income, under the Code.
/TABLE
<PAGE>
<TABLE>
<CAPTION>

COMBINED
MICHIGAN TAX-EXEMPT YIELD
TAXABLE INCOME* AND FEDERAL ------------------------------------ ---------------------
TAX
SINGLE JOINT RATE** 2% 3% 4% 5% 6% 7% 8% 9%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EQUIVALENT TAXABLE YIELD

$ 0 - 23,350 $0 - 39,000 18.74% 2.46% 3.69% 4.92% 6.15% 7.38% 8.61% 9.84%11.08%
23,351 - 56,55039,001 - 94,250 31.17 2.91 4.36 5.81 7.26 8.72 10.17 11.6213.08
56,551 - 117,950***94,251 -143,600 *** 34.04 3.03 4.55 6.06 7.58 9.10 10.61 12.1313.64
117,951 - 256,500***143,601-256,500 *** 38.82 3.27 4.90 6.54 8.17 9.81 11.44 13.0814.71
over 256,500***over 256,500 *** 42.26 3.46 5.20 6.93 8.66 10.39 12.12 13.8515.59
- ----------------------------------------------------------------------------------------------------------------

* This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended(the "Code").
It is assumed that taxable income as defined in the Internal Revenue Code is the same as under the Michigan
personal income tax law, however, Michigan taxable income may differ due to differences in exemptions, itemized
deductions, and other items.
** For federal tax purposes, these combined rates reflect the applicable marginal rates on taxable income currently
in effect for 1995. (These combined rates include the effect of deducting state taxes on your Federal
return.)
*** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the
limitation on itemized deductions, based on adjusted gross income, under the Code.

/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMBINED
MINNESOTA
AND FEDERAL TAX-EXEMPT YIELD
TAXABLE INCOME* TAX ---------------------------------------------- ---------
SINGLE JOINT RATE** 2% 3%4% 5% 6% 7% 8% 9%
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EQUIVALENT TAXABLE YIELD

$ 0 - 15,620 $0 - 22,840 20.10% 2.50%3.75% 5.01% 6.26% 7.51% 8.76% 10.01%
11.26%
15,621 - 23,350 22,841- 39,000 21.80 2.56 3.84 5.12 6.39 7.67 8.95
10.23 11.51
23,351 - 51,330 39,001- 90,760 33.76 3.02 4.53 6.04 7.55 9.06 10.57
12.08 13.59
51,331 - 56,550 90,761- 94,250 34.12 3.04 4.55 6.07 7.59 9.11 10.63
12.14 13.66
56,551 - 117,950*** 94,251-143,600 *** 36.87 3.17 4.75 6.34 7.92 9.50 11.09
12.67 14.26
117,951 - 256,500***143,601-256,500 *** 41.44 3.42 5.12 6.83 8.54 10.25 11.95
13.66 15.37
256,501 and over*** 256,501 and over *** 44.73 3.62 5.43 7.24 9.05 10.86 12.67
14.4716.28
- --------------------------------------------------------------------------------------------------------------------

* This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended(the "Code").
It is assumed that taxable income as defined in the Internal Revenue Code is the same as under the Minnesota
personal income tax law. However, Minnesota taxable income may differ due to differences in exemptions, itemized
deductions, and other items.
** For federal tax purposes, these combined rates reflect the applicable marginal rates on taxable income currently
in effect for 1995. (These combined rates include the effect of deducting state taxes on your Federal
return.)
*** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the
limitation on itemized deductions, based on adjusted gross income, under the Code.
</TABLE>

COMBINED
OHIO
AND FEDERAL TAX-EXEMPT YIELD
TAXABLE INCOME* TAX
-------------- ---------------------------------------------------
SINGLE JOINT RATE** 2% 3% 4% 5% 6% 7% 8% 9%
- ----- --------------------------------------------------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

$ 0 - 5,000 0 - 5,000 15.63% 2.37% 3.56% 4.74% 5.93% 7.11% 8.30%
9.48% 10.67%
5,001 - 10,000 5,001 - 10,000 16.26 2.39 3.58 4.78 5.97 7.17 8.36
9.55 10.75
10,001 - 15,000 10,001 - 15,000 17.53 2.43 3.64 4.85 6.06 7.28 8.49
9.70 10.91
15,001 - 20,000 15,001 - 20,000 18.16 2.44 3.67 4.89 6.11 7.33 8.55
9.77 11.00
20,001 - 23,350 20,001 - 39,000 18.79 2.46 3.69 4.93 6.16 7.39 8.62
9.85 11.06
23,351 - 40,000 39,001 - 40,000 31.21 2.91 4.36 5.81 7.27 8.7210.18
11.63 13.08
40,001 - 56,550 40,001 - 80,000 31.74 2.93 4.40 5.86 7.33 8.79 10.26
11.72 13.19
80,001 - 94,250 32.28 2.95 4.43 5.91 7.38 8.86 10.34
11.81 13.29
56,551 - 80,000 34.59 3.06 4.59 6.12 7.64 9.17 10.70
12.23 13.76
80,001 - 100,000 94,251 -100,000 35.10 3.08 4.62 6.16 7.70 9.25 10.79
12.33 13.87
100,001 - 117,950*** 100,001- 143,600 *** 35.76 3.11 4.67 6.23 7.78 9.3410.90
12.45 14.01
117,951 - 200,000*** 143,601 -200,000 *** 40.42 3.36 5.03 6.71 8.3910.0711.75
13.43 15.10
200,001 - 256,500*** 200,001- 256,500 *** 40.80 3.38 5.07 6.76 8.4510.1411.82
13.51 15.20
over 256,500*** over 256,500 *** 44.13 3.58 5.37 7.16 8.9510.7412.53
14.32 16.11
- -------- ------------------------------------------------------------------------------------------------------------
- --
* This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended (the "Code").
It is assumed that taxable income as defined in the Code is the same as under the Ohio personal income tax law,
however, Ohio taxable income may differ due to differences in exemptions, itemized deductions, and other items.
** For federal tax purposes, these combined rates reflect the applicable marginal rates on taxable income currently
in effect for 1995 . These rates include the effect of deducting state taxes on your Federal return.
*** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the
limitation on itemized deductions, based on adjusted gross income, under the Code.
/TABLE
<PAGE>
Of course, there is no assurance that the Funds will achieve any
specific tax-exempt yield. While it is expected that each Fund
will invest principally in obligations which pay interest exempt
from federal income tax and personal income tax of its respective
state, other income received by the Funds may be taxable. The
tables do not take into account any federal alternative minimum
taxes or state or local taxes payable on each Fund's
distributions except for the personal income tax of its
respective state (exclusive of the Minnesota alternative minimum
tax).

ADDITIONAL OFFICERS OF THE FUNDS

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

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

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

TRIET M. NGUYEN, Vice President (Massachusetts). Senior Vice
President of Putnam Management. Vice President of certain of the
Putnam funds.

HOWARD K. MANNING, Vice President (Michigan and Minnesota).
Senior Vice President of Putnam Management. Vice President of
certain of the Putnam funds.

RICHARD P. WYKE, Vice President (Ohio). Senior Vice President
of Putnam Management. Vice President of the Putnam funds.
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS

Coopers & Lybrand L.L.P. are the independent accountants of
Putnam Michigan Tax Exempt Income Fund II and Putnam Ohio Tax
Exempt Income Fund II and Price Waterhouse LLP are the
independent accountants of Putnam Massachusetts Tax Exempt Income
Fund II and Putnam Minnesota Tax Exempt Income Fund II, each
providing audit services, tax return review services and
assistance and consultation in connection with the review of
various Securities and Exchange Commission filings. The Report of
Independent Accountants and financial statements included in each
Fund's Annual Report for the fiscal year ended May 31, 1994,
filed electronically on August 2, 1994 for the Massachusetts Fund
(811-4518), and on August 10, 1994 for the Michigan Fund (811-
4529) and the Minnesota Fund (811-4527) and on August 4, 1994 for
the Ohio Fund (811-4528), are incorporated by reference into this
Statement of Additional Information. Financial highlights of
Putnam Massachusetts Tax Exempt Income Fund II and Putnam
Minnesota Tax Exempt Income Fund II included in the Prospectus
and the financial statements incorporated by reference into the
Prospectus and Statement of Additional Information have been so
included and incorporated in reliance upon the reports of Price
Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting. Financial
highlights of Putnam Michigan Tax Exempt Income Fund II and
Putnam Ohio Tax Exempt Income Fund II included in the Prospectus
and the financial statements incorporated by reference into the
Prospectus and Statement of Additional Information have been so
included and incorporated in reliance upon the reports of Coopers
& Lybrand L.L.P., independent accountants, given on the authority
of said firm as experts in auditing and accounting.
<PAGE>
<PAGE>

TABLE OF CONTENTS

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

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

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

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

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

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

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

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

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

SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-56

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

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

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

<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION
PART II

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

MISCELLANEOUS INVESTMENT PRACTICES

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

SHORT-TERM TRADING

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

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

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

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

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

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

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

INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES

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

SECURITIES LOANS

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

FORWARD COMMITMENTS

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

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

REPURCHASE AGREEMENTS

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

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

OPTIONS ON SECURITIES

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

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

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

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

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

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

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

RISK FACTORS IN OPTIONS TRANSACTIONS

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

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

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

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

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

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

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

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

FUTURES CONTRACTS AND RELATED OPTIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

OPTIONS ON INDICES

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

INDEX WARRANTS

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

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

FOREIGN SECURITIES

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

FOREIGN CURRENCY TRANSACTIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RESTRICTED SECURITIES

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

TAXES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT OF THE FUND

TRUSTEES

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

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

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

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

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

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

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

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

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

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

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

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

OFFICERS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PUTNAM MANAGEMENT

Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the Fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $67 billion in assets
in over 4.1 million shareholder accounts at December 31, 1994.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1994, Putnam Management and its affiliates managed
over $95 billion in assets, including over $15 billion in tax
exempt securities and over $36 billion in retirement plan assets.

THE MANAGEMENT CONTRACT

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

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

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

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

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

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

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

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

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

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

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

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

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

PRINCIPAL UNDERWRITER

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

INVESTOR SERVICING AGENT AND CUSTODIAN

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

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

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

DETERMINATION OF NET ASSET VALUE

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

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

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

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

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

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

HOW TO BUY SHARES

General

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES

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

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

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

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

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

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

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

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

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

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

(i) the investor's current purchase; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTINGENT DEFERRED SALES CHARGES

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

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

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

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

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

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

DISTRIBUTION PLAN

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

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

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

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

INVESTOR SERVICES

SHAREHOLDER INFORMATION

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

YOUR INVESTING ACCOUNT

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

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

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

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

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

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

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

The Fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.

REINSTATEMENT PRIVILEGE

An investor who has redeemed shares to 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 this Privilege should contact
their investment dealer or Putnam Investor Services.

EXCHANGE PRIVILEGE

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

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

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

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

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

DIVIDENDS PLUS

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

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

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

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

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

PLANS AVAILABLE TO SHAREHOLDERS

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

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

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

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

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

Individual Retirement Account Plans (IRAs).

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

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

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

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

SIGNATURE GUARANTEES

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

SUSPENSION OF REDEMPTIONS

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

SHAREHOLDER LIABILITY

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

STANDARD PERFORMANCE MEASURES

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

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

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

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

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

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

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

COMPARISON OF PORTFOLIO PERFORMANCE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. Each interior page of the prospectus includes the word
"prospectus" at the bottom of the page.

2. Pagination is different in printed prospectus.

3. Section headings and subheadings in the printed prospectus
are printed in boldface type with colored ink.

4. The first page of the printed prospectus contains an
illustration of balanced scales, Putnam's logo.

5. The last page of the printed prospectus contains a graphic
recyclable logo.
<PAGE>