PUTNAM ASSET ALLOCATION FUNDS, 485APOS, 1994-06-29

PUTNAM ASSET ALLOCATION FUNDS
485APOS, 1994-06-29

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
JUNE 29, 1994

REGISTRATION NO. 33-51017
811-7121
- -----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 1 / X /
and ----
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
----
Amendment No. 2 / X /
(Check appropriate box or boxes) ----
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PUTNAM ASSET ALLOCATION FUNDS
(Exact name of registrant as specified in charter)

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

Registrant's Telephone Number, including Area Code
(617) 292-1000

It is proposed that this filing will become effective
(check appropriate box)

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/ / immediately upon filing pursuant to paragraph (b)
- ----
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/ / on (date) pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph (a)
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/ X / on September 1, 1994 pursuant to paragraph (a) of Rule
485
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-----------------------

--------------
JOHN R. VERANI, Vice President
PUTNAM ASSET ALLOCATION FUNDS
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
---------------
Copy to:
JOHN W. GERSTMAYR, ESQ.
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
----------------------

The Registrant has registered an indefinite number or amount
of securities under the Securities Act of 1933 pursuant to Rule
24f-2. A Rule 24f-2 notice is not required to be filed because
the Registrant has not yet completed its initial fiscal year.
---------------------<PAGE>

PUTNAM ASSET ALLOCATION FUND

CROSS REFERENCE SHEET

(as required by Rule 481(a))

PART A

N-1A ITEM NO. LOCATION

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

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

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

4. General Description of
Registrant....................... Objectives; How
objectives are pursued;
Organization and history

5. Management of the Trust........... Expenses summary; How
the Funds are managed;
About Putnam
Investments, Inc.
5A. Management's Discussion
of Fund Performance............. Not applicable

6. Capital Stock and Other
Securities....................... Cover Page; Organization
and history; How
distributions are made;
tax information
7. Purchase of Securities Being
Offered.......................... How to buy
shares;
Distribution Plans; How
to sell shares;
How to exchange
shares; How each Fund
values its shares

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

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

N-1A ITEM NO.
LOCATION

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

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

12. General Information and History.. Organization and history
(Part A)
13. Investment Objectives and
Policies......................... How objectives are
pursued (Part A);
Investment Restrictions
of the Trust;
Miscellaneous Investment
Practices

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

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

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

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

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

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

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

22. Calculation of Performance Data.. How performance is shown
(Part A)

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

Part C

Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.

<PAGE>

PROSPECTUS

SEPTEMBER 1 , 1994

PUTNAM ASSET ALLOCATION FUNDS

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
CLASS A AND B SHARES

This Prospectus explains concisely what you should know before
investing in Class A or B shares of Putnam Asset
Allocation Funds. Please read it carefully and keep it for
future reference. You can find more detailed information in the
September 1 , 1994 Statement of Additional Information,
as
amended from time to time. For a free copy of the Statement
or other information, including Prospectuses regarding other
classes of shares of the Funds , call Putnam Investor Services
at
1-800-225-1581. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference.

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

SHARES OF THE 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>
PUTNAM ASSET ALLOCATION FUNDS (THE "TRUST") IS A SERIES
INVESTMENT COMPANY OFFERING THREE SEPARATE PORTFOLIOS: PUTNAM
ASSET ALLOCATION: GROWTH PORTFOLIO, PUTNAM ASSET ALLOCATION:
BALANCED PORTFOLIO AND PUTNAM ASSET ALLOCATION: CONSERVATIVE
PORTFOLIO (THE "FUNDS"). EACH FUND IS AN ASSET ALLOCATION FUND
THAT ALLOCATES ITS INVESTMENTS AMONG EQUITIES AND FIXED INCOME
SECURITIES WITHIN PREDEFINED RANGES BASED ON ITS INVESTMENT
OBJECTIVE AND ECONOMIC AND OTHER CONDITIONS.

THIS PROSPECTUS OFFERS TWO CLASSES OF SHARES OF THE FUNDS: CLASS
A AND CLASS B. EACH CLASS IS SOLD PURSUANT TO DIFFERENT SALES
ARRANGEMENTS AND BEARS DIFFERENT EXPENSES. FOR MORE INFORMATION
ABOUT THE DIFFERENT SALES ARRANGEMENTS, SEE "ALTERNATIVE SALES
ARRANGEMENTS - CLASS A AND B SHARES." FOR INFORMATION ABOUT
VARIOUS EXPENSES BORNE BY EACH CLASS, SEE "EXPENSES SUMMARY."

<PAGE>
ABOUT THE FUNDS

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

ABOUT YOUR INVESTMENT

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

ABOUT PUTNAM INVESTMENTS, INC.

APPENDIX
Fixed-income security ratings
<PAGE>

ABOUT THE FUNDS

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing in
a Fund. The following table summarizes your maximum transaction
costs from investing in a Fund and expenses which each Fund
expects to incur in its first fiscal year. The Examples show the
estimated cumulative expenses attributable to a hypothetical
$1,000 investment in Class A or Class B shares of a Fund over
specified periods.

CLASS A CLASS B

SHARES SHARES

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 5.75% NONE*

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

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

CLASS A SHARES

GROWTH BALANCED CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO

------- ------- -------
<C> <C> <C> <C>
Management Fees (after expense
limitation discussed below) 0.64% 0.58% 0.64%
12b-1 Fees 0.25% 0.25% 0.25%
Other Expenses 0.38% 0.44% 0.38%
Total Fund Operating Expenses 1.27% 1.27% 1.27%
(after expense limitation)
/TABLE
<PAGE>
<TABLE>
<CAPTION>

CLASS B SHARES

GROWTH BALANCED CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO

------- ------- -------
<C> <C> <C> <C>
Management Fees (after expense
limitation discussed below) 0.64% 0.58% 0.64%
12b-1 Fees 1.00% 1.00% 1.00%
Other Expenses 0.38% 0.44% 0.38%
Total Fund Operating Expenses 2.02% 2.02% 2.02%
(after expense limitation)

<PAGE>
The tables are provided to help you understand the expenses
of investing in each Fund and your share of the operating
expenses which each Fund expects to incur during its first fiscal
year. The estimated annual management fees shown in the table reflect an
expense limitation currently in effect. In the absence of the
expense limitation, estimated management fees for the Growth
Portfolio and the Conservative Portfolio would be 0.70% and
estimated total Fund operating expenses would be 1.33% for Class
A shares and 2.08% for Class B shares. In the absence of the
expense limitation, estimated management fees for the Balanced
Portfolio would be 0.70% and estimated total Fund operating
expenses would be 1.39% for Class A shares and 2.14% for Class B
shares. The 12b-1 fees shown in the table reflect the amount to
which the Trustees currently limit payments under the Class A
Distribution Plan and the maximum amount permitted under the
Class B Distribution Plan. "Other expenses" are based on
estimated amounts for each Fund's first full fiscal year.
/TABLE
<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
<C> <C> <C>

GROWTH PORTFOLIO

CLASS A $70 $95
CLASS B $71 $93

BALANCED PORTFOLIO
<C> <C> <C>
CLASS A $70 $95
CLASS B $71 $93

CONSERVATIVE PORTFOLIO
<C> <C> <C>
CLASS A $70 $95
CLASS B $71 $93

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

1 YEAR 3 YEARS

GROWTH PORTFOLIO
<C> <C> <C>
CLASS A $70 $95
CLASS B $21 $63

BALANCED PORTFOLIO
<C> <C> <C>
CLASS A $70 $95
CLASS B $21 $63
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CONSERVATIVE PORTFOLIO
<C> <C> <C>
CLASS A $70 $95
CLASS B $21 $63

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

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

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

Each Fund also offers other classes of shares pursuant to other
Prospectuses,
including Class C shares, which are sold at net asset value subject
to a one-year
1.00% contingent deferred sales charge and which are subject to the
same fees and
expenses as class B shares. See "Organization and history" for
additional information.

FINANCIAL HIGHLIGHTS

The tables on the following pages present per share financial information
for the life of
the Fund. This information has been audited and reported on by the
Trust's independent
accountants. The Report of Independent Accountants and
financial statements included in
the Trust's Semiannual Report to shareholders for the fiscal period
ending March 31, 1994
are incorporated by reference into this Prospectus. The Trust's
Semiannual Report is
available without charge upon request.

/TABLE
<PAGE>
<TABLE>
<CAPTION>

Financial
Highlights
(For a share outstanding throughout the period)

Putnam Asset Allocation Growth Fund

For the period For the period
February 16, 1994 February 16, 1994
(commencement of (commencement of
operations) to March 31 operations) to March 31
1994 1994
Class B Class A
<S> <C> <C>
Net Asset Value, Beginning of Period $8.50 $8.50

Investment Operations
Net Investment Income* .01(a) .02(a)
Net Realized and Unrealized Loss on Investments (.37) (.37)

Total from Investment Operations* (.36) (.35)

Net Asset Value, End of Period $8.14 $8.15

Total Investment Return at Net Asset
Value (%) (b)(c) (28.20) (27.47)

Net Assets, End of Period (in thousands) $4,066 $7,388

Ratio of Expenses to Average Net Assets (%) 1.98(a)(c) 1.23(a)(c)
Ratio of Net Investment Income to Average
Net Assets (%) 1.13(a)(c) 1.88(a)(c)
Portfolio Turnover (%) 3.40(d) 3.40(d)
<PAGE>
* Per share net investment income for the period ended March 31, 1994 have been
determined on the basis of the weighted average number of
shares outstanding during the
period.

(a) Reflects a voluntary absorption of expenses incurred by the Fund. As a result of this
limitation, expenses for the period ended March 31, 1994, reflect a reduction of $.05 and
$.03 for Class A and Class B , respectively. See Note 3.

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

(d) Not annualized

/TABLE
<PAGE>
<TABLE>
<CAPTION>

Financial
Highlights
(For a share outstanding throughout the period)

Putnam Asset Allocation Balanced Fund

For the period For the period
February 11, 1994 February 7, 1994
(commencement of (commencement of
operations) to March 31 operations) to March 31
1994 1994
Class B Class A
<S> <C> <C>
Net Asset Value, Beginning of Period $8.50 $8.50

Investment Operations
Net Investment Income* .01(a) .03(a)
Net Realized and Unrealized Loss on Investments (.33) (.33)

Total from Investment Operations* (.32)(a) (.30)(a)

Net Asset Value, End of Period $8.18 $8.20

Total Investment Return at Net
Asset Value (%) (b) (25.07)(c) (23.53)(c)

Net Assets, End of Period (in thousands) $8,744 $9,720

Ratio of Expenses to Average Net Assets (%) 1.89(a)(c) 1.14(a)(c)
Ratio of Net Investment Income to
Average Net Assets (%) 1.40(a)(c) 2.15(a)(c)
Portfolio Turnover (%) 2.52(d) 2.52(d)
<PAGE>
* Per share net investment income for the period ended March 31, 1994 have been
determined on the basis of the weighted average number of shares outstanding during the
period.

(a) Reflects a voluntary absorption of expenses incurred by the Fund. As a result of this
limitation, expenses for the period ended March 31, 1994, reflect a reduction of $0.04 and
$0.02 for Class A and Class B, respectively. See Note 3.

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

(d) Not annualized.

</TABLE>

<PAGE>
Financial
Highlights
(For a share outstanding throughout the period)

Putnam Asset Allocation Conservative Fund

For the period For the period
February 18, 1994 February 7, 1994
(commencement of (commencement of
operations) to operations) to
March 31 March 31
1994 1994
Class B Class A

Net Asset Value, Beginning of Period $8.50 $8.50

Investment Operations
Net Investment Income* .01(a) .03(a)
Net Realized and Unrealized Gain
(Loss) on Investments (.25) (.27)

Total from Investment Operations* (.24)(a) (.24)(a)

Net Asset Value, End of Period $8.26 $8.26

Total Investment Return at Net
Asset Value (%) (b) (18.80)(c) (18.80)(c)

Net Assets, End of Period
(in thousands) $6,342 $5,462

Ratio of Expenses to Average
Net Assets (%) 2.00(a)(c) 1.25(a)(c)
Ratio of Net Investment Income
to Average Net Assets (%) 1.57(a)(c) 2.32(a)(c)
Portfolio Turnover (%) 1.90(d) 1.90(d)
<PAGE>
* Per share net investment income for the period ended March 31,
1994 have been determined on the basis of the weighted average
number of shares outstanding during the period.
(a) Reflects a voluntary absorption of expenses incurred by the
Fund. As a result of this limitation, expenses for the period
ended March 31, 1994, reflect a reduction of $0.06 and $0.04 for
Class A and Class B shares, respectively. See Note 3.
(b) Total Investment Return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.

<PAGE>
OBJECTIVES

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO SEEKS CAPITAL
APPRECIATION.

PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO SEEKS TOTAL RETURN.

PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO SEEKS TOTAL
RETURN CONSISTENT WITH PRESERVATION OF CAPITAL.

Each Fund is represented by a separate series of shares of
beneficial interest and pursues its investment objective through
its separate investment policies. 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 has a different strategic allocation which indicates
the typical percentage allocation of its investments between
equity securities and fixed income securities (including money
market instruments), although Putnam Investment Management, Inc.,
the Funds' investment manager ("Putnam Management"), may adjust
these allocations within the ranges described below. The Funds'
different strategic allocations generally correlate to different
levels of investment risk. The strategic allocation and the
range of active allocation are shown below:

GROWTH BALANCED CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO

STRATEGIC STRATEGIC STRATEGIC
ALLOCATION RANGE ALLOCATION RANGE ALLOCATION RANGE

EQUITY
CLASS 80% 65-95% 65% 50-75% 35% 25-45%

FIXED
INCOME
CLASS 20% 5-35% 35% 25-50% 65% 55-75%

The percentage limitations are applied at the time of purchase.
Each Fund may also select other investments that do not fall
within the asset classes listed above.

Under normal market conditions, Putnam Management will allocate
the assets of each Fund within the specified ranges above or
below the strategic allocation whenever, based on Putnam
Management's experience in qualitative analysis and disciplined
quantitative techniques, its research and analysis indicate
changes in financial markets that reflect changed valuations
within and among the asset classes. Allocating assets
within a specified range above or below a strategic allocation
permits each Fund to attempt to optimize performance consistent
with its investment objective. The risks of each asset class
vary. For example, the values of equity securities change in
response to general market and economic conditions and the
activities and changing circumstances of individual issuers, and
the values of fixed income securities change in response to
changes in economic conditions, interest rates and the
creditworthiness of individual issuers. A significant portion of
each Fund's equity and fixed income investments may consist of
foreign securities which involve the risks set forth in "Risk
factors" below.

EQUITY CLASS

EACH FUND WILL INVEST ITS ASSETS ALLOCATED TO THE EQUITY CLASS IN
A DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES THAT PUTNAM
MANAGEMENT BELIEVES HAVE THE POTENTIAL FOR CAPITAL APPRECIATION.
THESE MAY INCLUDE WIDELY TRADED COMMON STOCKS OF LARGER
COMPANIES, AS WELL AS COMMON STOCKS OF SMALLER, LESS WELL-KNOWN
COMPANIES. In selecting equity securities for a Fund, Putnam
Management will consider, among other things, an issuer's
financial strength, competitive position and projected future
earnings and dividends. Common stocks are normally the main type
of each Fund's equity investments. However, each Fund may
purchase preferred stocks, convertible securities and warrants.

Each Fund may invest a portion of its assets in common stocks
Putnam Management believes are significantly undervalued. In
selecting such securities, Putnam Management will focus on
industries and issuers it considers to have particular
possibilities for long-term capital appreciation due to potential
growth of earnings which, in the judgment of Putnam Management,
is not fully reflected in current market prices. In selecting
undervalued securities, Putnam Management may consider investment
judgments contrary to those of most investors.

Investing in securities of smaller, less well-known companies may
present greater opportunities for capital appreciation, but may
also involve greater risks. These companies may have limited
product lines, markets or financial resources, or may depend on a
limited management group. Their securities may trade less
frequently and in limited volume. As a result, the prices of
these securities may fluctuate more than prices of securities of
larger, more established companies.

FIXED INCOME CLASS

EACH FUND WILL INVEST ITS ASSETS ALLOCATED TO THE FIXED INCOME
CLASS IN A DIVERSIFIED PORTFOLIO OF DEBT SECURITIES, INCLUDING
BOTH U.S. AND FOREIGN GOVERNMENT OBLIGATIONS AND CORPORATE
OBLIGATIONS.

The values of fixed income securities generally 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 allocated to the Fixed Income Class.
Conversely, during periods of rising interest rates, the value of
a Fund's assets allocated to such Class will generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Debt securities are subject
to varying degrees of risk of default depending upon, among other
factors, the creditworthiness of the issuer and the ability of
the borrower to meet its obligations.

EACH FUND MAY INVEST IN LOWER-RATED FIXED INCOME SECURITIES.
Lower-rated fixed income securities are generally regarded as
those rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation
("S & P") or securities of comparable quality as
determined by Putnam Management. No Fund will purchase fixed
income securities rated at the time of purchase lower than Caa by
Moody's or CCC by S & P , or, if unrated, determined by
Putnam Management to be of comparable quality, if, as a result,
more than 5% of the Fund's total assets would be invested in
securities of that quality. Such securities may be in default
and are generally regarded by t he rating agencies as having
extremely poor prospects of ever attaining any real investment
standing. In addition, the Conservative Portfolio and the
Balanced Portfolio will not purchase fixed income securities
rated at the time of purchase below Baa by Moody's or
BBB by S & P, or if unrated, determined to be of
comparable quality by Putnam Management if, as a result, more
than 10% of the Conservative Portfolio's or 35% of the
Balanced Portfolio's total assets would be invested in
securities of that quality. The values of lower-rated fixed
income securities, commonly known as "junk bonds," generally
fluctuate more than those of higher-rated fixed income
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 interest and
repayments of principal. The rating services' descriptions of
debt securities are included in the Appendix to 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.
<PAGE>
Putnam Management may take full advantage of the entire range of
fixed income securities and may adjust the average maturity of a
Fund's portfolio from time to time depending on its assessment of
relative yields on securities of different maturities and its
expectations of future changes in interest rates.

At times, some or all of each Fund's fixed income 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
such 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, 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.

Each Fund may at times invest in so-called "zero-coupon" bonds
and "payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. 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. The value of zero-coupon bonds 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, a Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, a Fund could be
required at times to liquidate other investments in order to
satisfy its distribution requirements.

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, that Fund might not be able to reinvest the
proceeds in securities providing the same investment return as
the securities redeemed.

FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTMENTS BY EACH FUND IN SECURITIES IN THE LOWER RATING
CATEGORIES, SEE THE STATEMENT OF ADDITIONAL INFORMATION.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. Each Fund may
invest some or all of its assets allocated to the Fixed Income
Class in asset-backed and mortgage-backed securities, such as
collateralized mortgage obligations. Mortgage-backed securities
represent a participation in, or are secured by, mortgage loans
and include securities issued or guaranteed by the United States
government or one of its agencies or instrumentalities;
securities issued by private issuers that represent an interest
in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. government or one of its agencies or
instrumentalities; or securities issued by private issuers that
represent an interest in or are collateralized by mortgage loans
or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.

Asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in
mortgage loans, the underlying assets may include motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.

Due to the risk of voluntary prepayment, especially when interest
rates decline, mortgage-backed and asset-backed securities are
less effective than other types of securities as a means of
"locking in" attractive long-term interest rates and, as a
result, may have less potential for capital appreciation during
periods of declining interest rates than other securities of
comparable maturities. If the Fund purchases mortgage-backed and
asset-backed securities at a premium above their par value,
unscheduled prepayments made at par will cause the Fund to suffer
a loss equal to any unamortized premium.

MONEY MARKET INSTRUMENTS. Each Fund may invest in high quality
money market obligations that present minimal credit risk and may
include U.S. government obligations, certificates of deposit,
bankers' acceptances, bank deposits, other financial institution
obligations, and commercial paper and other short-term corporate
obligations. These instruments have

various maturities and may have fixed or variable interest rates.
Each Fund may also hold a portion of its assets in cash.

RISK FACTORS

INVESTMENTS IN FOREIGN SECURITIES. The Conservative Portfolio
may invest up to 30% of its assets, and the Growth and Balanced
Portfolios may invest up to 40% of their assets, in securities
principally traded in foreign markets. Each Fund may also
purchase Eurodollar certificates of deposit without regard to
these limits. Foreign investments involve certain risks not
present in domestic securities. Because each Fund intends to
purchase securities that are normally denominated and traded in
foreign currencies, the values of these assets and any investment
income derived from them may be affected favorably or unfavorably
by currency exchange rates and exchange control regulations. In
addition, although a portion of each Fund's investment income may
be received or realized in such foreign currencies, each Fund
will be required to compute and distribute its income in U.S.
dollars, which may subject the Fund to various risks due to
currency fluctuations. For example, if the exchange rate for any
such currency declines after such Fund's income has been earned
and translated into U.S. dollars but before payment, the Fund
could be required to liquidate portfolio securities to make such
distributions. The values of foreign fixed income securities
will fluctuate in response to changes in U.S. and foreign
interest rates. Income received by each Fund from sources within
foreign countries may be reduced by withholding and other taxes
imposed by such countries. Tax conventions between certain
countries and the United States may reduce or eliminate such
taxes. Any such taxes paid by a Fund will reduce its net income
available for distribution to shareholders. Putnam Management
will consider available yields, net of any required taxes, in
selecting foreign securities.

There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers are not
generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of a Fund's
assets held abroad) and expenses not present in the settlement of
domestic investments.

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

FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN FOREIGN SECURITIES, SEE THE STATEMENT OF ADDITIONAL
INFORMATION.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Putnam Management may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future exchange rates.
Putnam Management may engage in foreign currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect the
value of specific portfolio positions ("position hedging").

Each Fund may engage in transaction hedging to protect against a
change in the foreign currency exchange rate between the date on
which the Fund contracts to purchase or sell the security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. Each Fund
may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate as part of its transaction hedging
strategies.

If conditions warrant, each 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 as part of its transaction hedging strategies. A
foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be
higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have
margin requirements. Each Fund may also purchase exchange-listed
and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies.

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

Each 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 a Fund. Cross hedging transactions by a 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.

Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which a Fund's investments may be denominated. A Fund's ability
to engage in hedging transactions may be limited by tax
considerations. A Fund's hedging transactions may affect the
character or amount of such Fund's distributions.

FOR MORE INFORMATION RELATING TO FOREIGN CURRENCY EXCHANGE
TRANSACTIONS, SEE THE STATEMENT OF ADDITIONAL INFORMATION. FOR
MORE INFORMATION ABOUT FUTURES CONTRACTS AND RELATED OPTIONS, SEE
"FINANCIAL FUTURES AND OPTIONS" BELOW.

SHORT-TERM TRADING. UNDER CERTAIN MARKET CONDITIONS, A FUND MAY
SEEK PROFITS BY SHORT-TERM TRADING. 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." To the extent short-term
trading strategies are used, 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.
While it is impossible to predict a Fund's portfolio turnover
rate, Putnam Management, based on its experience, believes that
such rate will not exceed 150% for any Fund.

DEFENSIVE STRATEGIES

AT TIMES PUTNAM MANAGEMENT MAY JUDGE THAT CONDITIONS IN THE
SECURITIES MARKETS MAKE PURSUING A FUND'S BASIC INVESTMENT
STRATEGY INCONSISTENT WITH THE BEST INTERESTS OF ITS
SHAREHOLDERS. At such times Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of a Fund's assets. In implementing
these "defensive" strategies, depending on the circumstances, a
Fund may invest without regard to the ranges described above for
investments in the various asset classes and may invest primarily
in equity securities, debt securities, preferred stocks, U.S.
Government and agency obligations, cash or money market
instruments, or in other securities 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.

FINANCIAL FUTURES AND OPTIONS

EACH FUND MAY BUY AND SELL FINANCIAL FUTURES CONTRACTS ON STOCK
INDEXES, U.S. GOVERNMENT SECURITIES, FOREIGN FIXED INCOME
SECURITIES AND ON FOREIGN CURRENCIES. A futures contract is a
contract to buy or sell units of a particular stock index (an
"Index Future"), or a certain amount of a U.S. Government
security, foreign fixed income security or foreign currency, at
an agreed price on a specified future date. Depending on the
change in value of the index, security or currency between the
time when a Fund enters into and terminates a futures contract,
such Fund realizes a gain or loss. Each Fund may purchase and
sell futures contracts for hedging purposes and to adjust that
Fund's exposure to the relevant stock or bond markets. For
example, when Putnam Management wants to increase the Fund's
exposure to equity securities, it may do so by taking long
positions in futures contracts on equity indices such as futures
contracts on the Standard & Poor's 500 Stock Index. Similarly,
when Putnam Management wants to increase the Fund's exposure to
fixed income securities, it may do so by taking long positions in
futures contracts relating to fixed income securities such as
futures contracts on U.S. Treasury bonds or notes. Each Fund may
buy and sell call and put options on futures contracts or on
stock indices in addition to or as an alternative to purchasing
or selling futures contracts or, to the extent permitted by
applicable law, to earn additional income.

THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS.
FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN
LOSSES. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of
financial futures and options and movements in the prices of the
underlying stock index, securities, or currencies or of the
securities or currencies which are the subject of the hedge. The
successful use of futures and options further depends on Putnam
Management's ability to forecast market or 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. A
Fund's ability to terminate option positions established in the
over-the-counter market may be more limited than for exchange-
traded options and may also involve the risk that securities
dealers participating in such transactions would fail to meet
their obligations to that Fund. The use of futures or options on
futures for purposes other than hedging is regarded as
speculative.

Because the markets for options and futures on foreign equity and
fixed income securities and foreign currencies are relatively new
and still developing, each Fund's ability to engage in such
transactions may be limited. Certain provisions of the Internal
Revenue Code and certain regulatory requirements may also limit a
Fund's ability to engage in futures and options transactions.

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

INVESTMENTS IN PREMIUM SECURITIES

Each Fund may invest some or all of its assets allocated to the
Fixed Income Class in securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on
maturity. A Fund does not amortize the premium paid for such
securities in calculating its net investment income. As a
result, the purchase of such securities provides a Fund a higher
level of investment income distributable to shareholders on a
current basis than if that Fund had purchased securities bearing
current market rates of interest. Because the value of premium
securities tends to approach the principal amount as they
approach maturity (or call price in the case of securities
approaching their first call date), the purchase of such
securities may increase a Fund's risk of capital loss if such
securities are held to maturity (or first call date).

During a period of declining interest rates, some of each Fund's
portfolio investments will likely bear coupon rates which are
higher than the current market rates, regardless of whether such
securities were originally purchased at a premium. Such
securities would generally carry premium market values which
would be reflected in the net asset value of a Fund's shares. As
a result, an investor who purchases shares of a Fund during such
periods would initially receive higher taxable distributions
(derived from the higher coupon rates payable on that Fund's
investments) than might be available from alternative investments
bearing current market interest rates, but may face an increased
risk of capital loss as these higher coupon securities approach
maturity (or first call date). In evaluating the potential
performance of an investment in 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--Class A and B
Shares."

OTHER INVESTMENT PRACTICES

EACH FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING
INVESTMENT PRACTICES, 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.

OPTIONS. Each Fund may seek to increase its current return by
buying and selling covered call and put options on securities it
owns or in which it may invest and on foreign currencies. A Fund
receives a premium from writing a call or put option, which
increases the Fund's return if the option expires unexercised or
is closed out at a net profit. When a Fund writes a call option,
it gives up the opportunity to profit from any increase in the
price of a security or currency above the exercise price of the
option; when it writes a put option, a Fund takes the risk that
it will be required to purchase a security or currency from the
option holder at a price above the current market price of the
security or currency. A 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. Each Fund may also buy and
sell put and call options for hedging purposes. Each Fund may
also from time to time buy and sell combinations of put and call
options on the same underlying security or currency to earn
additional income. The aggregate value of the securities and
foreign currencies underlying options written by a Fund may not
exceed 25% of such Fund's assets. Each Fund's use of options
strategies may be limited by applicable law.

SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
Each Fund may lend portfolio securities amounting to not more
than 25% of its assets to broker-dealers and 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 involves 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 such Fund
is delayed or prevented from recovering the collateral or
completing the transaction.

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUNDS LIMIT INVESTMENT
RISKS FOR THEIR SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT EACH
FUND FROM: acquiring more than 10% of the voting securities of
any one issuer* and investing more than: (a) 5% of its total
assets (taken at current value) in securities of any one issuer
(other than the U.S. government or its agencies or
instrumentalities or, with respect to 25% of that Fund's total
assets, securities issued by or backed by the credit of, any
foreign government, its agencies or instrumentalities);* (b) 15%
of its net assets in securities restricted as to resale
(excluding securities determined by the Trustees (or the person
designated by the Trustees to make such determinations) to be
readily marketable);* (c) 25% of its total assets in any one
industry (securities of the U.S. government, its agencies or
instrumentalities, or of any foreign government, its agencies or
instrumentalities, securities of supranational entities, and
securities backed by the credit of a governmental entity are not
considered to represent industries);* (d) 5% of its net assets in
warrants or more than 2% of its net assets in warrants not listed
on the New York or American Stock Exchanges; or (e) 15% of its
net assets in any combination of securities that are not readily
marketable, in securities restricted as to resale (excluding
securities determined by the Trustees (or the person designated
by the Trustees to make such determinations) to be readily
marketable), and in repurchase agreements maturing in more than
seven days.

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

HOW PERFORMANCE IS SHOWN

YIELD AND TOTAL RETURN DATA MAY FROM TIME TO TIME BE INCLUDED IN
ADVERTISEMENTS ABOUT A FUND. "Yield" for each class of shares of
a Fund 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 that 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 a Fund's 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. A Fund's current
dividend rate is based on its net investment income as determined
for financial reporting purposes which may not reflect
amortization in the same manner. See "How objectives are pursued
- --Investments in premium securities." A Fund's yield reflects
the deduction of the maximum initial sales charge in the case of
Class A shares, but does not reflect the deduction of any
contingent deferred sales charge in the case of Class B shares.
"Total return" for the life of a Fund through the most recent
calendar quarter represents the average annual compounded rate of
return on an investment of $1,000 in that Fund at the maximum
public offering price (in the case of Class A shares) or
reflecting the deduction of any applicable contingent deferred
sales charge (in the case of Class B shares). Total return may
also be presented for other periods or based on investment at
reduced sales charge levels. Any quotation of total return or
yield not reflecting the maximum initial sales charge or
contingent deferred sales charge would be reduced if such sales
charges were used. Quotations of yield or total return 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.

ALL DATA IS BASED ON EACH 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 each
Fund's investment objectives and policies. These factors should
be considered when comparing each Fund's investment results to
those of other mutual funds and other investment vehicles.

HOW THE FUNDS ARE MANAGED

THE TRUSTEES ARE RESPONSIBLE FOR GENERALLY OVERSEEING THE CONDUCT
OF EACH FUND'S BUSINESS. Subject to such policies as the
Trustees 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 the Funds' other affairs and business.
Putnam Management's Global Asset Allocation Committee has primary

responsibility for the day - to - day management of
the Funds'
portfolios .

Each Fund pays its share of all expenses of the Trust that are
not assumed by Putnam Management, including Trustees' fees and
auditing, legal, custodial, investor servicing and shareholder
reporting expenses. Payments under each Fund's Distribution
Plans are borne entirely by that Fund and are in turn allocated
to the relevant class of shares. Each Fund also reimburses
Putnam Management for its share of the compensation and related
expenses of certain officers of the Trust and their staff who
provide administrative services to the Funds. The total
reimbursement is determined annually by the Trustees.

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

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized on November
4, 1993. A copy of the Agreement and Declaration of Trust, which
is governed by Massachusetts law, is on file with the Secretary
of State of The Commonwealth of Massachusetts.

Each share has one vote, with fractional shares voting
proportionally. Shares shall vote in the aggregate as a single
class without regard to Funds or classes of shares on all matters
except, (i) when required by the Investment Company Act of 1940
or when the Trustees have determined that the matter affects the
interests of one or more Funds or classes materially differently,
shares will be voted by individual series or class; and (ii) when
the Trustees have determined that the matter affects only the
interest of one or more Funds or classes, then only shareholders
of such Funds or classes shall be entitled to vote thereon.
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. The Funds may suspend the
sale of shares at any time and may refuse any order to purchase
shares. Although the Trust is not required to hold annual
meetings of its shareholders, shareholders holding at least 10%
of the outstanding shares entitled to vote have the right to call
a meeting to elect or remove Trustees, or to take other actions
as provided in the Declaration of Trust.

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

ABOUT YOUR INVESTMENT

ALTERNATIVE SALES ARRANGEMENTS

Each Fund offers investors two classes of shares pursuant to this
Prospectus 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 0.25% of a 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 1.00% of a Fund's average net assets attributable to
Class B shares. Class B shares will automatically convert into
Class A shares, based on relative net asset value, approximately
eight years after purchase. Class B shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made, but (until conversion) will have
a higher expense ratio and pay lower dividends than Class A
shares due to the higher 12b-1 fee. See "How to buy
shares -- Class B shares."

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

HOW TO BUY SHARES

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

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

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

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

CLASS A SHARES

The public offering price of Class A shares is the net asset
value plus a sales charge. The Fund in which you are investing
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>
<PAGE>

<TABLE>
<CAPTION>
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE
AT OFFERING PRICE INVESTED PRICE OF OFFERING PRICE*
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 50,000 6.10% 5.75% 5.00%
$ 50,000 but less than 100,000 4.71 4.50 3.75
100,000 but less than 250,000 3.63 3.50 2.75
250,000 but less than 500,000 2.56 2.50 2.00
500,000 but less than 1,000,000 2.04 2.00 1.75
- -----------------------------------------------------------------------------------------
/TABLE
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers.
The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.

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

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

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

CLASS B SHARES

Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within six years of
purchase. The following types of shares may be redeemed without
charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as
described below. Subject to the foregoing exclusions, 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.
Therefore, when a share is redeemed, any increase in its value
above the initial purchase price is not subject to any CDSC.
The amount of the CDSC will depend on the number of years since
you invested and the dollar amount being redeemed, according to
the following table:

Contingent Deferred
Sales Charge as a
Percentage of
Years Since 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

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

GENERAL

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

Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the Funds 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, no Fund will issue
certificates for your shares unless you request them. Putnam
Mutual Funds may, at its expense, provide additional promotional
incentives or payments to dealers that sell shares of the Putnam
funds. In some instances, these incentives or payments may be
offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.

DISTRIBUTION PLANS

CLASS A DISTRIBUTION PLAN. The purpose of the Class A Plan is to
permit each Fund to compensate Putnam Mutual Funds for services
provided and expenses incurred by it in promoting the sale of
Class A shares of that Fund, reducing redemptions, or maintaining
or improving services provided to shareholders by Putnam Mutual
Funds or dealers. The Class A Plan provides for payments by each
Fund to Putnam Mutual Funds at the annual rate of up to 0.35% of
that Fund's average net assets attributable to Class A shares,
subject to the authority of the Trustees to reduce the amount of
payments or to suspend the Class A Plan for such periods as they
may determine. Subject to these limitations, the amount of such
payments and the specific purposes for which they are made shall
be determined by the Trustees. At present, the Trustees have
approved payments under the Class A Plan at the annual rate of
0.25% of each Fund's average net assets attributable to Class A
shares for the purpose of compensating Putnam Mutual Funds for
services provided and expenses incurred by it as principal
underwriter of that Fund's Class A shares, including payments
made by it to dealers under the Service Agreements referred to
below. Should the Trustees decide in the future to approve
payments in excess of this amount, shareholders will be notified
and this Prospectus will be revised.

In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset
value of Class A shares of each Fund which are attributable to
shareholders for whom the dealers are designated as the dealer of
record. This calculation excludes until one year after
purchase shares purchased at net asset value after March 31, 1994
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 0.25% of
such average net asset value for Class A shares. For
participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on NAV Shares
are 100% of the rate stated above if average plan assets in
Putnam funds (excluding money market funds) during the quarter
are less than $20 million, 60% of the stated rate if average plan
assets are at least $20 million but less than $30 million, and
40% of the stated rate if average plan assets are $30 million or
more. For all other participant-directed qualified retirement
plans purchasing NAV Shares, Putnam Mutual Funds makes quarterly
payments to qualifying dealers at the annual rate of 0.10% of the
average net asset value of such shares.

CLASS B DISTRIBUTION PLAN. The Class B Plan provides for
payments by each Fund to Putnam Mutual Funds at the annual rate
of up to 1.00% of that Fund's average net assets attributable to
Class B shares, subject to the authority of the Trustees to
reduce the amount of payments or to suspend the Class B Plan for
such periods as they may determine. Putnam Mutual Funds also
receives the proceeds of any CDSC imposed on redemptions of
shares.

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 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. 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 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 which are attributable to shareholders
for whom the dealers are designated as the dealer of record.
Putnam Mutual Funds makes such payments at an annual rate of
0.25% of such average net asset value of such shares.

GENERAL. Putnam Mutual Funds may suspend or modify the payments
made to dealers described above, and such payments are subject to
the continuation of the relevant Plan described above, 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 a Fund any day the New York
Stock Exchange is open, either directly to a Fund or through your
investment dealer. A Fund will only repurchase shares for which
it has received payment.

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

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

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

SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your
dealer must receive your request before the close of regular
trading on the New York Stock Exchange to receive that
day's net asset value. Your dealer will be responsible for
furnishing all necessary documentation to Putnam Investor
Services, and may charge for its services.
<PAGE>
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 more than one
class of shares. If the other Putnam fund offers only one class
of shares, only Class A shares may be exchanged for such class.
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 Class A and B shares." The Telephone
Exchange Privilege is not available if you were issued
certificates for shares which remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.

The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where the Trustees or Putnam Management
believes doing so would be in the best interests of a Fund, a
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 EACH FUND VALUES ITS 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 ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN. Portfolio securities for which market
quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

The Growth Portfolio distributes any net investment income at
least annually. The Conservative Portfolio and the Balanced
Portfolio distribute any net investment income at least
quarterly. Each of the Funds distributes any net realized
capital gains at least annually. Distributions from net capital
gains are made after applying any available capital loss
carryovers. Distributions paid by each Fund with respect to
Class A shares will generally be greater than those paid with
respect to Class B shares because expenses attributable to Class
B shares will generally be higher.

YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions from a Fund in additional shares of that Fund
without a sales charge; (2) receive distributions from net
investment income in cash while reinvesting net capital gains
distributions in additional shares of that 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 distribution is paid. You will receive a statement
confirming reinvestment of distributions from a Fund in
additional shares of that Fund (or in shares of other Putnam
funds for Dividends Plus accounts) promptly following the quarter
in which the reinvestment occurs.

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

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 it 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.

Each Fund's distributions will be taxable to you as ordinary
income, except that any distributions of net long-term capital
gains will be taxed as such, regardless of how long you have held
the shares. Distributions will be taxable as described above
whether received in cash or in shares through the reinvestment of
distributions.

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

The foregoing is a summary of certain federal income tax
consequences of investing in a Fund. You should consult your tax
adviser to determine the precise effect of an investment in a
Fund on your particular tax situation (including possible
liability 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 the Funds and
of other Putnam funds. Putnam Fiduciary Trust Company is the
Funds' custodian. Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, is the Funds' 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

THE RATINGS SERVICES' DESCRIPTIONS OF THE FIXED -INCOME
SECURITIES IN WHICH EACH FUND MAY INVEST ARE:

MOODY'S INVESTORS SERVICE, INC.:

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

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

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

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

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

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

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

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

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

STANDARD & POOR'S CORPORATION:

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

AA -- Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.

A -- Bonds rated A have 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 bonds in higher rated categories.

BBB -- Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit 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 bonds
in this category than in higher rated categories.

BB-B-CCC-CC-C -- Bonds rated BB, B, CCC, CC and C are 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 bonds
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

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

<PAGE>
PUTNAM ASSET ALLOCATION FUNDS

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO

One Post Office Square
Boston, MA 02109

FUND INFORMATION:
INVESTMENT MANAGER

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

MARKETING SERVICES

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

INVESTOR SERVICING AGENT

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

CUSTODIAN

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

LEGAL COUNSEL

Ropes & Gray
One International Place
Boston, MA 02110

INDEPENDENT ACCOUNTANTS

Price Waterhouse
160 Federal Street
Boston, MA 02110

PUTNAM INVESTMENTS

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

<PAGE>
PROSPECTUS
SEPTEMBER 1, 1994

PUTNAM ASSET ALLOCATION FUNDS

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
CLASS A , B AND C SHARES

This Prospectus explains concisely what you should know before
investing in Class A , B or C shares of Putnam Asset
Allocation Funds. Please read it carefully and keep it for
future reference. You can find more detailed information in the
September 1, 1994 Statement of Additional Information, as
amended from time to time. For a free copy of the Statement or
other information, including Prospectuses regarding other classes
of shares of the Funds, 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.

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.

THIS PROSPECTUS OFFERS THREE CLASSES OF SHARES OF THE
FUNDS: CLASS A , CLASS B AND CLASS C . EACH CLASS
IS SOLD PURSUANT TO DIFFERENT SALES ARRANGEMENTS AND BEARS
DIFFERENT EXPENSES. FOR MORE INFORMATION ABOUT THE DIFFERENT
SALES ARRANGEMENTS, SEE "ALTERNATIVE SALES ARRANGEMENTS ."
FOR INFORMATION ABOUT VARIOUS EXPENSES BORNE BY EACH CLASS, SEE
"EXPENSES SUMMARY."
<PAGE>
ABOUT THE FUNDS

Expenses summary.......................................
Financial highlights...................................
Objectives.............................................
How objectives are pursued.............................
How performance is shown...............................
How the Funds are managed .............................
Organization and history...............................

ABOUT YOUR INVESTMENT

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

ABOUT PUTNAM INVESTMENTS, INC.

APPENDIX

Fixed-income security ratings
<PAGE>
<TABLE>
<CAPTION>
ABOUT THE FUNDS

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing in a Fund. The following
table summarizes your maximum transaction costs from investing in a Fund and expenses
which each Fund expects to incur in its first fiscal year. The Examples show the
estimated cumulative expenses attributable to a hypothetical $1,000 investment in Class A
, Class B and Class C shares of a Fund over specified periods.

CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 5.75% NONE* NONE*

Deferred Sales Charge (as a 5.0% in the 1.00% in the first
percentage of the lower first year, year and eliminated
of the original purchase NONE** declining to thereafter
price or redemption 1.0% in the
proceeds) sixth year, and
eliminated thereafter<PAGE>

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

CLASS A SHARES

GROWTH BALANCED CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO

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

Management Fees (after expense
limitation discussed below) 0.64% 0.58% 0.64%
12b-1 Fees 0.25% 0.25% 0.25%
Other Expenses 0.38% 0.44% 0.38%
Total Fund Operating Expenses 1.27% 1.27% 1.27%
(after expense limitation)<PAGE>

CLASS B AND CLASS C SHARES

GROWTH BALANCED CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO

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

Management Fees (after expense
limitation discussed below) 0.64% 0.58% 0.64%
12b-1 Fees 1.00% 1.00% 1.00%
Other Expenses 0.38% 0.44% 0.38%
Total Fund Operating Expenses 2.02% 2.02% 2.02%
(after expense limitation)
<PAGE>

The tables are provided to help you understand the expenses of investing in each Fund and
your share of the operating expenses which each Fund expects to incur during its first
fiscal year. The estimated annual management fees shown in the table reflect an expense limitation
currently in effect. In the absence of the expense limitation, estimated management fees
for the Growth Portfolio and the Conservative Portfolio would be 0.70% and estimated total
Fund operating expenses would be 1.33% for Class A shares and 2.08% for Class B and
Class C shares. In the absence of the expense limitation, estimated management fees
for the Balanced Portfolio would be 0.70% and estimated total Fund operating expenses
would be 1.39% for Class A shares and 2.14% for Class B and Class C shares. The
12b-1 fees shown in the table reflect the amount to which the Trustees currently limit
payments under the Class A Distribution Plan and the maximum amount permitted under the
Class B and Class C Distribution Plans . "Other expenses" are based on
estimated amounts for each Fund's first full fiscal year.

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

GROWTH PORTFOLIO

CLASS A $70 $95
CLASS B $71 $93
CLASS C $31 $63

BALANCED PORTFOLIO

CLASS A $70 $95
CLASS B $71 $93
CLASS C $31 $63
<PAGE>
CONSERVATIVE PORTFOLIO

CLASS A $70 $95
CLASS B $71 $93
CLASS C $31 $63

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

1 YEAR 3 YEARS

GROWTH PORTFOLIO

CLASS A $70 $95
CLASS B $21 $63
CLASS C $21 $63

BALANCED PORTFOLIO

CLASS A $70 $95
CLASS B $21 $63
CLASS C $21 $63

CONSERVATIVE PORTFOLIO

CLASS A $70 $95
CLASS B $21 $63
CLASS C $21 $63

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

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

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

Each Fund also offers other classes of shares . See
"Organization and history" for additional information.

FINANCIAL HIGHLIGHTS

The tables on the following pages present per share financial
information for the life of the Fund. This information has been
audited and reported on by the Trust's independent accountants.
The Report of Independent Accountants and financial statements
included in the Trust's Semiannual Report to shareholders for the
fiscal period ending March 31, 1994 are incorporated by
reference into this Prospectus. The Trust's Semiannual Report is
available without charge upon request.The tables on the
following pages present per share financial information for the
life of the Fund . <PAGE>
<TABLE>
<CAPTION>

Financial
Highlights
(For a share outstanding throughout the period)

Putnam Asset Allocation Growth Fund

Investment Operations
Net Investment Income* .01(a) .02(a)
Net Realized and Unrealized Loss on Investments (.37) (.37)

Total from Investment Operations* (.36) (.35)

Net Asset Value, End of Period $8.14 $8.15

Total Investment Return at Net Asset
Value (%) (b)(c) (28.20) (27.47)

Net Assets, End of Period (in thousands) $4,066 $7,388

Ratio of Expenses to Average Net Assets (%) 1.98(a)(c) 1.23(a)(c)
Ratio of Net Investment Income to Average
Net Assets (%) 1.13(a)(c) 1.88(a)(c)
Portfolio Turnover (%) 3.40(d) 3.40(d)
<PAGE>
* Per share net investment income for the period ended March 31, 1994 have been determined on the basis of the weighted
average number of shares outstanding during the period.

(a) Reflects a voluntary absorption of expenses incurred by the Fund. As a result of this limitation, expenses for the
period ended March 31, 1994, reflect a reduction of $.05 and $.03 for Class A and Class B , respectively. See
Note 3.

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

(d) Not annualized

/TABLE
<PAGE>
<TABLE>
<CAPTION>

Financial
Highlights
(For a share outstanding throughout the period)

Putnam Asset Allocation Balanced Fund

Investment Operations
Net Investment Income* .01(a) .03(a)
Net Realized and Unrealized Loss on Investments (.33) (.33)

Total from Investment Operations* (.32)(a) (.30)(a)

Net Asset Value, End of Period $8.18 $8.20

Total Investment Return at Net
Asset Value (%) (b) (25.07)(c) (23.53)(c)

Net Assets, End of Period (in thousands) $8,744 $9,720

Ratio of Expenses to Average Net Assets (%) 1.89(a)(c) 1.14(a)(c)
Ratio of Net Investment Income to
Average Net Assets (%) 1.40(a)(c) 2.15(a)(c)
Portfolio Turnover (%) 2.52(d) 2.52(d)
<PAGE>
* Per share net investment income for the period ended March 31, 1994 have been determined on the basis of the weighted
average number of shares outstanding during the period.

(a) Reflects a voluntary absorption of expenses incurred by the Fund. As a result of this limitation, expenses for the
period ended March 31, 1994, reflect a reduction of $0.04 and $0.02 for Class A and Class B, respectively. See Note 3.

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

(d) Not annualized.

</TABLE>

<PAGE>
Financial
Highlights
(For a share outstanding throughout the period)

Putnam Asset Allocation Conservative Fund

For the period For the period
February 18, 1994 February 7, 1994
(commencement of (commencement of
operations) to operations) to
March 31 March 31
1994 1994
Class B Class A

Net Asset Value, Beginning of Period $8.50 $8.50

Investment Operations
Net Investment Income* .01(a) .03(a)
Net Realized and Unrealized Gain
(Loss) on Investments (.25) (.27)

Total from Investment Operations* (.24)(a) (.24)(a)

Net Asset Value, End of Period $8.26 $8.26

Total Investment Return at Net
Asset Value (%) (b) (18.80)(c) (18.80)(c)

Net Assets, End of Period
(in thousands) $6,342 $5,462

<PAGE>
OBJECTIVES

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO SEEKS CAPITAL
APPRECIATION.

PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO SEEKS TOTAL RETURN.

PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO SEEKS TOTAL
RETURN CONSISTENT WITH PRESERVATION OF CAPITAL.

HOW OBJECTIVES ARE PURSUED

BASIC INVESTMENT STRATEGY

GROWTH BALANCED CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO

STRATEGIC STRATEGIC STRATEGIC
ALLOCATION RANGE ALLOCATION RANGE ALLOCATION RANGE

EQUITY
CLASS 80% 65-95% 65% 50-75% 35% 25-45%

FIXED
INCOME
CLASS 20% 5-35% 35% 25-50% 65% 55-75%

The percentage limitations are applied at the time of purchase.
Each Fund may also select other investments that do not fall
within the asset classes listed above.

Under normal market conditions, Putnam Management will allocate
the assets of each Fund within the specified ranges above or
below the strategic allocation whenever, based on Putnam
Management's experience in qualitative analysis and disciplined
quantitative techniques, its research and analysis indicate
changes in financial markets that reflect changed valuations
within and among the asset classes. Allocating assets within a
specified range above or below a strategic allocation permits
each Fund to attempt to optimize performance consistent with its
investment objective. The risks of each asset class vary. For
example, the values of equity securities change in response to
general market and economic conditions and the activities and
changing circumstances of individual issuers, and the values of
fixed income securities change in response to changes in economic
conditions, interest rates and the creditworthiness of individual
issuers. A significant portion of each Fund's equity and fixed
income investments may consist of foreign securities which
involve the risks set forth in "Risk factors" below.

EQUITY CLASS

FIXED INCOME CLASS

EACH FUND WILL INVEST ITS ASSETS ALLOCATED TO THE FIXED INCOME
CLASS IN A DIVERSIFIED PORTFOLIO OF DEBT SECURITIES, INCLUDING
BOTH U.S. AND FOREIGN GOVERNMENT OBLIGATIONS AND CORPORATE
OBLIGATIONS.

EACH FUND MAY INVEST IN LOWER-RATED FIXED INCOME SECURITIES.
Lower-rated fixed income securities are generally regarded as
those rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation
("S & P") or securities of comparable quality as
determined by Putnam Management. No Fund will purchase fixed
income securities rated at the time of purchase lower than Caa by
Moody's or CCC by S & P, or, if unrated, determined by
Putnam Management to be of comparable quality, if, as a result,
more than 5% of the Fund's total assets would be invested in
securities of that quality. Such securities may be in default
and are generally regarded by the rating agencies as
having extremely poor prospects of ever attaining any real
investment standing. In addition, the Conservative Portfolio and
the Balanced Portfolio will not purchase fixed income securities
rated at the time of purchase below Baa by Moody's or BBB by S
&P or , if unrated, determined to be of comparable
quality by Putnam Management if, as a result, more than 10% of
the Conservative Portfolio's or 35% of the Balanced Portfolio's
total assets would be invested in securities of that quality.
The values of lower-rated fixed income securities, commonly known
as "junk bonds," generally fluctuate more than those of higher-
rated fixed income 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
interest and repayments of principal. The rating services'
descriptions of debt securities are included in the Appendix to
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 may take full advantage of the entire range of
fixed income securities and may adjust the average maturity of a
Fund's portfolio from time to time depending on its assessment of
relative yields on securities of different maturities and its
expectations of future changes in interest rates.

Each Fund may at times invest in so-called "zero-coupon" bonds
and "payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. 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. The value of zero-coupon bonds is subject
to greater fluctuation in response to changes in market interest
rates than bonds which pay interest currently. Both zero-coupon
bonds 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, a Fund is nonetheless required to
accrue interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, a Fund could be
required at times to liquidate other investments in order to
satisfy its distribution requirements.

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

ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. Each Fund may
invest some or all of its assets allocated to the Fixed Income
Class in asset-backed and mortgage-backed securities, such as
collateralized mortgage obligations. Mortgage-backed securities
represent a participation in, or are secured by, mortgage loans
and include securities issued or guaranteed by the United States
government or one of its agencies or instrumentalities;
securities issued by private issuers that represent an interest
in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. government or one of its agencies or
instrumentalities; or securities issued by private issuers that
represent an interest in or are collateralized by mortgage loans
or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.

RISK FACTORS

FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN FOREIGN SECURITIES, SEE THE STATEMENT OF ADDITIONAL
INFORMATION.

DEFENSIVE STRATEGIES

FINANCIAL FUTURES AND OPTIONS

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

INVESTMENTS IN PREMIUM SECURITIES

OTHER INVESTMENT PRACTICES

LIMITING INVESTMENT RISK

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

HOW PERFORMANCE IS SHOWN

YIELD AND TOTAL RETURN DATA MAY FROM TIME TO TIME BE INCLUDED IN
ADVERTISEMENTS ABOUT A FUND. "Yield" for each class of shares of
a Fund 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 that 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 a Fund's 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. A Fund's current
dividend rate is based on its net investment income as determined
for financial reporting purposes which may not reflect
amortization in the same manner. See "How objectives are pursued
- --Investments in premium securities." A Fund's yield reflects
the deduction of the maximum initial sales charge in the case of
Class A shares, but does not reflect the deduction of any
contingent deferred sales charge in the case of Class B or
Class C shares. "Total return" for the life of a Fund
through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in
that Fund at the maximum public offering price (in the case of
Class A shares) or reflecting the deduction of any applicable
contingent deferred sales charge (in the case of Class B and
Class C shares). Total return may also be presented for
other periods or based on investment at reduced sales charge
levels. Any quotation of total return or yield not reflecting
the maximum initial sales charge or contingent deferred sales
charge would be reduced if such sales charges were used.
Quotations of yield or total return 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

ORGANIZATION AND HISTORY

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without
shareholder approval, be divided into two or more series of
shares representing separate investment portfolios and are
currently divided into three series of shares representing the
Funds. 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 currently
offers four classes of shares: Class A
, Class B , Class C and Class Y. Class A, Class B and
Class C shares are offered by this Prospectus.
Class Y shares are offered by another Prospectus to
defined contribution plans that initially invest at least $250
million in a combination of Putnam funds and other investments
managed by Putnam Management or its affiliates. Class Y shares,
which are sold at net asset value, are generally subject to the
same expenses as other classes of shares but do not bear
a 12b-1 fee. Shares shall vote in the aggregate as a
single class without regard to Funds or classes of shares on all
matters except, (i) when required by the Investment Company Act
of 1940 or when the Trustees have determined that the matter
affects the interests of one or more Funds or classes materially
differently, shares will be voted by individual series or class;
and (ii) when the Trustees have determined that the matter
affects only the interest of one or more Funds or classes, then
only shareholders of such Funds or classes shall be entitled to
vote thereon. 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. The Funds
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Trust is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Declaration of Trust.

ABOUT YOUR INVESTMENT

ALTERNATIVE SALES ARRANGEMENTS

Each Fund offers investors three classes of shares
pursuant to this Prospectus which bear sales charges in different
forms and amounts and which bear different levels of expenses:

CLASS C SHARES. Like Class B shares, Class C shares are sold
without an initial sales charge and bear a 1.00% 12b-1 fee.
Class C shares are subject only to a 1.00% contingent deferred
sales charge if redeemed within one year. Class C shares have no
conversion feature, and purchasers of Class C shares should
expect to bear the higher 12b-1 fee described above indefinitely.
See "How to buy shares - Class C shares."

WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge
might consider Class B or Class C shares. Orders for
Class B shares for $250,000 or more or orders for Class C
shares for $1,000,000 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 (in the
case of Class A shares and Class B shares) and make
additional investments at any time with as little as $50. The
minimum initial investment for Class C shares is $10,000. You
can buy Fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.

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

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

<TABLE>
<CAPTION>
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE
AT OFFERING PRICE INVESTED PRICE OF OFFERING PRICE*
-----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 50,000 6 .10% 5.75% 5.00%
$ 50,000 but less than 100,000 4 .71 4.50 3 .75
100,000 but less than 250,000 3 .63 3.50 2 .75
250,000 but less than 500,000 2 .56 2.50 2 .00
500,000 but less than 1,000,000 2.04 2.00 1 .75
-----------------------------------------------------------------------------------------
/TABLE
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers.
The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.

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

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

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

CLASS B SHARES

Contingent Deferred
Sales Charge as a
Percentage of
Years Since Dollar Amount
Payment Made Subject to Charge
------------------- ------------------
0-1................................................5.0%
1-2................................................4.0%
2-3................................................3.0%
3-4................................................3.0%
4-5................................................2.0%
5-6................................................1.0%
6 and thereafter........................................NONE

In determining whether a CDSC is payable on any redemption, a
Fund will first redeem shares not subject to any charge, and then
shares held longest during the six-year period. 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.
<PAGE>
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 exchange from 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.

CLASS C SHARES. Class C shares are sold without an initial
sales charge, although a 1.00% CDSC is imposed if you redeem your
shares within one year of purchase. No sales charge is imposed
on increases in net asset value above the initial purchase price.
In determining whether a CDSC is payable on any redemption, the
Fund will first redeem shares not subject to any charge, and then
shares held longest during the one-year period. The following
type of shares may be redeemed without charge at any time: (i)
shares acquired by reinvestment of distributions and (ii) shares
otherwise exempt from the CDSC, as described below. Subject to
the foregoing exclusions, 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. 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. Class C shares have no conversion feature
and therefore will be subject to a higher 12b-1 fee than Class A
shares indefinitely. Class C shares will be available on or
about September 1, 1994. Contact Putnam Invester Services for
further information.

GENERAL

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

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

DISTRIBUTION PLANS

In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset
value of Class A shares of each Fund which are attributable to
shareholders for whom the dealers are designated as the dealer of
record. This calculation excludes until one year after purchase
shares purchased at net asset value after March 31, 1994 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 0.25% of
such average net asset value for Class A shares. For participant-
directed qualified retirement plans initially investing less than
$20 million in Putnam funds and other investments managed by
Putnam Management or its affiliates, Putnam Mutual Funds'
payments to qualifying dealers on NAV Shares are 100% of the rate
stated above if average plan assets in Putnam funds (excluding
money market funds) during the quarter are less than $20 million,
60% of the stated rate if average plan assets are at least $20
million but less than $30 million, and 40% of the stated rate if
average plan assets are $30 million or more. For all other
participant-directed qualified retirement plans purchasing NAV
Shares, Putnam Mutual Funds makes quarterly payments to
qualifying dealers at the annual rate of 0.10% of the average net
asset value of such shares.

CLASS B DISTRIBUTION PLAN AND CLASS C DISTRIBUTION PLAN.
The Class B Plan and the Class C Plan provide for
payments by the Fund to Putnam Mutual Funds at the
annual rate of up to 1.00% of the Fund's average net
assets attributable to Class B shares and Class C shares, as
the case may be , subject to the authority of the Trustees to
reduce the amount of payments or to suspend the Plans
for such periods as they may determine.

Putnam Mutual Funds also receives the proceeds of any CDSC
imposed on redemptions of such shares.

Although Class B shares and Class C shares are sold
without an initial sales charge, Putnam Mutual Funds pays a sales
commission equal to 4.00% of the amount invested to dealers who
sell Class B shares and 1.00% of the amount invested to
dealers who sell Class C shares (which includes a prepaid service
fee of 0.25% in the case of Class C shares) . These
commissions are not paid on exchanges from other Putnam funds and
sales to investors exempt from the CDSC. 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 C 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 C
shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record , except no
payment will be made with respect to the first four quarters
following the sale of a Class C share . Putnam Mutual Funds
makes such payments at an annual rate of 0.25% of such average
net asset value of Class B shares and Class C shares, as the
case may be. In addition, Putnam Mutual Funds also pays to
dealers beginning one year after purchase, as additional
compensation with respect to the sale of Class C shares, 0.75%
of such average net asset value of Class C shares. For
Class C shares, the total annual payment beginning one year after
purchase equals 1.00% of such average net asset value
attributable to Class C shares.

HOW TO SELL SHARES

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

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

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

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

HOW TO EXCHANGE SHARES

You can exchange your Class A shares or Class B shares
for shares of the same class of another Putnam
fund at net asset value beginning 15 days after purchase.
Not all Putnam funds offer more than one class of shares. If the
other Putnam fund offers only one class of shares, only Class A
shares may be exchanged for such class. Class C shares may
only be exchanged for Class C shares of one of the other
funds. 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.

HOW EACH FUND VALUES ITS SHARES

other securities and assets are valued at their fair value
following procedures approved by the Trustees.

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

The Growth Portfolio distributes any net investment income at
least annually. The Conservative Portfolio and the Balanced
Portfolio distribute any net investment income at least
quarterly. Each of the Funds distributes any net realized
capital gains at least annually. Distributions from net capital
gains are made after applying any available capital loss
carryovers. Distributions paid by each Fund with respect to
Class A shares will generally be greater than those paid with
respect to Class B shares and Class C shares because
expenses attributable to Class B shares and Class C
shares will generally be higher.

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

ABOUT PUTNAM INVESTMENTS, INC.

THE RATINGS SERVICES' DESCRIPTIONS OF THE FIXED -INCOME
SECURITIES IN WHICH EACH FUND MAY INVEST ARE:

MOODY'S INVESTORS SERVICE, INC.:

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

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

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

STANDARD & POOR'S CORPORATION:

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

AA -- Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.

<PAGE>
PUTNAM ASSET ALLOCATION FUNDS

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO

One Post Office Square
Boston, MA 02109

FUND INFORMATION:
INVESTMENT MANAGER

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

MARKETING SERVICES

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

INVESTOR SERVICING AGENT

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

CUSTODIAN

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

LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110

INDEPENDENT ACCOUNTANTS

Price Waterhouse
160 Federal Street
Boston, MA 02110

PUTNAM INVESTMENTS

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

PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
ONE POST OFFICE SQUARE, BOSTON, MA 02109
CLASS A SHARES
PROSPECTUS - SEPTEMBER 1, 1994

This Prospectus explains concisely what you should know before
investing in Class A shares of the Fund offered without
a sales
charge through eligible employer-sponsored defined contribution
plans ("defined contribution plans") . Please read it
carefully and keep it for future reference. You can find
more detailed
information about the Fund in the September 1 ,
1994 Statement of Additional Information, as amended from time to
time. For a free copy of the Statement or for other
information, including
Prospectuses regarding other classes of Fund shares or Class
A
shares for other investors, call Putnam Investor Services at

1-800-752-9894. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference.

THE FUND IS A SERIES OF PUTNAM ASSET ALLOCATION FUNDS (THE
"TRUST"), AN INVESTMENT COMPANY OFFERING THREE SEPARATE
PORTFOLIOS: PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO, PUTNAM
ASSET ALLOCATION: BALANCED PORTFOLIO AND PUTNAM ASSET
ALLOCATION: CONSERVATIVE PORTFOLIO. EACH PORTFOLIO IS AN ASSET
ALLOCATION FUND THAT ALLOCATES ITS INVESTMENTS AMONG EQUITIES AND
FIXED INCOME SECURITIES WITHIN PREDEFINED RANGES BASED ON ITS
INVESTMENT OBJECTIVE AND ECONOMIC AND OTHER CONDITIONS. THE FUND
SEEKS TOTAL RETURN.

PUTNAMINVESTMENTS

PUTNAM DEFINED
CONTRIBUTION PLANS

<PAGE>

ABOUT THE FUND

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

ABOUT YOUR INVESTMENT

How to buy
shares. ....................................
Distribution
Plan. ....................................
How to sell
shares. ...................................
How to exchange
shares. ...............................
How the Fund values its
shares. .......................
How distributions are made; tax
information. ..........

ABOUT PUTNAM INVESTMENTS, INC

APPENDIX

Fixed-income security ratings

<PAGE>

ABOUT THE FUND

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes the expenses which the
Fund expects to incur in its first fiscal year. The Example
shows the estimated cumulative expenses attributable to a
hypothetical $1,000 investment in shares of the Fund over
specified periods.

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

Management Fees (after expense
limitation discussed below) 0.58%
12b-1 Fees 0.25%
Other Expenses 0.44%
Total Fund Operating Expenses 1.27%
(after expense limitation)

The table is provided to help you understand your share of the
operating expenses which the Fund expects to incur during its
first fiscal year. The annual management fees shown in the table
reflect an expense limitation currently in effect. In the
absence of the expense limitation, estimated management fees for
the Fund would be 0.70% and estimated total Fund operating
expenses would be 1.39%. The 12b-1 fees shown in the table
reflect the amount to which the Trustees currently limit payments
under the Fund's Class A Distribution Plan. "Other
expenses" are based on estimated amounts for the Fund's
first fiscal year.

EXAMPLE

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

1 Year 3 Years

$13 $40

The Example does not represent past or future expense levels.
Actual Fund expenses may be more or less than those
shown. Federal regulations require the Example to assume
a 5% annual return, but actual annual return will vary.
The Example does not reflect any charges or expenses
related to your employer's plan.

The Fund also offers other classes of shares. See "Organization
and history" for additional information.

FINANCIAL HIGHLIGHTS

The table on the following page presents per share financial
information for the life of the Fund. This information has
derived been from the Fund's financial statements, which have
been audited and reported on by the Fund's independent
accountants. The Report of Independent Accountants and financial
statements included in the Fund's Semiannual Report to
shareholders for the March 31, 1994 fiscal period are
incorporated by reference into this Prospectus. The Fund's
Semiannual Report is available without charge upon request.
<PAGE>
Financial
Highlights
(For a share outstanding throughout the period)

Putnam Asset Allocation Balanced Fund

For the period
February 7, 1994
(commencement of
operations) to March 31
1994
Class A

Net Asset Value, Beginning of Period $8.50

Investment Operations
Net Investment Income* .03(a)
Net Realized and Unrealized Loss on Investments (.33)

Total from Investment Operations* (.30)(a)

Net Asset Value, End of Period $8.20

Total Investment Return at Net
Asset Value (%) (b) (23.53)(c)

Net Assets, End of Period (in thousands) $9,720

Ratio of Expenses to Average Net Assets (%) 1.14(a)(c)
Ratio of Net Investment Income to
Average Net Assets (%) 2.15(a)(c)
Portfolio Turnover (%) 2.52(d)

* Per share net investment income for the period ended March 31,
1994 have been determined on the basis of the weighted average
number of shares outstanding during the period.

(a) Reflects a voluntary absorption of expenses incurred by the
Fund. As a result of this limitation, expenses for the period
ended March 31, 1994, reflect a reduction of $0.04 for Class A,
respectively.

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

(d) Not annualized.

OBJECTIVE

The Fund seeks total return. The Fund is not intended to be a
complete investment program, and there is no assurance that the
Fund will achieve its objective.

HOW OBJECTIVE IS PURSUED

BASIC INVESTMENT STRATEGY

The Fund's strategic allocation indicates the typical
percentage allocation of the Fund's investments between
equity
securities and fixed income securities (including money market
instruments), although Putnam Investment Management, Inc., the
Fund's investment manager ("Putnam Management"), may adjust these
allocations within the ranges described below. The strategic
allocation and the range of active allocation are shown below:

STRATEGIC
ALLOCATION RANGE

EQUITY
CLASS 65% 50-75%

FIXED
INCOME
CLASS 35% 25-50%

The percentage limitations are applied at the time of purchase.
The Fund may also select other investments that do not fall
within the asset classes listed above.

Under normal market conditions, Putnam Management will allocate
the assets of the Fund within the specified ranges above or below
the strategic allocation whenever, based on Putnam Management's
experience in qualitative analysis and disciplined quantitative
techniques, its research and analysis indicate changes in
financial markets that reflect changed valuations within and
between the asset classes. Allocating assets within a
specified range above or below a strategic allocation
permits the Fund to attempt to optimize performance
consistent with its investment objective. The risks of
each asset class vary. For example, the values of equity
securities change in response to general market and economic
conditions and the activities and changing circumstances
of individual issuers, and the values of fixed income
securities change in response to changes in economic
conditions, interest rates and the creditworthiness of
individual issuers. A significant portion of the Fund's equity
and fixed income investments may consist of foreign securities,
which involve the risks set forth in "Risk factors" below.

EQUITY CLASS

THE FUND WILL INVEST ITS ASSETS ALLOCATED TO THE EQUITY CLASS IN
A DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES THAT PUTNAM
MANAGEMENT BELIEVES HAVE THE POTENTIAL FOR CAPITAL APPRECIATION.
THESE MAY INCLUDE WIDELY TRADED COMMON STOCKS OF LARGER
COMPANIES, AS WELL AS COMMON STOCKS OF SMALLER, LESS WELL-KNOWN
COMPANIES. In selecting equity securities for the Fund, Putnam
Management will consider, among other things, an issuer's
financial strength, competitive position and projected future
earnings and dividends. Common stocks are normally the main type
of the Fund's equity investments. However, the Fund may purchase
preferred stocks, convertible securities and warrants.

The Fund may invest a portion of its assets in common stocks
Putnam Management believes are significantly undervalued. In
selecting such securities, Putnam Management will focus on
industries and issuers it considers to have particular
possibilities for long-term capital appreciation due to potential
growth of earnings which, in the judgment of Putnam Management,
is not fully reflected in current market prices. In selecting
undervalued securities, Putnam Management may consider investment
judgments contrary to those of most investors.

FIXED INCOME CLASS

THE FUND WILL INVEST ITS ASSETS ALLOCATED TO THE FIXED INCOME
CLASS IN A DIVERSIFIED PORTFOLIO OF DEBT SECURITIES, INCLUDING
BOTH U.S. AND FOREIGN GOVERNMENT OBLIGATIONS AND CORPORATE
OBLIGATIONS.

The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Debt securities are subject
to varying degrees of risk of default depending upon, among other
factors, the creditworthiness of the issuer and the ability of
the borrower to meet its obligations.

THE FUND MAY INVEST IN LOWER-RATED FIXED INCOME SECURITIES.
Lower-rated fixed income securities are generally regarded as
those rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation
("S&P") or
securities of comparable quality as determined by
Putnam
Management. The Fund will not purchase fixed income
securities
rated at the time of purchase below Baa by
Moody's or BBB by S&P or, if unrated, determined to be of
comparable quality by Putnam Management, if, as a result, more
than 35% of the Fund's total assets would be invested in
securities of that quality. In addition, the Fund will not
purchase fixed income securities rated at the time of purchase
below Caa by Moody's or CCC by S&P , or, if
unrated, determined by Putnam Management to be of comparable
quality, if, as a result, more than 5% of the Fund's total assets
would be invested in securities of that quality. Such securities
may be in default and are generally regarded by the rating
agencies as having extremely poor prospects of
ever attaining any real investment standing. The
values of lower-rated fixed income securities, commonly known as
"junk bonds," generally fluctuate more than those of higher-rated
fixed income 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 interest and
repayments of principal. The rating services' descriptions of
debt securities are included in the Appendix to this Prospectus.
The Fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase,
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the Fund's investment objective.

Putnam Management may take full advantage of the entire range of
fixed income securities and may adjust the average maturity of
the Fund's portfolio from time to time depending on its
assessment of relative yields on securities of different
maturities and its expectations of future changes in interest
rates.

At times, some or all of the Fund's fixed income assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the
issuer, the Fund could find it more difficult to sell such
securities when Putnam Management believes it advisable to do so
or may be able to sell such securities only at prices lower than
if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing the
Fund's net asset value. In order to enforce its rights in the
event of a default under such securities, the Fund may be
required to take possession of and manage assets securing the
issuer's obligations on such securities, which may increase the
Fund's operating expenses and adversely affect the Fund's net
asset value.

The Fund may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. 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. The value of zero-coupon bonds 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 other investments in order to
satisfy its distribution requirements.

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 might not be able to reinvest the
proceeds in securities providing the same investment return as
the securities redeemed.

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

ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. The Fund may invest
some or all of its assets allocated to the Fixed Income Class in
asset-backed and mortgage-backed securities, such as
collateralized mortgage obligations. Mortgage-backed securities
represent a participation in, or are secured by, mortgage loans
and include securities issued or guaranteed by the United States
government or one of its agencies or instrumentalities;
securities issued by private issuers that represent an interest
in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. government or one of its agencies or
instrumentalities; or securities issued by private issuers that
represent an interest in or are collateralized by mortgage loans
or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.

MONEY MARKET INSTRUMENTS. The Fund may invest in high quality
money market obligations that present minimal credit risk and may
include U.S. government obligations, certificates of deposit,
bankers' acceptances, bank deposits, other financial institution
obligations, and commercial paper and other short-term corporate
obligations. These instruments have various maturities and may
have fixed or variable interest rates. The Fund may also hold a
portion of its assets in cash.

RISK FACTORS

INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest up to 40%
of its assets in securities principally traded in foreign
markets. The Fund may also purchase Eurodollar certificates of
deposit without regard to this limit. Foreign investments
involve certain risks not present in domestic securities.
Because the Fund intends to purchase securities that are normally
denominated and traded in foreign currencies, the values of these
assets and any investment income derived from them may be
affected favorably or unfavorably by currency exchange rates and
exchange control regulations. In addition, although a portion of
the Fund's investment income may be received or realized in such
foreign currencies, the Fund will be required to compute and
distribute its income in U.S. dollars, which may subject the Fund
to various risks due to currency fluctuations. For example, if
the exchange rate for any such currency declines after the Fund's
income has been earned and translated into U.S. dollars but
before payment, the Fund could be required to liquidate portfolio
securities to make such distributions. The values of foreign
fixed income securities will fluctuate in response to changes in
U.S. and foreign interest rates. Income received by the Fund
from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by the Fund
will reduce its net income available for distribution to
shareholders. Putnam Management will consider available yields,
net of any required taxes, in selecting foreign securities.

The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.

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

FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN FOREIGN SECURITIES, SEE THE STATEMENT OF ADDITIONAL
INFORMATION.

The Fund may engage in transaction hedging to protect against a
change in the foreign currency exchange rate between the date on
which the Fund contracts to purchase or sell the security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. The Fund may
purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate as part of its transaction hedging
strategies.

If conditions warrant, 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 as part of its transaction hedging strategies. A
foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be
higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have
margin requirements. The Fund may also purchase exchange-listed
and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies.

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.

Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which the Fund's investments may be denominated. The Fund's
ability to engage in hedging transactions may be limited by tax
considerations. The Fund's hedging transactions may affect the
character or amount of the Fund's distributions.

FOR MORE INFORMATION RELATING TO FOREIGN CURRENCY EXCHANGE
TRANSACTIONS, SEE THE STATEMENT OF ADDITIONAL INFORMATION. FOR

MORE INFORMATION ABOUT FUTURES CONTRACTS AND RELATED OPTIONS, SEE
"FINANCIAL FUTURES AND OPTIONS" BELOW.

SHORT-TERM TRADING. UNDER CERTAIN MARKET CONDITIONS, THE FUND
MAY SEEK PROFITS BY SHORT-TERM TRADING. The length of time the
Fund has held a particular security is not generally a
consideration in investment decisions. A change in the
securities held by the Fund is known as "portfolio turnover." To
the extent short-term trading strategies are used, the Fund's
portfolio turnover rate may be higher than that of other mutual
funds. Portfolio turnover generally involves some expense to the
Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and
reinvestment in other securities. Such transactions may result
in realization of taxable capital gains. While it is impossible
to predict the Fund's portfolio turnover rate, Putnam Management,
based on its experience, believes that such rate will not exceed
150%.

DEFENSIVE STRATEGIES

AT TIMES PUTNAM MANAGEMENT MAY JUDGE THAT CONDITIONS IN THE
SECURITIES MARKETS MAKE PURSUING THE FUND'S BASIC INVESTMENT
STRATEGY INCONSISTENT WITH THE BEST INTERESTS OF ITS
SHAREHOLDERS. At such times Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing
these "defensive" strategies, depending on the circumstances, the
Fund may invest without regard to the ranges described above for
investments in the various asset classes and may invest primarily
in equity securities, debt securities, preferred stocks, U.S.
Government and agency obligations, cash or money market
instruments, or in other securities Putnam Management considers
consistent with such defensive strategies. It is impossible to
predict when, or for how long, the Fund will use such alternative
strategies.

FINANCIAL FUTURES AND OPTIONS

THE FUND MAY BUY AND SELL FINANCIAL FUTURES CONTRACTS ON STOCK
INDEXES, U.S. GOVERNMENT SECURITIES, FOREIGN FIXED INCOME
SECURITIES AND ON FOREIGN CURRENCIES. A futures contract is a
contract to buy or sell units of a particular stock index (an
"Index Future"), or a certain amount of a U.S. Government
security, foreign fixed income security or foreign currency, at
an agreed price on a specified future date. Depending on the
change in value of the index, security or currency between the
time when the Fund enters into and terminates a futures contract,
the Fund realizes a gain or loss. The Fund may purchase and sell
futures contracts for hedging purposes and to adjust the Fund's
exposure to the relevant stock or bond markets. For example,
when Putnam Management wants to increase the Fund's exposure to
equity securities, it may do so by taking long positions in
futures contracts on equity indices such as futures contracts on
the Standard & Poor's 500 Stock Index. Similarly, when Putnam
Management wants to increase the Fund's exposure to fixed income
securities, it may do so by taking long positions in futures
contracts relating to fixed income securities such as futures
contracts on U.S. Treasury bonds or notes. The Fund may buy and
sell call and put options on futures contracts or on stock
indices in addition to or as an alternative to purchasing or
selling futures contracts or, to the extent permitted by
applicable law, to earn additional income.

THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS.
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 contracts and options and movements in the
prices of the underlying stock index, securities, or currencies
or of the securities or currencies which are the subject of the
hedge. The successful use of futures and options further depends
on Putnam Management's ability to forecast market or interest
rate movements correctly. Other risks arise from the Fund's
potential inability to close out its futures or related options
positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a
particular time. The Fund's ability to terminate option
positions established in the over-the-counter market may be more
limited than for exchange-traded options and may also involve the
risk that securities dealers participating in such transactions
would fail to meet their obligations to the Fund. The use of
futures or options on futures for purposes other than hedging is
regarded as speculative.

Because the markets for options and futures on foreign equity and
fixed income securities and foreign currencies are relatively new
and still developing, the Fund's ability to engage in such
transactions may be limited. Certain provisions of the Internal
Revenue Code and certain regulatory requirements may also limit
the Fund's ability to engage in futures and options transactions.

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

INVESTMENTS IN PREMIUM SECURITIES

The Fund may invest some or all of its assets allocated to the
Fixed Income Class in securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on
maturity. The Fund does not amortize the premium paid for such
securities in calculating its net investment income. As a
result, the purchase of such securities provides the Fund a
higher level of investment income distributable to shareholders
on a current basis than if the Fund had purchased securities
bearing current market rates of interest. Because the value of
premium securities tends to approach the principal amount as they
approach maturity (or call price in the case of securities
approaching their first call date), the purchase of such
securities may increase the Fund's risk of capital loss if such
securities are held to maturity (or first call date).

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

OTHER INVESTMENT PRACTICES

THE FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING
INVESTMENT PRACTICES, 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.

OPTIONS. The Fund may seek to increase its current return by
buying and selling covered call and put options on securities it
owns or in which it may invest and on foreign currencies. The
Fund receives a premium from writing a call or put option, which
increases the Fund's return if the option expires unexercised or
is closed out at a net profit. When the Fund writes a call
option, it gives up the opportunity to profit from any increase
in the price of a security or currency above the exercise price
of the option; when it writes a put option, the Fund takes the
risk that it will be required to purchase a security or currency
from the option holder at a price above the current market price
of the security or currency. 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 may also
buy and sell put and call options for hedging purposes. The Fund
may also from time to time buy and sell combinations of put and
call options on the same underlying security or currency to earn
additional income. The aggregate value of the securities and
foreign currencies underlying options written by the Fund may not
exceed 25% of the Fund's assets. The Fund's use of options
strategies may be limited by applicable law.

SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The Fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. The Fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party
should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the
transaction.

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM: acquiring more than 10% of the voting securities of any
one issuer* and investing more than: (a) 5% of its total assets
(taken at current value) in securities of any one issuer (other
than the U.S. government or its agencies or instrumentalities or,
with respect to 25% of the Fund's total assets, securities issued
by or backed by the credit of, any foreign government, its
agencies or instrumentalities);* (b) 15% of its net assets in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable);*
(c) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities, or of any
foreign government, its agencies or instrumentalities, securities
of supranational entities, and securities backed by the credit of
a governmental entity are not considered to represent
industries);* (d) 5% of its net assets in warrants or more than
2% of its net assets in warrants not listed on the New York or
American Stock Exchanges; or (e) 15% of its net assets in any
combination of securities that are not readily marketable, in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable),
and in repurchase agreements maturing in more than seven days.

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

HOW PERFORMANCE IS SHOWN

YIELD AND TOTAL RETURN DATA MAY FROM TIME TO TIME BE INCLUDED IN
ADVERTISEMENTS ABOUT THE FUND. "Yield" is calculated by dividing
the annualized net investment income per share during a recent
30-day period by the maximum public offering price per share on
the last day of that period. For this purpose, net investment
income is calculated in accordance with SEC regulations and may
differ from the Fund's 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 Fund's
current dividend rate is based on its net investment income as
determined for financial reporting purposes which may not reflect
amortization in the same manner. See "How objective is pursued -
- -Investments in premium securities." The Fund's yield reflects
the deduction of the maximum initial sales charge. "Total
return" for the life of the Fund through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in the Fund at the maximum public
offering price. Total return may also be presented for other
periods or based on investment at reduced sales charge levels.
Quotations of yield or total return for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The Fund's performance may be
compared to various indices. See the Statement of Additional
Information. Because shares sold through eligible defined
contribution plans are sold without a sales charge, quotations of
yield and total return reflecting the deduction of a sales charge
will be lower than the actual yield and total return on shares
purchased through such plans. Because shares sold through
eligible defined contribution plans are sold without a sales
charge, quotations of yield and total return reflecting the
deduction of a sales charge will be lower than the actual yield
and total return on shares purchased through such plans.

ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objective and policies. These factors should
be considered when comparing the Fund's investment results to
those of other mutual funds and other investment vehicles.

HOW THE FUND IS MANAGED

THE TRUSTEES ARE RESPONSIBLE FOR GENERALLY OVERSEEING THE CONDUCT
OF THE FUND'S BUSINESS. Subject to such policies as the Trustees
may determine, Putnam Management furnishes a continuing
investment program for the Fund and makes investment decisions on
its behalf. Subject to the control of the Trustees, Putnam
Management also manages the Fund's other affairs and business.
Putnam Management's Global Asset Allocation Committee has primary
responsibility for the day-to-day management of the Fund's
portfolio.

The Fund pays its share of all expenses of the Trust that are not
assumed by Putnam Management, including Trustees' fees and
auditing, legal, custodial, investor servicing and shareholder
reporting expenses. Payments under the Fund's Distribution Plans
are borne entirely by the Fund and are in turn allocated to the
relevant class of shares. The Fund also reimburses Putnam
Management for its share of the compensation and related expenses
of certain officers of the Trust and their staff who provide
administrative services to the Fund. The total reimbursement is
determined annually by the Trustees.

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

ORGANIZATION AND HISTORY

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without
shareholder approval, be divided into two or more series of
shares representing separate investment portfolios and are
currently divided into three series of shares. Any such series
of shares may be further divided without shareholder approval
into two or more classes of shares having such preferences and
special or relative rights and privileges as the Trustees
determine. The Fund currently offers four classes of
shares.
Only the Fund's Class A shares are offered by this Prospectus.
Class B shares and Class C shares are sold at net asset
value, but are subject to a contingent deferred sales
charge upon redemption and bear a higher 12b-1 fee than
Class A shares. Class Y shares, which are offered only
to defined contribution plans that initially invest at
least $250 million in a combination of Putnam funds and other
investments managed by Putnam Management or its
affiliates . Class Y shares generally bear
lower expenses than Class A shares , Class
B shares and Class C shares, the investment return of
Class Y shares will be greater than that of
other classes. Each share has on vote , with
fractional shares voting proportionally. Shares shall vote in
the aggregate as a single class without regard to series or
classes of shares on all matters except, (i) when required by the
Investment Company Act of 1940 or when the Trustees have
determined that the matter affects the interests of one or more
series or classes materially differently, shares will be voted by
individual series or class; and (ii) when the Trustees have
determined that the matter affects only the interest of one or
more series or classes, then only shareholders of such series or
classes shall be entitled to vote thereon. Shares are freely
transferable, are entitled to dividends as declared by the
Trustees, and, if the Fund were liquidated, would receive the net
assets of the Fund. The Fund may suspend the sale of shares at
any time and may refuse any order to purchase shares. Although
the Trust is not required to hold annual meetings of its
shareholders, shareholders holding at least 10% of the
outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees, or to take other actions as
provided in the Declaration of Trust.

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

First Reserve Corporation; ELIZABETH T. KENNAN, President,
Mount
Holyoke College; LAWRENCE J. LASSER,* Vice President of the
Putnam funds. President, Chief Executive Officer and Director of
Putnam Investments, Inc. and Putnam Management. Director, Marsh
& McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President, Cabot Partners Limited Partnership; DONALD S. PERKINS,
Director of various corporations, including AT&T, K mart
Corporation and Time Warner Inc.; GEORGE PUTNAM, III,*
President, New Generation Research, Inc.; A.J.C. SMITH,*
Chairman, Chief Executive Officer and Director, Marsh & McLennan
Companies, Inc.; and W. NICHOLAS THORNDIKE, Director of various
corporations and charitable organizations, including Providence
Journal Co. Also, Trustee and President, Massachusetts General
Hospital and Trustee of Eastern Utilities Associates. The
Trust's Trustees are also Trustees of the other Putnam funds.
Those marked with an asterisk (*) are "interested persons" of the
Trust, Putnam Management or Putnam Mutual Funds.

ABOUT YOUR INVESTMENT

HOW TO BUY SHARES

ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
EMPLOYER'S DEFINED CONTRIBUTION PLAN. FOR MORE INFORMATION ABOUT
HOW TO PURCHASE SHARES OF THE FUND THROUGH YOUR EMPLOYER'S PLAN
OR LIMITATIONS ON THE AMOUNT THAT MAY BE PURCHASED, PLEASE
CONSULT YOUR EMPLOYER. Shares are sold to eligible defined
contribution plans at the net asset value per share next
determined after receipt of an order by Putnam Mutual Funds.
Orders must be received by Putnam Mutual Funds before the close
of regular trading on the New York Stock Exchange in order to
receive that day's net asset value. In order to be eligible to
purchase shares at net asset value, defined contribution plans
must initially invest at least $1,000,000 or be sponsored by
companies with more than 750 employees. Eligible plans may make
additional investments of any amount at any time. To eliminate
the need for safekeeping, the Fund will not issue certificates
for your shares.

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%. 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.

DISTRIBUTION PLAN

The purpose of the Class A Plan is to permit the Fund to
compensate Putnam Mutual Funds for services provided and
expenses incurred by it in promoting the sale of Class
A shares of the Fund, reducing redemptions, or
maintaining or improving services provided to
shareholders by Putnam Mutual Funds or dealers. The Class
A Plan provides for payments by the Fund to Putnam
Mutual Funds at the annual rate of up to 0.35% of the
Fund's average net assets attributable to Class A shares,
subject to the authority of the Trustees to reduce the
amount of payments or to suspend the Class A Plan
for such periods as they may determine. Subject to these
limitations, the amount of such payments and the specific
purposes for which they are made shall be determined by the
Trustees. At present, the Trustees have approved
payments under the Class A Plan at the annual rate
of 0.25% of the Fund's average net assets attributable to
Class A shares for the purpose of compensating Putnam
Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's Class A
shares, including payments made by it to dealers under the
Service Agreements referred to below. Should the
Trustees decide in the future to approve payments in
excess of this amount, shareholders will be notified and
this Prospectus will be revised.

In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts , Putnam Mutual Funds makes
quarterly payments to qualifying dealers based on the
average net asset value of Class A shares of the Fund
which are attributable to shareholders for whom the
dealers are designated as the dealer of record . This
calculation excludes until one year after purchase
shares purchased at net asset value after March 31, 1994 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 0.25% of such average net asset value for Class
A shares. For participant-directed qualified retirement plans
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on NAV Shares
are 100% of the rate stated above if average plan assets in
Putnam funds (excluding money market funds) during the quarter
are less than $20 million, 60% of the stated rate if average plan
assets are at least $20 million but less than $30 million, and
40% of the stated rate if average plan assets are $30 million or
more. For all other participant-directed qualified retirement
plans purchasing NAV Shares, Putnam Mutual Funds makes quarterly
payments to qualifying dealers at the annual rate of 0.10% of the
average net asset value of such shares.

GENERAL . Putnam Mutual Funds may suspend or modify
the payments made to dealers described above,
and such payments are subject to the continuation of
the relevant Plan described above, 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

SUBJECT TO ANY RESTRICTIONS IMPOSED BY YOUR EMPLOYER'S PLAN, YOU
CAN SELL YOUR SHARES THROUGH THE PLAN TO THE FUND ANY DAY THE NEW
YORK STOCK EXCHANGE IS OPEN. For more information about how to
sell shares of the Fund through your employer's plan, including
any charges that may be imposed by the plan, please consult with
your employer.

Your plan administrator must send a signed letter of instruction
to Putnam Investor Services. The price you will receive is the
next net asset value calculated after the Fund receives your
request in proper form. All requests must be received by the
Fund prior to the close of regular trading on the New York Stock
Exchange in order to receive that day's net asset value. If you
sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives
must be guaranteed by a bank, broker-dealer or certain other
financial institutions. See the Statement of Additional
Information for more information about where to obtain a
signature guarantee.

THE FUND GENERALLY PROVIDES PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER THE REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend repurchases, or postpone payment for more
than seven days, as permitted by federal securities law. The
Fund will only repurchase shares for which it has received
payment.

HOW TO EXCHANGE SHARES

Subject to any restrictions contained in your plan, you can
exchange your shares for shares of other Putnam funds available
through your plan at net asset value. Contact your plan
administrator or Putnam Investor Services on how to exchange your
shares or how to obtain prospectuses of other Putnam funds in
which you may invest. Shares of certain Putnam funds are not
available to residents of all states.

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

HOW THE FUND VALUES ITS SHARES

THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN. Portfolio securities for which market
quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

The Fund distributes any net investment income at least quarterly
and any net realized capital gains at least annually.
Distributions from net capital gains are made after applying any
available capital loss carryovers.

The terms of your plan will govern how your plan may receive
distributions from the Fund. Generally, periodic distributions
from the Fund to your plan are reinvested in additional Fund
shares, although your plan may permit Fund distributions from net
investment income to be received by you in cash while reinvesting
capital gains distributions in additional shares or all Fund
distributions to be received in cash. If another option is not
selected, all distributions will be reinvested in additional Fund
shares.

The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes. The Fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-sponsored
defined contribution plans that qualify for tax-exempt treatment
under federal income tax laws will not be taxable. Special tax
rules apply to investments through such plans. You should
consult your tax adviser to determine the suitability of the Fund
as an investment through such a plan and the tax treatment of
distributions (including distributions of amounts attributable to
an investment in the Fund) from such a plan.

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

ABOUT PUTNAM INVESTMENTS, INC .

Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary
Trust Company are located at One Post Office Square, Boston,
Massachusetts, 02109 and 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

THE RATINGS SERVICES' DESCRIPTIONS OF THE FIXED-INCOME SECURITIES
IN WHICH THE FUND MAY INVEST ARE:

MOODY'S INVESTORS SERVICE, INC.:

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

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

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

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

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

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

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

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

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

STANDARD & POOR'S CORPORATION:

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

AA -- Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated
issues only in small degree.

A -- Bonds rated A have 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 bonds in higher rated categories.

BB-B-CCC-CC-C -- Bonds rated BB, B, CCC, CC and C are
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 bonds
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

D - Bonds rated D are in payment default. The D rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also will be
used on the filing of a bankruptcy petition if debt service
payments are jeopardized.
<PAGE>
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
ONE POST OFFICE SQUARE, BOSTON, MA 02109
CLASS A SHARES
PROSPECTUS - SEPTEMBER 1 , 1994,

This Prospectus explains concisely what you should know before
investing in Class A Shares of the Fund offered
without a sales charge through eligible employer-sponsored
defined contribution plans ("defined contribution plans").
Please read it carefully and keep it for future
reference. You can find more detailed information about the
Fund in the September 1 , 1994 Statement of Additional
Information, as amended from time to time. For a free copy of
the Statement or for other information, including
Prospectuses regarding other classes of Fund shares or Class A
shares for other investors, call Putnam Investor Services at
1-800-752-9894. The Statement has been filed with the Securities
and Exchange Commission and is incorporated into this Prospectus
by reference.

PUTNAMINVESTMENTS

PUTNAM DEFINED
CONTRIBUTION PLANS
<PAGE>
ABOUT THE FUND

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

ABOUT YOUR INVESTMENT

How to buy shares. .....................................
Distribution Plan. .....................................
How to sell shares. ....................................
How to exchange shares. ................................
How the Fund values its shares. ........................
How distributions are made; tax information. ...........

ABOUT PUTNAM INVESTMENTS, INC. .........................

APPENDIX
Fixed-income security ratings. .....................
<PAGE>
ABOUT THE FUND

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes expenses which
the Fund expects to incur in its first fiscal year. The Example
shows the estimated cumulative expenses attributable to a
hypothetical $1,000 investment in Class A shares of the
Fund over specified periods.

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

Management Fees (after expense
limitation discussed below) 0.64%
12b-1 Fees 0.25%
Other Expenses 0.38%
Total Fund Operating Expenses 1.27%
(after expense limitation)

The table is provided to help you understand your share of the
operating expenses which the Fund expects to incur during its
first fiscal year. The annual management fees shown in the table
reflect an expense limitation currently in effect. In the
absence of the expense limitation, estimated management fees for
the Fund would be 0.70% and estimated total Fund operating
expenses would be 1.33%. The 12b-1 fees shown in the table
reflect the amount to which the Trustees currently limit payments
under the Fund's Class A Distribution Plan. "Other
expenses" are based on estimated amounts for the Fund's first
fiscal year.

EXAMPLE

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

$13 $40

The Example does not represent past or future expense levels ,
and actual expenses may be greater or less than those
shown. Federal regulations require the Example to assume a 5%
annual return, but actual annual return will vary. The Example
does not reflect any charges or expenses related to your
employer's plan.

The Fund also offers other classes of shares. See "Organization
and history" for additional information.

FINANCIAL HIGHLIGHTS

The table on the following page presents per share financial
information for the life of the Fund. This information has been
derived from the Fund's financial statements, which have been
audited and reported on by the Fund's independent accountants.
The Report of Independent Accountants and financial statements
included in the Fund's Semiannual Report to shareholders for the
fiscal period ending March 31, 1994 are incorporated by reference
into this Prospectus. The Fund's Semiannual Report is available
without charge upon request.
<PAGE>
Financial
Highlights
(For a share outstanding throughout the period)

Putnam Asset Allocation Conservative Fund

For the period
February 7, 1994
(commencement of
operations) to
March 31
1994
Class A

Net Asset Value, Beginning of Period $8.50

Investment Operations
Net Investment Income* .03(a)
Net Realized and Unrealized Gain
(Loss) on Investments (.27)

Total from Investment Operations* (.24)(a)

Net Asset Value, End of Period $8.26

Total Investment Return at Net
Asset Value (%) (b) (18.80)(c)

Net Assets, End of Period
(in thousands) $5,462

Ratio of Expenses to Average
Net Assets (%) 1.25(a)(c)
Ratio of Net Investment Income
to Average Net Assets (%) 2.32(a)(c)
Portfolio Turnover (%) 1.90(d)

* Per share net investment income for the period ended March 31,
1994 have been determined on the basis of the weighted average
number of shares outstanding during the period.
(a) Reflects a voluntary absorption of expenses incurred by the
Fund. As a result of this limitation, expenses for the period
ended March 31, 1994, reflect a reduction of $0.06 for Class A
shares, respectively.
(b) Total Investment Return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.

OBJECTIVE

THE FUND SEEKS TOTAL RETURN CONSISTENT WITH PRESERVATION OF
CAPITAL. The Fund is not intended to be a complete investment
program, and there is no assurance that the Fund will achieve its
objective.

HOW OBJECTIVE IS PURSUED

BASIC INVESTMENT STRATEGY

The Fund's strategic allocation indicates the typical
percentage allocation of the Fund's investments between
equity securities and fixed income securities (including money
market instruments), although Putnam Investment Management, Inc.,
the Fund's investment manager ("Putnam Management"), may adjust
these allocations within the ranges described below. The
strategic allocation and the range of active allocation are shown
below:

STRATEGIC
ALLOCATION RANGE

EQUITY
CLASS 35% 25-45%

FIXED
INCOME
CLASS 65% 55-75%

The percentage limitations are applied at the time of purchase.
The Fund may also select other investments that do not fall
within the asset classes listed above.

Under normal market conditions, Putnam Management will allocate
the assets of the Fund within the specified ranges above or below
the strategic allocation whenever, based on Putnam Management's
experience in qualitative analysis and disciplined quantitative
techniques, its research and analysis indicate changes in
financial markets that reflect changed valuations within and
among the asset classes. Allocating assets within
a specified range above or below a strategic allocation permits
the Fund to attempt to optimize performance consistent with its
investment objective. The risks of each asset class vary. For
example, the values of equity securities change in response to
general market and economic conditions and the activities and
changing circumstances of individual issuers, and the values of
fixed income securities change in response to changes in economic
conditions, interest rates and the creditworthiness of individual
issuers. A significant portion of the Fund's equity and fixed
income investments may consist of foreign securities, which
involve the risks set forth in "Risk factors" below.

EQUITY CLASS

FIXED INCOME CLASS

THE FUND WILL INVEST ITS ASSETS ALLOCATED TO THE FIXED INCOME
CLASS IN A DIVERSIFIED PORTFOLIO OF DEBT SECURITIES, INCLUDING
BOTH U.S. AND FOREIGN GOVERNMENT OBLIGATIONS AND CORPORATE
OBLIGATIONS.

The values of fixed income securities generally 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 allocated to the Fixed Income Class.
Conversely, during periods of rising interest rates, the value of
the Fund's assets allocated to such Class will generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Debt securities are subject
to varying degrees of risk of default depending upon, among other
factors, the creditworthiness of the issuer and the ability of
the borrower to meet its obligations.

THE FUND MAY INVEST IN LOWER-RATED FIXED INCOME SECURITIES.
Lower-rated fixed income securities are generally regarded as
those rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation
("S&P") or securities of comparable quality as determined
by Putnam Management. The Fund will not purchase fixed income
securities rated at the time of purchase below Baa by
Moody's or BBB by S&P or, if unrated, determined to be of
comparable quality by Putnam Management, if as a result, more
than 10% of the Fund's total assets would be invested in
securities of that quality. In addition, the Fund will not
purchase fixed income securities rated at the time of purchase
below Caa by Moody's or CCC by S&P , or, if unrated,
determined by Putnam Management to be of comparable quality, if,
as a result, more than 5% of the Fund's total assets would be
invested in securities of that quality. Such securities may be
in default and are generally regarded by the rating agencies as
having extremely poor prospects of ever attaining any real
investment standing. The values of lower-rated fixed income
securities, commonly known as "junk bonds," generally fluctuate
more than those of higher-rated fixed income 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 interest and repayments of
principal. The rating services' descriptions of debt securities
are included in the Appendix to this Prospectus. The Fund will
not necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase, although Putnam
Management will monitor the investment to determine whether
continued investment in the security will assist in meeting the
Fund's investment objective.

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

RISK FACTORS

INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest up to 30%
of its assets in securities principally traded in foreign
markets. The Fund may also purchase Eurodollar certificates of
deposit without regard to this limit. Foreign investments
involve certain risks not present in domestic securities.
Because the Fund intends to purchase securities that are normally
denominated and traded in foreign currencies, the values of these
assets and any investment income derived from them may be
affected favorably or unfavorably by currency exchange rates and
exchange control regulations. In addition, although a portion of
the Fund's investment income may be received or realized in such
foreign currencies, the Fund will be required to compute and
distribute its income in U.S. dollars, which may subject the Fund
to various risks due to currency fluctuations. For example, if
the exchange rate for any such currency declines after the Fund's
income has been earned and translated into U.S. dollars but
before payment, the Fund could be required to liquidate portfolio
securities to make such distributions. The values of foreign
fixed income securities will fluctuate in response to changes in
U.S. and foreign interest rates. Income received by the Fund
from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by the Fund
will reduce its net income available for distribution to
shareholders. Putnam Management will consider available yields,
net of any required taxes, in selecting foreign securities.

There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers are not
generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.

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

FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN FOREIGN SECURITIES, SEE THE STATEMENT OF ADDITIONAL
INFORMATION.

Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which the Fund's investments may be denominated. The Fund's
ability to engage in hedging transactions may be limited by tax
considerations. The Fund's hedging transactions may affect the
character or amount of the Fund's distributions.

DEFENSIVE STRATEGIES

FINANCIAL FUTURES AND OPTIONS

THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS.
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 contracts and options and movements in the
prices of the underlying stock index, securities, or currencies
or of the securities or currencies which are the subject of the
hedge. The successful use of futures and options further depends
on Putnam Management's ability to forecast market or interest
rate movements correctly. Other risks arise from the Fund's
potential inability to close out its futures or related options
positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a
particular time. The Fund's ability to terminate option
positions established in the over-the-counter market may be more
limited than for exchange-traded options and may also involve the
risk that securities dealers participating in such transactions
would fail to meet their obligations to the Fund. The use of
futures or options on futures for purposes other than hedging is
regarded as speculative.

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

INVESTMENTS IN PREMIUM SECURITIES

OTHER INVESTMENT PRACTICES

LIMITING INVESTMENT RISK

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

HOW PERFORMANCE IS SHOWN

HOW THE FUND IS MANAGED

ORGANIZATION AND HISTORY

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without
shareholder approval, be divided into two or more series of
shares representing separate investment portfolios and are
currently divided into three series of shares. Any such series
of shares may be further divided without shareholder approval
into two or more classes of shares having such preferences and
special or relative rights and privileges as the Trustees
determine. The Fund currently offers four classes of
shares. Only the Fund's Class A shares are offered by this
Prospectus. Class B shares and Class C shares are sold at
net asset value,
but are subject to a contingent deferred sales charge upon
redemption and bear a higher 12b-1 fee than Class A shares.
Class Y shares, which are offered only to defined contribution
plans that initially invest at least $250 million in a
combination of Putnam funds and other investments managed by
Putnam Management or its affiliates, are sold at net asset value
and do not bear a 12b-1 fee. Because Class Y shares
generally bear lower expenses than Class A shares ,
Class B shares and Class C shares, the investment return
of Class Y shares will be greater than that of
other classes. Each share has one vote, with fractional shares
voting proportionally. Shares shall vote in the aggregate as a
single class without regard to series or classes of shares on all
matters except, (i) when required by the Investment Company Act
of 1940 or when the Trustees have determined that the matter
affects the interests of one or more series or classes materially
differently, shares will be voted by individual series or class;
and (ii) when the Trustees have determined that the matter
affects only the interest of one or more series or classes, then
only shareholders of such series or classes shall be entitled to
vote thereon. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net assets of the Fund. The Fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Trust is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Declaration of Trust.

Trustees may establish one at any time, which could apply to both
present and future shareholders.

ABOUT YOUR INVESTMENT

HOW TO BUY SHARES

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%. 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.

DISTRIBUTION PLAN

The purpose of the Class A Plan is to permit the Fund to
compensate Putnam Mutual Funds for services provided and expenses
incurred by it in promoting the sale of Class A shares of
the Fund, reducing redemptions, or maintaining or improving
services provided to shareholders by Putnam Mutual Funds or
dealers. The Class A Plan provides for payments by the
Fund to Putnam Mutual Funds at the annual rate of up to 0.35% of
the Fund's average net assets attributable to Class A shares,
subject to the authority of the Trustees to reduce the amount of
payments or to suspend the Class A Plan for such periods
as they may determine. Subject to these limitations, the amount
of such payments and the specific purposes for which they are
made shall be determined by the Trustees. At present, the
Trustees have approved payments under the Class A Plan at
the annual rate of 0.25% of the Fund's average net assets
attributable to Class A shares for the purpose of compensating
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's shares, including
payments made by it to dealers under the Service Agreements
referred to below. Should the Trustees decide in the future to
approve payments in excess of this amount, shareholders will be
notified and this Prospectus will be revised.

In order to compensate investment dealers
(including, for this purpose, certain financial institutions) for
services provided in connection with sales of Class A shares and
the maintenance of shareholder accounts , Putnam Mutual Funds
makes quarterly payments to qualifying dealers based on the
average net asset value of Class A shares of the Fund which are
attributable to shareholders for whom the dealers are designated
as the dealer of record. This calculation excludes until one year
after purchase shares purchased at net asset value after March
31, 1994 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 0.25% of such average net asset value for Class
A shares. For participant-directed qualified retirement plans
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on NAV Shares
are 100% of the rate stated above if average plan assets in
Putnam funds (excluding money market funds) during the quarter
are less than $20 million, 60% of the stated rate if average plan
assets are at least $20 million but less than $30 million, and
40% of the stated rate if average plan assets are $30 million or
more. For all other participant-directed qualified retirement
plans purchasing NAV Shares, Putnam Mutual Funds makes quarterly
payments to qualifying dealers at the annual rate of 0.10% of the
average net asset value of such shares.

GENERAL . Putnam Mutual Funds may suspend or modify
the payments made to dealers described above, and
such payments are subject to the continuation of the
relevant Plan described above, 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

HOW TO EXCHANGE SHARES

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 the Trustees or Putnam Management
believes doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege.

HOW THE FUND VALUES ITS SHARES

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

ABOUT PUTNAM INVESTMENTS, INC.

THE RATINGS SERVICES' DESCRIPTIONS OF THE FIXED-INCOME SECURITIES
IN WHICH THE FUND MAY INVEST ARE:

MOODY'S INVESTORS SERVICE, INC.:

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

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

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

STANDARD & POOR'S CORPORATION:

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

AA -- Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.

<PAGE>
PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
ONE POST OFFICE SQUARE, BOSTON, MA 02109
CLASS A SHARES
PROSPECTUS - SEPTEMBER 1 , 1994

This Prospectus explains concisely what you should know before
investing in Class A shares of the Fund offered without a
sales charge through eligible employer-sponsored defined
contribution plans ("defined contribution plans").
Please read it carefully and keep it for future reference. You
can find more detailed information about the Fund in the
September 1 , 1994 Statement of Additional Information, as
amended from time to time. For a free copy of the Statement or
for other information, including Prospectuses regarding
other classes of Fund shares or Class A shares for other
investors, call Putnam Investor Services at
1-800-752-9894. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference.

PUTNAMINVESTMENTS

PUTNAM DEFINED
CONTRIBUTION PLANS

<PAGE>
ABOUT THE FUND

Expenses summary. ......................................
Financial highlights...................................

Objective. .............................................
How objective is
pursued. ..............................
How performance is shown
..............................
How the Fund is managed
...............................
Organization and
history. ..............................

ABOUT YOUR INVESTMENT

How to buy
shares. .....................................
Distribution
Plan. .....................................
How to sell
shares. ....................................
How to exchange
shares. ................................
How the Fund values its
shares. ........................
How distributions are made; tax
information. ...........

ABOUT PUTNAM INVESTMENTS, INC

APPENDIX

Fixed-income security ratings
<PAGE>
ABOUT THE FUND

EXPENSES SUMMARY

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

Management Fees
(after expense
limitation discussed below) 0.64%
12b-1 Fees 0.25%
Other Expenses 0.38%
Total Fund Operating Expenses 1.27%
(after expense limitation)

The table is provided to help you understand your share of the
operating expenses which the Fund expects to incur during its
first fiscal year. The annual management fees shown in the table
reflect an expense limitation currently in effect. In the
absence of the expense limitation, estimated management fees for
the Fund would be 0.70% and estimated total Fund operating
expenses would be 1.33%. The 12b-1 fees shown in the table
reflect the amount to which the Trustees currently limit payments
under the Fund's Class A Distribution Plan. "Other
expenses" are based on estimated amounts for the Fund's first
fiscal year.

EXAMPLE

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

$13 $40

The Fund also offers other classes of shares. See "Organization
and history" for additional information.

FINANCIAL HIGHLIGHTS

Putnam Asset Allocation Growth Fund

For the period
February 16, 1994
(commencement of
operations) to March 31
1994
Class A

Net Asset Value, Beginning of Period $8.50

Investment Operations
Net Investment Income* .02(a)
Net Realized and Unrealized Loss on Investments (.37)

Total from Investment Operations* (.35)

Net Asset Value, End of Period $8.15

Total Investment Return at Net Asset
Value (%) (b)(c) (27.47)

Net Assets, End of Period (in thousands) $7,388

Ratio of Expenses to Average Net Assets (%) 1.23(a)(c)
Ratio of Net Investment Income to Average
Net Assets (%) 1.88(a)(c)
Portfolio Turnover (%) 3.40(d)

* Per share net investment income for the period ended March 31,
1994 have been determined on the basis of the weighted average
number of shares outstanding during the period.

(a) Reflects a voluntary absorption of expenses incurred by the
Fund. As a result of this limitation, expenses for the period
ended March 31, 1994, reflect a reduction of $.05 for Class A,
respectively.

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

(d) Not annualized
<PAGE>
OBJECTIVE

THE FUND SEEKS CAPITAL APPRECIATION. The Fund is not intended to
be a complete investment program, and there is no assurance that
the Fund will achieve its objective.

HOW OBJECTIVE IS PURSUED

BASIC INVESTMENT STRATEGY

The Fund's strategic allocation indicates the typical percentage
allocation of the Fund's investments between equity
securities and fixed income securities (including money market
instruments), although Putnam Investment Management, Inc., the
Fund's investment manager ("Putnam Management"), may adjust these
allocations within the ranges described below. The strategic
allocation and the range of active allocation are shown below:

STRATEGIC
ALLOCATION RANGE

EQUITY
CLASS 80% 65-95%

FIXED
INCOME
CLASS 20% 5-35%

The percentage limitations are applied at the time of purchase.
The Fund may also select other investments that do not fall
within the asset classes listed above.

Under normal market conditions, Putnam Management will allocate
the assets of the Fund within the specified ranges above or below
the strategic allocation whenever, based on Putnam Management's
experience in qualitative analysis and disciplined quantitative
techniques, its research and analysis indicate changes in
financial markets that reflect changed valuations within and
among the asset classes. Allocating assets within
a specified range above or below a strategic allocation permits
the Fund to attempt to optimize performance consistent with its
investment objective. The risks of each asset class vary. For
example, the values of equity securities change in response to
general market and economic conditions and the activities and
changing circumstances of individual issuers, and the values of
fixed income securities change in response to changes in economic
conditions, interest rates and the creditworthiness of individual
issuers. A significant portion of the Fund's equity and fixed
income investments may consist of foreign securities, which
involve the risks set forth in "Risk factors" below.

EQUITY CLASS

FIXED INCOME CLASS

THE FUND WILL INVEST ITS ASSETS ALLOCATED TO THE FIXED INCOME
CLASS IN A DIVERSIFIED PORTFOLIO OF DEBT SECURITIES, INCLUDING
BOTH U.S. AND FOREIGN GOVERNMENT OBLIGATIONS AND CORPORATE
OBLIGATIONS.

The values of fixed income securities generally fluctuate inboth
U.S. and foreign government obligations and corporate response to
changes in interest rates. Thus, a decrease in interest
ratesobligations . will generally result in an increase in
the value of the Fund's assets allocated to the Fixed Income
Class. Conversely, during periods of rising interest rates, the
value of the Fund's assets allocated to such Class will generally
decline. The magnitude of these fluctuations will generally be
greater for securities with longer maturities. Debt securities
are subject to varying degrees of risk of default depending upon,
among other factors, the creditworthiness of the issuer and the
ability of the borrower to meet its obligations.

THE FUND MAY INVEST IN LOWER-RATED FIXED INCOME SECURITIES.
Lower-rated fixed income securities are generally regarded as
those rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation
("S&P") or securities of comparable quality as determined
by Putnam Management. The Fund will not purchase fixed income
securities rated at the time of purchase below Caa by
Moody's or CCC by S&P , or, if unrated, determined by
Putnam Management to be of comparable quality, if, as a result,
more than 5% of the Fund's total assets would be invested in
securities of that quality. Such securities may be in default
and are generally regarded by the rating agencies as having
extremely poor prospects of ever attaining any real investment
standing. The values of
lower-rated fixed income securities, commonly known as "junk
bonds," generally fluctuate more than those of higher-rated fixed
income 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 interest and
repayments of principal. The rating services' descriptions of
debt securities are included in the Appendix to this Prospectus.
The Fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase,
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the Fund's investment objective.

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

RISK FACTORS

Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.

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

FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN FOREIGN SECURITIES, SEE THE STATEMENT OF ADDITIONAL
INFORMATION.

portfolio securities ("transaction hedging") and to protect the
value of specific portfolio positions ("position hedging").

Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which the Fund's investments may be denominated. The Fund's
ability to engage in hedging transactions may be limited by tax
considerations. The Fund's hedging transactions may affect the
character or amount of the Fund's distributions.

DEFENSIVE STRATEGIES

FINANCIAL FUTURES AND OPTIONS

selling futures contracts or, to the extent permitted by
applicable law, to earn additional income.

THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS.
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 contracts and options and movements in the
prices of the underlying stock index, securities, or currencies
or of the securities or currencies which are the subject of the
hedge. The successful use of futures and options further depends
on Putnam Management's ability to forecast market or interest
rate movements correctly. Other risks arise from the Fund's
potential inability to close out its futures or related options
positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a
particular time. The Fund's ability to terminate option
positions established in the over-the-counter market may be more
limited than for exchange-traded options and may also involve the
risk that securities dealers participating in such transactions
would fail to meet their obligations to the Fund. The use of
futures or options on futures for purposes other than hedging is
regarded as speculative.

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

INVESTMENTS IN PREMIUM SECURITIES

OTHER INVESTMENT PRACTICES

prevented from recovering the collateral or completing the
transaction.

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM: acquiring more than 10% of the voting securities of any one
issuer* and investing more than: (a) 5% of its total assets
(taken at current value) in securities of any one issuer (other
than the U.S. government or its agencies or instrumentalities or,
with respect to 25% of the Fund's total assets, securities issued
by or backed by the credit of, any foreign government, its
agencies or instrumentalities);* (b) 15% of its net assets in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable);*
(c) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities, or of any
foreign government, its agencies or instrumentalities, securities
of supranational entities, and securities backed by the credit of
a governmental entity are not considered to represent
industries);* (d) 5% of its net assets in warrants or more than
2% of its net assets in warrants not listed on the New York or
American Stock Exchanges; or (e) 15% of its net assets in any
combination of securities that are not readily marketable, in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable),
and in repurchase agreements maturing in more than seven days.

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

HOW PERFORMANCE IS SHOWN

be considered when comparing the Fund's investment results to
those of other mutual funds and other investment vehicles.

HOW THE FUND IS MANAGED

other Putnam funds) as a factor in the selection of broker-
dealers.

ORGANIZATION AND HISTORY

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without
shareholder approval, be divided into two or more series of
shares representing separate investment portfolios and are
currently divided into three series of shares. Any such series
of shares may be further divided without shareholder approval
into two or more classes of shares having such preferences and
special or relative rights and privileges as the Trustees
determine. The Fund currently offers four classes of
shares. Only the Fund's Class A shares are offered by this
Prospectus. Class B shares and Class C shares are sold at
net asset value, but are subject to a contingent deferred sales
charge upon redemption and bear a higher 12b-1 fee than Class A
shares. Class Y shares, which are offered only to defined
contribution plans that initially invest at least $250 million in
a combination of Putnam funds and other investments managed by
Putnam Management or its affiliates, are sold at net asset value
and do not bear a 12b-1 fee. Because Class Y shares
generally bear lower expenses than Class A shares ,
Class B shares and Class C shares, the investment return
of Class Y shares will be greater than that of
other classes. Each share has one vote, with fractional shares
voting proportionally. Shares shall vote in the aggregate as a
single class without regard to series or classes of shares on all
matters except, (i) when required by the Investment Company Act
of 1940 or when the Trustees have determined that the matter
affects the interests of one or more series or classes materially
differently, shares will be voted by individual series or class;
and (ii) when the Trustees have determined that the matter
affects only the interest of one or more series or classes, then
only shareholders of such series or classes shall be entitled to
vote thereon. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net assets of the Fund. The Fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Trust is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Declaration of Trust.

ABOUT YOUR INVESTMENT

HOW TO BUY SHARES

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 inital investment and on subsequent
net quarterly sales at the rate of 0.15%. 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.

DISTRIBUTION PLAN

The purpose of the Class A Plan is to permit the Fund to
compensate Putnam Mutual Funds for services provided and expenses
incurred by it in promoting the sale of Class A shares of
the Fund, reducing redemptions, or maintaining or improving
services provided to shareholders by Putnam Mutual Funds or
dealers. The Class A Plan provides for payments by the
Fund to Putnam Mutual Funds at the annual rate of up to 0.35% of
the Fund's average net assets attributable to Class A shares,
subject to the authority of the Trustees to reduce the amount of
payments or to suspend the Class A Plan for such periods
as they may determine. Subject to these limitations, the amount
of such payments and the specific purposes for which they are
made shall be determined by the Trustees. At present, the
Trustees have approved payments under the Class A Plan at
the annual rate of 0.25% of the Fund's average net assets
attributable to Class A shares for the purpose of compensating
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's Class A
shares, including payments made by it to dealers under the
Service Agreements referred to below. Should the Trustees decide
in the future to approve payments in excess of this amount,
shareholders will be notified and this Prospectus will be
revised.

In order to compensate investment dealers
(including, for this purpose, certain financial institutions) for
services provided in connection with sales of Class A shares and
the maintenance of shareholder accounts , Putnam Mutual Funds
makes quarterly payments to qualifying dealers based on the
average net asset value of Class A shares of the Fund which are
attributable to shareholders for whom the dealers are designated
as the dealer of record. This calculation excludes until one year
after purchase shares purchased at net asset value after March
31, 1994 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 0.25% of such average net asset value for Class
A shares. For participant-directed qualified retirement plans
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on NAV Shares
are 100% of the rate stated above if average plan assets in
Putnam funds (excluding money market funds) during the quarter
are less than $20 million, 60% of the stated rate if average plan
assets are at least $20 million but less than $30 million, and
40% of the stated rate if average plan assets are $30 million or
more. For all other participant-directed qualified retirement
plans purchasing NAV Shares, Putnam Mutual Funds makes
quarterly payments to qualifying dealers at the annual
rate of 0.10% of the average net asset value of such shares.

HOW TO SELL SHARES

HOW TO EXCHANGE SHARES

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 the Trustees or Putnam Management
believes doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services

before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege.

HOW THE FUND VALUES ITS SHARES

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

The Fund distributes any net investment income and any net
realized capital gains at least annually. Distributions from net
capital gains are made after applying any available capital loss
carryovers.

ABOUT PUTNAM INVESTMENTS, INC .

THE RATINGS SERVICES' DESCRIPTIONS OF THE FIXED-INCOME SECURITIES
IN WHICH THE FUND MAY INVEST ARE:

MOODY'S INVESTORS SERVICE, INC.:

B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal

payments or of maintenance of other terms of the contract
over any long period of time may be small.

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

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

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

STANDARD & POOR'S CORPORATION:

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

AA -- Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.

PUTNAM ASSET ALLOCATION:
BALANCED PORTFOLIO
CLASS Y SHARES
ONE POST OFFICE SQUARE, BOSTON, MA 02109
PROSPECTUS-- SEPTEMBER 1, 1994

This Prospectus explains concisely what you should know before
investing in Class Y shares of the Fund. Please read it carefully
and keep it for future reference. You can find more detailed
information in the September 1 , 1994 Statement of
Additional Information, as amended from time to time. For a free
copy of the Statement or other information, including a
Prospectus regarding other classes of Fund shares, call Putnam
Investor Services at 1-800-752-9894. The Statement has been filed
with the Securities and Exchange Commission and is incorporated
into this Prospectus by reference.

THE FUND IS A SERIES OF PUTNAM ASSET ALLOCATION FUNDS (THE
"TRUST"), AN INVESTMENT COMPANY OFFERING THREE SEPARATE
PORTFOLIOS: PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO, PUTNAM
ASSET ALLOCATION: BALANCED PORTFOLIO AND PUTNAM ASSET ALLOCATION:
CONSERVATIVE PORTFOLIO. EACH PORTFOLIO IS AN ASSET ALLOCATION
FUND THAT ALLOCATES ITS INVESTMENTS AMONG EQUITIES AND FIXED
INCOME SECURITIES WITHIN PREDEFINED RANGES BASED ON ITS
INVESTMENT OBJECTIVE AND ECONOMIC AND OTHER CONDITIONS. THE FUND
SEEKS TOTAL RETURN.

PUTNAM INVESTMENTS

Putnam Defined
Contribution Plans
<PAGE>
ABOUT THE FUND

Expenses summary
Objective
How objective is pursued
How performance is shown
How the Fund is managed
Organization and history

ABOUT YOUR INVESTMENT

How to buy shares
How to sell shares
How to exchange shares
How the Fund values its shares
How distributions are made; tax information

ABOUT PUTNAM INVESTMENTS, INC.

APPENDIX

Fixed-income security ratings
<PAGE>

ABOUT THE FUND
EXPENSES SUMMARY

Expenses are one of several factors to consider when investing in
Class Y shares of the Fund. The following table summarizes the
expenses which the Fund expects to incur in its first fiscal
year. The Example shows the estimated cumulative expenses
attributable to a hypothetical $1,000 investment in Class Y
shares of the Fund over specified periods.

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

Management Fees (after expense
limitation discussed below) 0.58%
Other Expenses 0.44%
Total Fund Operating Expenses 1.02%
(after expense limitation)

The table is provided to help you understand your share of the
operating expenses attributable to Class Y shares which the Fund
expects to incur during its first fiscal year. The annual
management fees shown in the table reflect an expense limitation
currently in effect. In the absence of the expense limitation,
estimated management fees for the Fund would be 0.70% and
estimated total Fund operating expenses would be 1.14%. "Other
expenses" are based on estimated amounts for the Fund's first
fiscal year.

EXAMPLE

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

$10 $32

The Example does not represent past or future expense levels.
Actual Fund expenses may be more or less than those shown.
Federal regulations require the Example to assume a 5% annual
return, but actual annual return will vary. The Example does not
reflect any charges or expenses related to your employer's plan.

The Fund also offers other classes of shares. See "Organization
and history" for additional information.

OBJECTIVE

THE FUND SEEKS TOTAL RETURN. The Fund is not intended to be a
complete investment program, and there is no assurance that the
Fund will achieve its objective.

HOW OBJECTIVE IS PURSUED

BASIC INVESTMENT STRATEGY

The Fund's strategic allocation indicates the typical percentage
allocation of its investments between equity securities and fixed
income securities (including money market instruments), although
Putnam Investment Management, Inc., the Fund's investment manager
("Putnam Management"), may adjust these allocations within the
ranges described below. The strategic allocation and the range of
active allocation are shown below:

STRATEGIC
ALLOCATION RANGE

Equity Class 65% 50-75%
Fixed Income Class 35% 25-50%

The percentage limitations are applied at the time of purchase.
The Fund may also select other investments that do not fall
within the asset classes listed above.

Allocating assets within a specified range above or below a
strategic allocation permits the Fund to attempt to optimize
performance consistent with its investment objective. The risks
of each asset class vary. For example, the values of equity
securities change in response to general market and economic
conditions and the activities and changing circumstances of
individual issuers, and the values of fixed income securities
change in response to changes in economic conditions, interest
rates and the creditworthiness of individual issuers. A
significant portion of the Fund's equity and fixed income
investments may consist of foreign securities, which involve the
risks set forth in "Risk factors" below.

EQUITY CLASS

FIXED INCOME CLASS

THE FUND WILL INVEST ITS ASSETS ALLOCATED TO THE FIXED INCOME
CLASS IN A DIVERSIFIED PORTFOLIO OF DEBT SECURITIES, INCLUDING
BOTH U.S. AND FOREIGN GOVERNMENT OBLIGATIONS AND CORPORATE
OBLIGATIONS.

The values of fixed income securities generally 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 allocated to the Fixed Income Class.
Conversely, during periods of rising interest rates, the value of
the Fund's assets allocated to such Class will generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Debt securities are subject to
varying degrees of risk of default depending upon, among other
factors, the creditworthiness of the issuer and the ability of
the borrower to meet its obligations.

THE FUND MAY INVEST IN LOWER-RATED FIXED INCOME SECURITIES.
Lower-rated fixed income securities are generally regarded as
those rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation
("S&P") or securities of comparable quality as determined
by Putnam Management. The Fund will not purchase fixed income
securities rated at the time of purchase below Baa by
Moody's or BBB by S&P or, if unrated, determined to be of
comparable quality by Putnam Management, if, as a result, more
than 35% of the Fund's total assets would be invested in
securities of that quality. In addition, the Fund will not
purchase fixed income securities rated at the time of purchase
below than Caa by Moody's or CCC by S&P , or, if
unrated, determined by Putnam Management to be of comparable
quality, if, as a result, more than 5% of the Fund's total assets
would be invested in securities of that quality. Such securities
may be in default and are generally regarded by the rating
agencies as having extremely poor prospects of ever attaining any
real investment standing. The values of lower-rated fixed income
securities, commonly known as "junk bonds," generally fluctuate
more than those of higher-rated fixed income 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 interest and repayments of
principal. The rating services' descriptions of debt securities
are included in the Appendix to this Prospectus. The Fund will
not necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase, although Putnam
Management will monitor the investment to determine whether
continued investment in the security will assist in meeting the
Fund's investment objective.

The Fund may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. 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. The value of zero-coupon bonds 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 other investments in order to
satisfy its distribution requirements.

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 might not be able to reinvest the
proceeds in securities providing the same investment return as
the securities redeemed.

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

RISK FACTORS

INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest up to 40%
of its assets in securities principally traded in foreign
markets. The Fund may also purchase Eurodollar certificates of
deposit without regard to this limit. Foreign investments involve
certain risks not present in domestic securities. Because the
Fund intends to purchase securities that are normally denominated
and traded in foreign currencies, the values of these assets and
any investment income derived from them may be affected favorably
or unfavorably by currency exchange rates and exchange control
regulations. In addition, although a portion of the Fund's
investment income may be received or realized in such foreign
currencies, the Fund will be required to compute and distribute
its income in U.S. dollars, which may subject the Fund to various
risks due to currency fluctuations. For example, if the exchange
rate for any such currency declines after the Fund's income has
been earned and translated into U.S. dollars but before payment,
the Fund could be required to liquidate portfolio securities to
make such distributions. The values of foreign fixed income
securities will fluctuate in response to changes in U.S. and
foreign interest rates. Income received by the Fund from sources
within foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between certain
countries and the United States may reduce or eliminate such
taxes. Any such taxes paid by the Fund will reduce its net income
available for distribution to shareholders. Putnam Management
will consider available yields, net of any required taxes, in
selecting foreign securities.

There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers are not
generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.

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

FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN FOREIGN SECURITIES, SEE THE STATEMENT OF ADDITIONAL
INFORMATION. FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Putnam
Management may engage in foreign currency exchange transactions
to protect against uncertainty in the level of future exchange
rates. Putnam Management may engage in foreign currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect the
value of specific portfolio positions ("position hedging").

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

Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which the Fund's investments may be denominated. The Fund's
ability to engage in hedging transactions may be limited by tax
considerations. The Fund's hedging transactions may affect the
character or amount of the Fund's distributions.

SHORT-TERM TRADING. UNDER CERTAIN MARKET CONDITIONS, THE FUND MAY
SEEK PROFITS BY SHORT-TERM TRADING. The length of time the Fund
has held a particular security is not generally a consideration
in investment decisions. A change in the securities held by the
Fund is known as "portfolio turnover." To the extent short-term
trading strategies are used, the Fund's portfolio turnover rate
may be higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
While it is impossible to predict the Fund's portfolio turnover
rate, Putnam Management, based on its experience, believes that
such rate will not exceed 150%.

DEFENSIVE STRATEGIES

AT TIMES PUTNAM MANAGEMENT MAY JUDGE THAT CONDITIONS IN THE
SECURITIES MARKETS MAKE PURSUING THE FUND'S BASIC INVESTMENT
STRATEGY INCONSISTENT WITH THE BEST INTERESTS OF ITS
SHAREHOLDERS. At such times Putnam Management may temporarily use
alternative strategies, primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these
"defensive" strategies, depending on the circumstances, the Fund
may invest without regard to the ranges described above for
investments in the various asset classes and may invest primarily
in equity securities, debt securities, preferred stocks, U.S.
government and agency obligations, cash or money market
instruments, or in other securities Putnam Management considers
consistent with such defensive strategies. It is impossible to
predict when, or for how long, the Fund will use such alternative
strategies.

FINANCIAL FUTURES AND OPTIONS

THE FUND MAY BUY AND SELL FINANCIAL FUTURES CONTRACTS ON STOCK
INDEXES, U.S. GOVERNMENT SECURITIES, FOREIGN FIXED INCOME
SECURITIES AND ON FOREIGN CURRENCIES. A futures contract is a
contract to buy or sell units of a particular stock index (an
"Index Future"), or a certain amount of a U.S. Government
security, foreign fixed income security or foreign currency, at
an agreed price on a specified future date. Depending on the
change in value of the index, security or currency between the
time when the Fund enters into and terminates a futures contract,
the Fund realizes a gain or loss. The Fund may purchase and sell
futures contracts for hedging purposes and to adjust the Fund's
exposure to the relevant stock or bond markets. For example, when
Putnam Management wants to increase the Fund's exposure to equity
securities, it may do so by taking long positions in futures
contracts on equity indices such as futures contracts on the
Standard & Poor's 500 Stock Index. Similarly, when Putnam
Management wants to increase the Fund's exposure to fixed income
securities, it may do so by taking long positions in futures
contracts relating to fixed income securities such as futures
contracts on U.S. Treasury bonds or notes. The Fund may buy and
sell call and put options on futures contracts or on stock
indices in addition to or as an alternative to purchasing or
selling futures contracts or, to the extent permitted by
applicable law, to earn additional income.

THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS.
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 contracts and options and movements in the
prices of the underlying stock index, securities, or currencies
or of the securities or currencies which are the subject of the
hedge. The successful use of futures and options further depends
on Putnam Management's ability to forecast market or interest
rate movements correctly. Other risks arise from the Fund's
potential inability to close out its futures or related options
positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a
particular time. The Fund's ability to terminate option positions
established in the over-the-counter market may be more limited
than for exchange-traded options and may also involve the risk
that securities dealers participating in such transactions would
fail to meet their obligations to the Fund. The use of futures or
options on futures for purposes other than hedging is regarded as
speculative.

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

INVESTMENTS IN PREMIUM SECURITIES

The Fund may invest some or all of its assets allocated to the
Fixed Income Class in securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on
maturity. The Fund does not amortize the premium paid for such
securities in calculating its net investment income. As a result,
the purchase of such securities provides the Fund a higher level
of investment income distributable to shareholders on a current
basis than if the Fund had purchased securities bearing current
market rates of interest. Because the value of premium securities
tends to approach the principal amount as they approach maturity
(or call price in the case of securities approaching their first
call date), the purchase of such securities may increase the
Fund's risk of capital loss if such securities are held to
maturity (or first call date).

OTHER INVESTMENT PRACTICES

SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The Fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must be
fully collateralized at all times. The Fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party
should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the
transaction.

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM: acquiring more than 10% of the voting securities of any one
issuer* and investing more than: (a) 5% of its total assets
(taken at current value) in securities of any one issuer (other
than the U.S. government or its agencies or instrumentalities or,
with respect to 25% of the Fund's total assets, securities issued
by or backed by the credit of, any foreign government, its
agencies or instrumentalities);* (b) 15% of its net assets in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable);*
(c) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities, or of any
foreign government, its agencies or instrumentalities, securities
of supranational entities, and securities backed by the credit of
a governmental entity are not considered to represent
industries);* (d) 5% of its net assets in warrants or more than
2% of its net assets in warrants not listed on the New York or
American Stock Exchanges; or (e) 15% of its net assets in any
combination of securities that are not readily marketable, in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable),
and in repurchase agreements maturing in more than seven days.

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

HOW PERFORMANCE IS SHOWN

YIELD AND TOTAL RETURN DATA MAY FROM TIME TO TIME BE INCLUDED IN
ADVERTISEMENTS ABOUT CLASS Y SHARES. "Yield" is calculated by
dividing the annualized net investment income per share during a
recent 30-day period by the net asset value per share on the last
day of that period. For this purpose, net investment income is
calculated in accordance with SEC regulations and may differ from
the Fund's 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 Fund's current
dividend rate is based on its net investment income as determined
for financial reporting purposes which may not reflect
amortization in the same manner. See "How objective is
pursued Investments in premium securities." "Total return" for
the life of Class Y shares through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in the Fund. Total return may also be
presented for other periods. Quotations of yield or total return
for any period when an expense limitation was in effect will be
greater than if the limitation had not been in effect. The Fund's
performance may be compared to various indices. See the Statement
of Additional Information.

ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objective and policies. These factors should be
considered when comparing the Fund's investment results to those
of other mutual funds and other investment vehicles.

HOW THE FUND IS MANAGED

ORGANIZATION AND HISTORY

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without shareholder
approval, be divided into two or more series of shares
representing separate investment portfolios and are currently
divided into three series of shares. Any such series of shares
may be further divided without shareholder approval into two or
more classes of shares having such preferences and special or
relative rights and privileges as the Trustees determine. The
Fund currently offers four classes of shares. Only the
Fund's Class Y shares are offered by this Prospectus. The Fund
also offers Class A shares , Class B shares and Class
C shares through participating dealers pursuant to a separate
prospectus. Class A shares, Class B shares and Class
C shares bear the same expenses as Class Y shares and, in
addition, are subject to 12b-1 fees. Class A shares are subject
to a front-end sales charge and Class B shares and Class C
shares are subject to a contingent deferred sales charge. Due
to 12b-1 fees and sales charges, the investment return of Class A
shares, Class B shares and Class C shares will be
lower than the investment return of Class Y shares. Each
share has one vote, with fractional shares voting proportionally.
Shares shall vote in the aggregate as a single class without
regard to series or classes of shares on all matters except, (i)
when required by the Investment Company Act of 1940 or when the
Trustees have determined that the matter affects the interests of
one or more series or classes materially differently, shares will
be voted by individual series or class; and (ii) when the
Trustees have determined that the matter affects only the
interest of one or more series or classes, then only shareholders
of such series or classes shall be entitled to vote thereon.
Shares are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the Fund were liquidated, would
receive the net assets of the Fund. The Fund may suspend the sale
of shares at any time and may refuse any order to purchase
shares. Although the Trust is not required to hold annual
meetings of its shareholders, shareholders holding at least 10%
of the outstanding shares entitled to vote have the right to call
a meeting to elect or remove Trustees, or to take other actions
as provided in the Declaration of Trust.

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

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

ABOUT YOUR INVESTMENT

HOW TO BUY SHARES

ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
EMPLOYER'S DEFINED CONTRIBUTION PLAN. FOR MORE INFORMATION ABOUT
HOW TO PURCHASE SHARES OF THE FUND THROUGH YOUR EMPLOYER'S PLAN
OR LIMITATIONS ON THE AMOUNT THAT MAY BE PURCHASED, PLEASE
CONSULT YOUR EMPLOYER. Shares are sold to eligible defined
contribution plans at the net asset value per share next
determined after receipt of an order by Putnam Mutual Funds.
Orders must be received by Putnam Mutual Funds before the close
of regular trading on the New York Stock Exchange in order to
receive that day's net asset value. In order to be eligible to
purchase Class Y shares, defined contribution plans must
initially invest at least $250 million in a combination of Putnam
funds and other investments managed by Putnam Management or its
affiliates. Eligible plans may make additional investments of any
amount at any time. To eliminate the need for safekeeping, the
Fund will not issue certificates for your shares. 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.

HOW TO SELL SHARES

Your plan administrator must send a signed letter of instruction
to Putnam Investor Services. The price you will receive is the
next net asset value calculated after the Fund receives your
request in proper form. All requests must be received by the Fund
prior to the close of regular trading on the New York Stock
Exchange in order to receive that day's net asset value. If you
sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives
must be guaranteed by a bank, broker-dealer or certain other
financial institutions. See the Statement of Additional
Information for more information about where to obtain a
signature guarantee.

THE FUND GENERALLY PROVIDES PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER THE REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend repurchases, or postpone payment for more
than seven days, as permitted by federal securities law. The Fund
will only repurchase shares for which it has received payment.

HOW TO EXCHANGE SHARES

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 the Trustees or Putnam Management
believes doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege.

HOW THE FUND VALUES ITS SHARES

THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF THE
CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH DAY
THE EXCHANGE IS OPEN. Portfolio securities for which market
quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes. The Fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis. Generally, Fund distributions
are taxable as ordinary income, except that any distributions of
net long-term capital gains will be taxed as such. However,
distributions by the Fund to employer-sponsored defined
contribution plans that qualify for tax-exempt treatment under
federal income tax laws will not be taxable. Special tax rules
apply to investments through such plans. You should consult your
tax adviser to determine the suitability of the Fund as an
investment through such a plan and the tax treatment of
distributions (including distributions of amounts attributable to
an investment in the Fund) from such a plan.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your
tax adviser to determine the precise effect of an investment in
the Fund on your particular tax situation (including possible
liability for state and local taxes).

ABOUT PUTNAM INVESTMENTS, INC.

PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the Fund and
of other Putnam funds. Putnam Defined Contribution Plans is a
division of Putnam Mutual Funds. Putnam Fiduciary Trust Company
is the Fund's custodian. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the Fund's investor servicing
and transfer agent. Putnam Management, Putnam Mutual Funds, and
Putnam Fiduciary Trust Company are located at One Post Office
Square, Boston, Massachusetts, 02109 and 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

THE RATINGS SERVICES' DESCRIPTIONS OF THE FIXED-INCOME SECURITIES
IN WHICH THE FUND MAY INVEST ARE:

MOODY'S INVESTORS SERVICE, INC.:

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

AA Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.

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

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

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

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

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

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

STANDARD & POOR'S CORPORATION:

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

AA Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.

A Bonds rated A have 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
bonds in higher rated categories.

BBB Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit 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 bonds
in this category than in higher rated categories.

BB-B-CCC-CC-C Bonds rated BB, B, CCC, CC and C are 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 bonds
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D Bonds rated D are in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The D rating also will be used on the
filing of a bankruptcy petition if debt service payments are
jeopardized.

<PAGE>
PUTNAM ASSET ALLOCATION:
CONSERVATIVE PORTFOLIO
CLASS Y SHARES
ONE POST OFFICE SQUARE, BOSTON, MA 02109
PROSPECTUS-- SEPTEMBER 1, 1994

THE FUND IS A SERIES OF PUTNAM ASSET ALLOCATION FUNDS (THE
"TRUST"), AN INVESTMENT COMPANY OFFERING THREE SEPARATE
PORTFOLIOS: PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO, PUTNAM
ASSET ALLOCATION: BALANCED PORTFOLIO AND PUTNAM ASSET ALLOCATION:
CONSERVATIVE PORTFOLIO. EACH PORTFOLIO IS AN ASSET ALLOCATION
FUND THAT ALLOCATES ITS INVESTMENTS AMONG EQUITIES AND FIXED
INCOME SECURITIES WITHIN PREDEFINED RANGES BASED ON ITS
INVESTMENT OBJECTIVE AND ECONOMIC AND OTHER CONDITIONS. THE FUND
SEEKS TOTAL RETURN CONSISTENT WITH PRESERVATION OF CAPITAL.

PUTNAM INVESTMENTS
Putnam Defined
Contribution Plans

<PAGE>
ABOUT THE FUND

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

ABOUT YOUR INVESTMENT

How to buy shares ............................

How to sell shares ...........................

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

How the Fund values its shares ...............

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

ABOUT PUTNAM INVESTMENTS, INC.

APPENDIX

Fixed-income security ratings
<PAGE>
ABOUT THE FUND

EXPENSES SUMMARY

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

Management Fees (after expense
limitation discussed below) 0.64%
Other Expenses 0.38%
Total Fund Operating Expenses 1.02%
(after expense limitation)

The table is provided to help you understand your share of the
operating expenses attributable to Class Y shares which the Fund
expects to incur during its first fiscal year. The annual
management fees shown in the table reflect an expense limitation
currently in effect. In the absence of the expense limitation,
estimated management fees for the Fund would be 0.70% and
estimated total Fund operating expenses would be 1.08%. "Other
expenses" are based on estimated amounts for the Fund's first
fiscal year.

EXAMPLE

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

$10 $32

The Example does not represent past or future expense levels.
Actual Fund expenses may be more or less than those shown.
Federal regulations require the Example to assume a 5% annual
return, but actual annual return will vary. The Example does not
reflect any charges or expenses related to your employer's plan.

The Fund also offers other classes of shares. See
"Organization and history" for additional information.

OBJECTIVE

THE FUND SEEKS TOTAL RETURN CONSISTENT WITH PRESERVATION OF
CAPITAL. The Fund is not intended to be a complete investment
program, and there is no assurance that the Fund will achieve its
objective.

HOW OBJECTIVE IS PURSUED

BASIC INVESTMENT STRATEGY

THE FUND'S STRATEGIC ALLOCATION INDICATES THE TYPICAL PERCENTAGE
ALLOCATION OF ITS INVESTMENTS BETWEEN EQUITY SECURITIES AND FIXED
INCOME SECURITIES (INCLUDING MONEY MARKET INSTRUMENTS), ALTHOUGH
PUTNAM INVESTMENT MANAGEMENT, INC., THE FUND'S INVESTMENT MANAGER
("PUTNAM MANAGEMENT"), MAY ADJUST THESE ALLOCATIONS WITHIN THE
RANGES DESCRIBED BELOW. THE STRATEGIC ALLOCATION AND THE RANGE OF
ACTIVE ALLOCATION ARE SHOWN BELOW:

STRATEGIC
ALLOCATION RANGE

Equity Class 35% 25-45%
Fixed Income Class 65% 55-75%

The percentage limitations are applied at the time of purchase.
The Fund may also select other investments that do not fall
within the asset classes listed above.

EQUITY CLASS

FIXED INCOME CLASS

THE FUND WILL INVEST ITS ASSETS ALLOCATED TO THE FIXED INCOME
CLASS IN A DIVERSIFIED PORTFOLIO OF DEBT SECURITIES, INCLUDING
BOTH U.S. AND FOREIGN GOVERNMENT OBLIGATIONS AND CORPORATE
OBLIGATIONS.

The values of fixed income securities generally 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 allocated to the Fixed Income Class.
Conversely, during periods of rising interest rates, the value of
the Fund's assets allocated to such Class will generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Debt securities are subject to
varying degrees of risk of default depending upon, among other
factors, the creditworthiness of the issuer and the ability of
the borrower to meet its obligations.

THE FUND MAY INVEST IN LOWER-RATED FIXED INCOME SECURITIES.
Lower-rated fixed income securities are generally regarded as
those rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation
("S&P") or securities of comparable quality as determined
by Putnam Management. The Fund will not purchase fixed income
securities rated at the time of purchase below Baa by
Moody's or BBB by S&P or, if unrated, determined to be of
comparable quality by Putnam Management, if, as a result, more
than 10% of the Fund's total assets would be invested in
securities of that quality. In addition, the Fund will not
purchase fixed income securities rated at the time of purchase
below Caa by Moody's or CCC by S&P , or, if unrated,
determined by Putnam Management to be of comparable quality, if,
as a result, more than 5% of the Fund's total assets would be
invested in securities of that quality. In addition, such
securities may be in default and are generally regarded by the
rating agencies as having extremely poor prospects of ever
attaining any real investment standing. The values of lower-rated
fixed income securities, commonly known as "junk bonds,"
generally fluctuate more than those of higher-rated fixed income
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 interest and
repayments of principal. The rating services' descriptions of
debt securities are included in the Appendix to this Prospectus.
The Fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase,
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the Fund's investment objective.

The Fund may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. 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. The value of zero-coupon bonds 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 other investments in order to
satisfy its distribution requirements.

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 might not be able to reinvest the
proceeds in securities providing the same investment return as
the securities redeemed.

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

ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. The Fund may invest
some or all of its assets allocated to the Fixed Income Class in
asset-backed and mortgage-backed securities, such as
collateralized mortgage obligations. Mortgage-backed securities
represent a participation in, or are secured by, mortgage loans
and include securities issued or guaranteed by the United States
government or one of its agencies or instrumentalities;
securities issued by private issuers that represent an interest
in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. government or one of its agencies or
instrumentalities; or securities issued by private issuers that
represent an interest in or are collateralized by mortgage loans
or mortgage-backed securities without a government guarantee
but usually having some form of private credit enhancement.

RISK FACTORS

INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest up to 30%
of its assets in securities principally traded in foreign
markets. The Fund may also purchase Eurodollar certificates of
deposit without regard to this limit. Foreign investments involve
certain risks not present in domestic securities. Because the
Fund intends to purchase securities that are normally denominated
and traded in foreign currencies, the values of these assets and
any investment income derived from them may be affected favorably
or unfavorably by currency exchange rates and exchange control
regulations. In addition, although a portion of the Fund's
investment income may be received or realized in such foreign
currencies, the Fund will be required to compute and distribute
its income in U.S. dollars, which may subject the Fund to various
risks due to currency fluctuations. For example, if the exchange
rate for any such currency declines after the Fund's income has
been earned and translated into U.S. dollars but before payment,
the Fund could be required to liquidate portfolio securities to
make such distributions. The values of foreign fixed income
securities will fluctuate in response to changes in U.S. and
foreign interest rates. Income received by the Fund from sources
within foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between certain
countries and the United States may reduce or eliminate such
taxes. Any such taxes paid by the Fund will reduce its net income
available for distribution to shareholders. Putnam Management
will consider available yields, net of any required taxes, in
selecting foreign securities.

There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers are not
generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.

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

FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN FOREIGN SECURITIES, SEE THE STATEMENT OF ADDITIONAL
INFORMATION.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Putnam Management may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future exchange rates. Putnam
Management may engage in foreign currency exchange transactions
in connection with the purchase and sale of portfolio securities
("transaction hedging") and to protect the value of specific
portfolio positions ("position hedging").

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.

Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which the Fund's investments may be denominated. The Fund's
ability to engage in hedging transactions may be limited by tax
considerations. The Fund's hedging transactions may affect the
character or amount of the Fund's distributions.

SHORT-TERM TRADING. UNDER CERTAIN MARKET CONDITIONS, THE FUND MAY
SEEK PROFITS BY SHORT-TERM TRADING. The length of time the Fund
has held a particular security is not generally a consideration
in investment decisions. A change in the securities held by the
Fund is known as "portfolio turnover." To the extent short-term
trading strategies are used, the Fund's portfolio turnover rate
may be higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
While it is impossible to predict the Fund's portfolio turnover
rate, Putnam Management, based on its experience, believes that
such rate will not exceed 150%.

DEFENSIVE STRATEGIES

AT TIMES PUTNAM MANAGEMENT MAY JUDGE THAT CONDITIONS IN THE
SECURITIES MARKETS MAKE PURSUING THE FUND'S BASIC INVESTMENT
STRATEGY INCONSISTENT WITH THE BEST INTERESTS OF ITS
SHAREHOLDERS. At such times Putnam Management may temporarily use
alternative strategies, primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these
"defensive" strategies, depending on the circumstances, the Fund
may invest without regard to the ranges described above for
investments in the various asset classes and may invest primarily
in equity securities, debt securities, preferred stocks, U.S.
Government and agency obligations, cash or money market
instruments, or in other securities Putnam Management considers
consistent with such defensive strategies. It is impossible to
predict when, or for how long, the Fund will use such alternative
strategies.

FINANCIAL FUTURES AND OPTIONS

THE FUND MAY BUY AND SELL FINANCIAL FUTURES CONTRACTS ON STOCK
INDEXES, U.S. GOVERNMENT SECURITIES, FOREIGN FIXED INCOME
SECURITIES AND ON FOREIGN CURRENCIES. A futures contract is a
contract to buy or sell units of a particular stock index (an
"Index Future"), or a certain amount of a U.S. Government
security, foreign fixed income security or foreign currency, at
an agreed price on a specified future date. Depending on the
change in value of the index, security or currency between the
time when the Fund enters into and terminates a futures contract,
the Fund realizes a gain or loss. The Fund may purchase and sell
futures contracts for hedging purposes and to adjust the Fund's
exposure to the relevant stock or bond markets. For example, when
Putnam Management wants to increase the Fund's exposure to equity
securities, it may do so by taking long positions in futures
contracts on equity indices such as futures contracts on the S
& P 500 Stock Index. Similarly, when Putnam Management wants
to increase the Fund's exposure to fixed income securities, it
may do so by taking long positions in futures contracts relating
to fixed income securities such as futures contracts on U.S.
Treasury bonds or notes. The Fund may buy and sell call and put
options on futures contracts or on stock indices in addition to
or as an alternative to purchasing or selling futures contracts
or, to the extent permitted by applicable law, to earn additional
income.

THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS.
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 contracts and options and movements in the
prices of the underlying stock index, securities, or currencies
or of the securities or currencies which are the subject of the
hedge. The successful use of futures and options further depends
on Putnam Management's ability to forecast market or interest
rate movements correctly. Other risks arise from the Fund's
potential inability to close out its futures or related options
positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a
particular time. The Fund's ability to terminate option positions
established in the over-the-counter market may be more limited
than for exchange-traded options and may also involve the risk
that securities dealers participating in such transactions would
fail to meet their obligations to the Fund. The use of futures or
options on futures for purposes other than hedging is regarded as
speculative.

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

INVESTMENTS IN PREMIUM SECURITIES

The Fund may invest some or all of its assets allocated to the
Fixed Income Class in securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on
maturity. The Fund does not amortize the premium paid for such
securities in calculating its net investment income. As a result,
the purchase of such securities provides the Fund a higher level
of investment income distributable to shareholders on a current
basis than if the Fund had purchased securities bearing current
market rates of interest. Because the value of premium securities
tends to approach the principal amount as they approach maturity
(or call price in the case of securities approaching their first
call date), the purchase of such securities may increase the
Fund's risk of capital loss if such securities are held to
maturity (or first call date).

OTHER INVESTMENT PRACTICES

SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The Fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must be
fully collateralized at all times. The Fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party
should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the
transaction.

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM: acquiring more than 10% of the voting securities of any one
issuer* and investing more than: (a) 5% of its total assets
(taken at current value) in securities of any one issuer (other
than the U.S. government or its agencies or instrumentalities or,
with respect to 25% of the Fund's total assets, securities issued
by or backed by the credit of, any foreign government, its
agencies or instrumentalities);* (b) 15% of its net assets in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable);*
(c) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities, or of any
foreign government, its agencies or instrumentalities, securities
of supranational entities, and securities backed by the credit of
a governmental entity are not considered to represent
industries);* (d) 5% of its net assets in warrants or more than
2% of its net assets in warrants not listed on the New York or
American Stock Exchanges; or (e) 15% of its net assets in any
combination of securities that are not readily marketable, in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable),
and in repurchase agreements maturing in more than seven days.

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

HOW PERFORMANCE IS SHOWN

ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objective and policies. These factors should be
considered when comparing the Fund's investment results to those
of other mutual funds and other investment vehicles.

HOW THE FUND IS MANAGED

Putnam Management's Global Asset Allocation Committee has
primary
responsibility for the day - to - day management of
the Fund's
portfolio.

ORGANIZATION AND HISTORY

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without shareholder
approval, be divided into two or more series of shares
representing separate investment portfolios and are currently
divided into three series of shares. Any such series of shares
may be further divided without shareholder approval into two or
more classes of shares having such preferences and special or
relative rights and privileges as the Trustees determine. The
Fund currently offers four classes of shares. Only the
Fund's Class Y shares are offered by this Prospectus. The Fund
also offers Class A shares , Class B shares and Class
C shares through participating dealers pursuant to a separate
prospectus. Class A , Class B , and Class C shares
bear the same expenses as Class Y shares and, in addition, are
subject to 12b-1 fees. Class A shares are subject to a front-end
sales charge and Class B shares and Class C shares are
subject to a contingent deferred sales charge. Due to 12b-1 fees
and sales charges, the investment return of Class A
shares, Class B shares and Class C shares will be
lower than the investment return of Class Y shares. Each
share has one vote, with fractional shares voting proportionally.
Shares shall vote in the aggregate as a single class without
regard to series or classes of shares on all matters except, (i)
when required by the Investment Company Act of 1940 or when the
Trustees have determined that the matter affects the interests of
one or more series or classes materially differently, shares will
be voted by individual series or class; and (ii) when the
Trustees have determined that the matter affects only the
interest of one or more series or classes, then only shareholders
of such series or classes shall be entitled to vote thereon.
Shares are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the Fund were liquidated, would
receive the net assets of the Fund. The Fund may suspend the sale
of shares at any time and may refuse any order to purchase
shares. Although the Trust is not required to hold annual
meetings of its shareholders, shareholders holding at least 10%
of the outstanding shares entitled to vote have the right to call
a meeting to elect or remove Trustees, or to take other actions
as provided in the Declaration of Trust.

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

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

ABOUT YOUR INVESTMENT

HOW TO BUY SHARES

ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
EMPLOYER'S DEFINED CONTRIBUTION PLAN. FOR MORE INFORMATION ABOUT
HOW TO PURCHASE SHARES OF THE FUND THROUGH YOUR EMPLOYER'S PLAN
OR LIMITATIONS ON THE AMOUNT THAT MAY BE PURCHASED, PLEASE
CONSULT YOUR EMPLOYER. Shares are sold to eligible defined
contribution plans at the net asset value per share next
determined after receipt of an order by Putnam Mutual Funds.
Orders must be received by Putnam Mutual Funds before the close
of regular trading on the New York Stock Exchange in order to
receive that day's net asset value. In order to be eligible to
purchase Class Y shares, defined contribution plans must
initially invest at least $250 million in a combination of Putnam
funds and other investments managed by Putnam Management or its
affiliates. Eligible plans may make additional investments of any
amount at any time. To eliminate the need for safekeeping, the
Fund will not issue certificates for your shares. 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.

HOW TO SELL SHARES

Your plan administrator must send a signed letter of instruction
to Putnam Investor Services. The price you will receive is the
next net asset value calculated after the Fund receives your
request in proper form. All requests must be received by the Fund
prior to the close of regular trading on the New York Stock
Exchange in order to receive that day's net asset value. If you
sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives
must be guaranteed by a bank, broker-dealer or certain other
financial institutions. See the Statement of Additional
Information for more information about where to obtain a
signature guarantee.

THE FUND GENERALLY PROVIDES PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER THE REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend repurchases, or postpone payment for more
than seven days, as permitted by federal securities law. The Fund
will only repurchase shares for which it has received payment.

HOW TO EXCHANGE SHARES

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 the Trustees or Putnam Management
believes doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege.

HOW THE FUND VALUES ITS SHARES

THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF THE
CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH DAY
THE EXCHANGE IS OPEN. Portfolio securities for which market
quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

selected, all distributions will be reinvested in additional Fund
shares.

The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes. The Fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis. Generally, Fund distributions
are taxable as ordinary income, except that any distributions of
net long-term capital gains will be taxed as such. However,
distributions by the Fund to employer-sponsored defined
contribution plans that qualify for tax-exempt treatment under
federal income tax laws will not be taxable. Special tax rules
apply to investments through such plans. You should consult your
tax adviser to determine the suitability of the Fund as an
investment through such a plan and the tax treatment of
distributions (including distributions of amounts attributable to
an investment in the Fund) from such a plan.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your
tax adviser to determine the precise effect of an investment in
the Fund on your particular tax situation (including possible
liability for state and local taxes).

ABOUT PUTNAM INVESTMENTS, INC.

APPENDIX

THE RATINGS SERVICES' DESCRIPTIONS OF THE FIXED-INCOME SECURITIES
IN WHICH THE FUND MAY INVEST ARE:
MOODY'S INVESTORS SERVICE, INC.:

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.

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

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

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

S & P CORPORATION:
AAA Bonds rated AAA have the highest rating assigned by S &
P . Capacity to pay interest and repay principal is extremely
strong.

AA Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.

D Bonds rated D are in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S & P believes that such payments will be made
during such grace period. The D rating also will be used on the
filing of a bankruptcy petition if debt service payments are
jeopardized.
<PAGE>
PUTNAM ASSET ALLOCATION:
GROWTH PORTFOLIO
CLASS Y SHARES
ONE POST OFFICE SQUARE, BOSTON, MA 02109
PROSPECTUS-- SEPTEMBER 1, 1994

THE FUND IS A SERIES OF PUTNAM ASSET ALLOCATION FUNDS (THE
TRUST), AN INVESTMENT COMPANY OFFERING THREE SEPARATE PORTFOLIOS:
PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO, PUTNAM ASSET
ALLOCATION: BALANCED PORTFOLIO AND PUTNAM ASSET ALLOCATION:
CONSERVATIVE PORTFOLIO. EACH PORTFOLIO IS AN ASSET ALLOCATION
FUND THAT ALLOCATES ITS INVESTMENTS AMONG EQUITIES AND FIXED
INCOME SECURITIES WITHIN PREDEFINED RANGES BASED ON ITS
INVESTMENT OBJECTIVE AND ECONOMIC AND OTHER CONDITIONS. THE FUND
SEEKS CAPITAL APPRECIATION.

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.

PUTNAM INVESTMENTS

Putnam Defined
Contribution Plans
<PAGE>

ABOUT THE FUND

Expenses summary
Objective
How objective is pursued
How performance is shown
How the Fund is managed
Organization and history

ABOUT YOUR INVESTMENT

How to buy shares
How to sell shares
How to exchange shares
How the Fund values its shares
How distributions are made; tax information

ABOUT PUTNAM INVESTMENTS, INC.

APPENDIX FIXED-INCOME SECURITY RATINGS
<PAGE>

ABOUT THE FUND

EXPENSES SUMMARY

ANNUAL FUND OPERATING EXPENSES

(as a percentage of average net assets)

Management Fees (after expense
limitation discussed below) 0.64%
Other Expenses 0.38%
Total Fund Operating Expenses 1.02%
(after expense limitation)

The table is provided to help you understand your share of the
operating expenses attributable to Class Y shares which the Fund
expects to incur during its first fiscal year. The annual
management fees shown in the table reflect an expense limitation
currently in effect. In the absence of the expense limitation,
estimated management fees for the Fund would be 0.70% and
estimated total Fund operating expenses would be 1.08%. Other
expenses are based on estimated amounts for the Fund's first
fiscal year.

EXAMPLE

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

$10 $32

The Example does not represent past or future expense levels.
Actual Fund expenses may be more or less than those shown.
Federal regulations require the Example to assume a 5% annual
return, but actual annual return will vary. The Example does not
reflect any charges or expenses related to your employer's plan.

The Fund also offers other classes of shares. See
"Organization and history" for additional information.
<PAGE>
OBJECTIVE

THE FUND SEEKS CAPITAL APPRECIATION. The Fund is not intended to
be a complete investment program, and there is no assurance that
the Fund will achieve its objective.

HOW OBJECTIVE IS PURSUED

BASIC INVESTMENT STRATEGY

STRATEGIC
ALLOCATION RANGE

Equity Class 80% 65-95%
Fixed Income Class 20% 5-35%

The percentage limitations are applied at the time of purchase.
The Fund may also select other investments that do not fall
within the asset classes listed above.

EQUITY CLASS

FIXED INCOME CLASS

THE FUND WILL INVEST ITS ASSETS ALLOCATED TO THE FIXED INCOME
CLASS IN A DIVERSIFIED PORTFOLIO OF DEBT SECURITIES, INCLUDING
BOTH U.S. AND FOREIGN GOVERNMENT OBLIGATIONS AND CORPORATE
OBLIGATIONS.

The values of fixed income securities generally 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 allocated to the Fixed Income Class.
Conversely, during periods of rising interest rates, the value of
the Fund's assets allocated to such Class will generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Debt securities are subject to
varying degrees of risk of default depending upon, among other
factors, the creditworthiness of the issuer and the ability of
the borrower to meet its obligations.

THE FUND MAY INVEST IN LOWER-RATED FIXED INCOME SECURITIES.
Lower-rated fixed income securities are generally regarded as
those rated below Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation
("S&P") or securities of comparable quality as determined
by Putnam Management. The Fund will not purchase fixed income
securities rated at the time of purchase below Caa by
Moody's or CCC by S&P , or, if unrated, determined by
Putnam Management to be of comparable quality, if, as a result,
more than 5% of the Fund's total assets would be invested in
securities of that quality. Such securities may be in default and
are generally regarded by the rating agencies as having extremely
poor prospects of ever attaining any real investment standing.
The values of lower-rated fixed income securities, commonly known
as "junk bonds," generally fluctuate more than those of higher-
rated fixed income 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
interest and repayments of principal. The rating services'
descriptions of debt securities are included in the Appendix to
this Prospectus. The Fund will not necessarily dispose of a
security when its rating is reduced below its rating at the time
of purchase, although Putnam Management will monitor the
investment to determine whether continued investment in the
security will assist in meeting the Fund's investment objective.

Putnam Management seeks to minimize the risks of investing in
lower-rated securities through investment analysis and attention
to current developments in interest rates and economic
conditions. The lower ratings of certain fixed income securities
held by the Fund reflect a greater possibility that
adverse changes in the financial condition of their issuers, or
in general economic conditions, or both, or an unanticipated rise
in interest rates, may impair the ability of their issuers to
make payments of interest 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 the Fund may as a result
find it more difficult to determine the fair value of such
securities. When the Fund invests in fixed income 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 was investing in fixed income
securities in the higher rating categories. The Fund may at
times invest in so-called "zero-coupon" bonds and "payment-in-
kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount and pay interest only at
maturity rather than at intervals during the life of the
security. 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. The value of zero-coupon bonds 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 other investments in order to
satisfy its distribution requirements.

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 might not be able to reinvest the
proceeds in securities providing the same investment return as
the securities redeemed.

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

RISK FACTORS

INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest up to 40%
of its assets in securities principally traded in foreign
markets. The Fund may also purchase Eurodollar certificates of
deposit without regard to this limit. Foreign investments involve
certain risks not present in domestic securities. Because the
Fund intends to purchase securities that are normally denominated
and traded in foreign currencies, the values of these assets and
any investment income derived from them may be affected favorably
or unfavorably by currency exchange rates and exchange control
regulations. In addition, although a portion of the Fund's
investment income may be received or realized in such foreign
currencies, the Fund will be required to compute and distribute
its income in U.S. dollars, which may subject the Fund to various
risks due to currency fluctuations. For example, if the exchange
rate for any such currency declines after the Fund's income has
been earned and translated into U.S. dollars but before payment,
the Fund could be required to liquidate portfolio securities to
make such distributions. The values of foreign fixed income
securities will fluctuate in response to changes in U.S. and
foreign interest rates. Income received by the Fund from sources
within foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between certain
countries and the United States may reduce or eliminate such
taxes. Any such taxes paid by the Fund will reduce its net income
available for distribution to shareholders. Putnam Management
will consider available yields, net of any required taxes, in
selecting foreign securities.

There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers are not
generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.

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

FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN FOREIGN SECURITIES, SEE THE STATEMENT OF ADDITIONAL
INFORMATION.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Putnam Management may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future exchange rates. Putnam
Management may engage in foreign currency exchange transactions
in connection with the purchase and sale of portfolio securities
("transaction hedging") and to protect the value of specific
portfolio positions ("position hedging").

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.

Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which the Fund's investments may be denominated. The Fund's
ability to engage in hedging transactions may be limited by tax

considerations. The Fund's hedging transactions may affect the
character or amount of the Fund's distributions.

SHORT-TERM TRADING. UNDER CERTAIN MARKET CONDITIONS, THE FUND MAY
SEEK PROFITS BY SHORT-TERM TRADING. The length of time the Fund
has held a particular security is not generally a consideration
in investment decisions. A change in the securities held by the
Fund is known as "portfolio turnover." To the extent short-term
trading strategies are used, the Fund's portfolio turnover rate
may be higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
While it is impossible to predict the Fund's portfolio turnover
rate, Putnam Management, based on its experience, believes that
such rate will not exceed 150%.

DEFENSIVE STRATEGIES

AT TIMES PUTNAM MANAGEMENT MAY JUDGE THAT CONDITIONS IN THE
SECURITIES MARKETS MAKE PURSUING THE FUND'S BASIC INVESTMENT
STRATEGY INCONSISTENT WITH THE BEST INTERESTS OF ITS
SHAREHOLDERS. At such times Putnam Management may temporarily use
alternative strategies, primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these
"defensive" strategies, depending on the circumstances, the Fund
may invest without regard to the ranges described above for
investments in the various asset classes and may invest primarily
in equity securities, debt securities, preferred stocks, U.S.
Government and agency obligations, cash or money market
instruments, or in other securities Putnam Management considers
consistent with such defensive strategies. It is impossible to
predict when, or for how long, the Fund will use such alternative
strategies.

FINANCIAL FUTURES AND OPTIONS

THE FUND MAY BUY AND SELL FINANCIAL FUTURES CONTRACTS ON STOCK
INDEXES, U.S. GOVERNMENT SECURITIES, FOREIGN FIXED INCOME
SECURITIES AND ON FOREIGN CURRENCIES. A futures contract is a
contract to buy or sell units of a particular stock index (an
"Index Future"), or a certain amount of a U.S. Government
security, foreign fixed income security or foreign currency, at
an agreed price on a specified future date. Depending on the
change in value of the index, security or currency between the
time when the Fund enters into and terminates a futures contract,
the Fund realizes a gain or loss. The Fund may purchase and sell
futures contracts for hedging purposes and to adjust the Fund's
exposure to the relevant stock or bond markets. For example, when
Putnam Management wants to increase the Fund's exposure to equity
securities, it may do so by taking long positions in futures
contracts on equity indices such as futures contracts on the
Standard & Poor's 500 Stock Index. Similarly, when Putnam
Management wants to increase the Fund's exposure to fixed income
securities, it may do so by taking long positions in futures
contracts relating to fixed income securities such as futures
contracts on U.S. Treasury bonds or notes. The Fund may buy and
sell call and put options on futures contracts or on stock
indices in addition to or as an alternative to purchasing or
selling futures contracts or, to the extent permitted by
applicable law, to earn additional income.

THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS.
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 contracts and options and movements in the
prices of the underlying stock index, securities, or currencies
or of the securities or currencies which are the subject of the
hedge. The successful use of futures and options further depends
on Putnam Management's ability to forecast market or interest
rate movements correctly. Other risks arise from the Fund's
potential inability to close out its futures or related options
positions, and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a
particular time. The Fund's ability to terminate option positions
established in the over-the-counter market may be more limited
than for exchange-traded options and may also involve the risk
that securities dealers participating in such transactions would
fail to meet their obligations to the Fund. The use of futures or
options on futures for purposes other than hedging is regarded as
speculative.

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

INVESTMENTS IN PREMIUM SECURITIES

The Fund may invest some or all of its assets allocated to the
Fixed Income Class in securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on
maturity. The Fund does not amortize the premium paid for such
securities in calculating its net investment income. As a result,
the purchase of such securities provides the Fund a higher level
of investment income distributable to shareholders on a current
basis than if the Fund had purchased securities bearing current
market rates of interest. Because the value of premium securities
tends to approach the principal amount as they approach maturity
(or call price in the case of securities approaching their first
call date), the purchase of such securities may increase the
Fund's risk of capital loss if such securities are held to
maturity (or first call date).

OTHER INVESTMENT PRACTICES

SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The Fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must be
fully collateralized at all times. The Fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party
should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the
transaction.

LIMITING INVESTMENT RISK

SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM: acquiring more than 10% of the voting securities of any one
issuer* and investing more than: (a) 5% of its total assets
(taken at current value) in securities of any one issuer (other
than the U.S. government or its agencies or instrumentalities or,
with respect to 25% of the Fund's total assets, securities issued
by or backed by the credit of, any foreign government, its
agencies or instrumentalities);* (b) 15% of its net assets in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable);*
(c) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities, or of any
foreign government, its agencies or instrumentalities, securities
of supranational entities, and securities backed by the credit of
a governmental entity are not considered to represent
industries);* (d) 5% of its net assets in warrants or more than
2% of its net assets in warrants not listed on the New York or
American Stock Exchanges; or (e) 15% of its net assets in any
combination of securities that are not readily marketable, in
securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the
Trustees to make such determinations) to be readily marketable),
and in repurchase agreements maturing in more than seven days.

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

HOW PERFORMANCE IS SHOWN

YIELD AND TOTAL RETURN DATA MAY FROM TIME TO TIME BE INCLUDED IN
ADVERTISEMENTS ABOUT CLASS Y SHARES. "Yield" is calculated by
dividing the annualized net investment income per share during a
recent 30-day period by the maximum public offering price per
share on the last day of that period. For this purpose, net
investment income is calculated in accordance with SEC
regulations and may differ from the Fund's 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 Fund's current dividend rate is based on its net
investment income as determined for financial reporting purposes
which may not reflect amortization in the same manner. See "How
objective is pursued Investments in premium securities." The
Fund's yield reflects the deduction of the maximum initial sales
charge. "Total return" for the life of Class Y shares through the
most recent calendar quarter represents the average annual
compounded rate of return on an investment of $1,000 in the Fund.
Total return may also be presented for other periods. Quotations
of yield or total return for any period when an expense
limitation was in effect will be greater than if the limitation
had not been in effect. The Fund's performance may be compared to
various indices. See the Statement of Additional Information.

ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objective and policies. These factors should be
considered when comparing the Fund's investment results to those
of other mutual funds and other investment vehicles.

HOW THE FUND IS MANAGED

other Putnam funds) as a factor in the selection of broker-
dealers.

ORGANIZATION AND HISTORY

The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without shareholder
approval, be divided into two or more series of shares
representing separate investment portfolios and are currently
divided into three series of shares. Any such series of shares
may be further divided without shareholder approval into two or
more classes of shares having such preferences and special or
relative rights and privileges as the Trustees determine. The
Fund currently offers four classes of shares. Only the
Fund's Class Y shares are offered by this Prospectus. The Fund
also offers Class A shares , Class B shares and Class
C shares through participating dealers pursuant to a separate
prospectus. Class A shares, Class B shares and Class
C shares bear the same expenses as Class Y shares and, in
addition, are subject to 12b-1 fees. Class A shares are subject
to a front-end sales charge and Class B shares and Class C
shares are subject to a contingent deferred sales charge. Due
to 12b-1 fees and sales charges, the investment return of Class A
shares, Class B shares and Class C shares will be
lower than the investment return of Class Y shares. Each
share has one vote, with fractional shares voting proportionally.
Shares shall vote in the aggregate as a single class without
regard to series or classes of shares on all matters except, (i)
when required by the Investment Company Act of 1940 or when the
Trustees have determined that the matter affects the interests of
one or more series or classes materially differently, shares will
be voted by individual series or class; and (ii) when the
Trustees have determined that the matter affects only the
interest of one or more series or classes, then only shareholders
of such series or classes shall be entitled to vote thereon.
Shares are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the Fund were liquidated, would
receive the net assets of the Fund. The Fund may suspend the sale
of shares at any time and may refuse any order to purchase
shares. Although the Trust is not required to hold annual
meetings of its shareholders, shareholders holding at least 10%
of the outstanding shares entitled to vote have the right to call
a meeting to elect or remove Trustees, or to take other actions
as provided in the Declaration of Trust.

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

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

(*) are "interested persons" of the Trust, Putnam Management or
Putnam Mutual Funds.

ABOUT YOUR INVESTMENT

HOW TO BUY SHARES

ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
EMPLOYER'S DEFINED CONTRIBUTION PLAN. FOR MORE INFORMATION ABOUT
HOW TO PURCHASE SHARES OF THE FUND THROUGH YOUR EMPLOYER'S PLAN
OR LIMITATIONS ON THE AMOUNT THAT MAY BE PURCHASED, PLEASE
CONSULT YOUR EMPLOYER. Shares are sold to eligible defined
contribution plans at the net asset value per share next
determined after receipt of an order by Putnam Mutual Funds.
Orders must be received by Putnam Mutual Funds before the close
of regular trading on the New York Stock Exchange in order to
receive that day's net asset value. In order to be eligible to
purchase Class Y shares, defined contribution plans must
initially invest at least $250 million in a combination of Putnam
Funds and other investments managed by Putnam Management or its
affiliates. Eligible plans may make additional investments of any
amount at any time. To eliminate the need for safekeeping, the
Fund will not issue certificates for your shares. 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.

HOW TO SELL SHARES

Your plan administrator must send a signed letter of instruction
to Putnam Investor Services. The price you will receive is the
next net asset value calculated after the Fund receives your
request in proper form. All requests must be received by the Fund
prior to the close of regular trading on the New York Stock
Exchange in order to receive that day's net asset value. If you
sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives
must be guaranteed by a bank, broker-dealer or certain other
financial institutions. See the Statement of Additional
Information for more information about where to obtain a
signature guarantee.

THE FUND GENERALLY PROVIDES PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER THE REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend repurchases, or postpone payment for more
than seven days, as permitted by federal securities law. The Fund
will only repurchase shares for which it has received payment.

HOW TO EXCHANGE SHARES

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 the Trustees or Putnam Management
believes doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege.

HOW THE FUND VALUES ITS SHARES

THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF THE
CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH DAY
THE EXCHANGE IS OPEN. Portfolio securities for which market
quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.

HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION

The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes. The Fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis. Generally, Fund distributions
are taxable as ordinary income, except that any distributions of
net long-term capital gains will be taxed as such. However,
distributions by the Fund to employer-sponsored defined
contribution plans that qualify for tax-exempt treatment under
federal income tax laws will not be taxable. Special tax rules
apply to investments through such plans. You should consult your
tax adviser to determine the suitability of the Fund as an
investment through such a plan and the tax treatment of
distributions (including distributions of amounts attributable to
an investment in the Fund) from such a plan.

ABOUT PUTNAM INVESTMENTS, INC.

THE RATINGS SERVICES' DESCRIPTIONS OF THE FIXED-INCOME SECURITIES
IN WHICH THE FUND MAY INVEST ARE:

MOODY'S INVESTORS SERVICE, INC.:

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

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

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

STANDARD & POOR'S CORPORATION:

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

AA Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.

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

<PAGE>
PUTNAM ASSET ALLOCATION FUNDS (THE "TRUST")

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
(EACH REFERRED TO HEREIN AS A "FUND")

FORM N-1A
PART B

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 1 , 1994

This Statement of Additional Information is not a Prospectus and
is only authorized for distribution when accompanied or preceded
by the Prospectus of the Trust dated September 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 the Trust has more than one form of current
Prospectus, each reference to the Prospectus in this Statement
shall include all the Trust'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
the Trust. Part II includes information about the Trust and the
other Putnam funds.

TABLE OF CONTENTS
PART I PAGE

INVESTMENT RESTRICTIONS OF THE TRUST . . . . . . . . . . . . . . . . . .I-3

MONEY MARKET INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . .I-6

FUND CHARGES AND EXPENSES.. . . . . . . . . . . . . . . . . . . . . . . .I-6

ADDITIONAL OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . . . . .I-7

INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .I-8

<PAGE>
PART II

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

TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-23

MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . . . . . . . . . .II-28

DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . . . . . . . . . .II-37

HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . .II-39

DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
INVESTOR SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . .II-50

SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . . . . . . . . . . .II-57

SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . .II-57

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

STANDARD PERFORMANCE MEASURES . . . . . . . . . . . . . . . . . . . . .II-58

COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . . . . . . . . . . .II-59

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-64
<PAGE>
PUTNAM ASSET ALLOCATION FUNDS

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO

STATEMENT OF ADDITIONAL INFORMATION
PART I

INVESTMENT RESTRICTIONS OF THE TRUST

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

(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. (The deposit of underlying securities and other assets in
escrow and collateral arrangements with respect to margin for
futures contracts and options is not deemed to be a pledge or
other encumbrance.)

(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 futures contracts and options.

(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.
<PAGE>
(6) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities which
represent interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.

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

(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)
or through the lending of its portfolio securities with respect
to not more than 25% of its assets.

(9) Invest in securities of any issuer if, to the knowledge
of the Trust, officers and Trustees of the Trust and officers and
directors of Putnam Management who beneficially own more than
0.5% of the 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
securities of the U.S. government or its agencies or
instrumentalities or, with respect to 25% of the Fund's total
assets, to securities issued by, or backed by the credit of, any
foreign government, its agencies, or instrumentalities.

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

(12) Purchase securities if, as a result of such purchase,
more than 25% of the Fund's total assets would be invested in any
one industry. (Securities of the U.S. government, its agencies
or instrumentalities, or of any foreign government, its agencies
or instrumentalities, securities of supranational entities, and
securities backed by the credit of a governmental entity are not
considered to represent industries.)

(13) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, although it may purchase securities of issuers
which deal in, represent interests in, or are secured by
interests in such leases, rights, or contracts, and it may
acquire or dispose of such leases, rights, or contracts acquired
through the exercise of its rights as a holder of debt
obligations secured thereby.

(14) 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 Trust (or the person designated
by them to make such determinations) to be readily marketable.

(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.

AS A POLICY, WHICH MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL,
THE TRUST MAY NOT AND WILL NOT WITH RESPECT TO A FUND:

(1) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted
as to resale (excluding securities determined by the Trustees of
the Trust (or the person designated by the Trustees of the Trust
to make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a
result, more than 15% of the 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 a part of a unit or attached to securities at the time of
purchase) if, as a result, such investments (valued at the lower
of cost or market) would exceed 5% of the value of the Fund's net
assets; provided that not more than 2% of the Fund's net assets
may be invested in warrants not listed on the New York or
American Stock Exchanges.

(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 total assets; provided,
however, that this restriction shall not apply to any obligation
of the United States or its agencies or instrumentalities.

(4) Invest in the securities of other open-end registered
investment companies, except by purchase in the open market
including only customary brokers' commissions, and except as they
may be acquired as part of a merger or consolidation or
acquisition of assets.

(5) Purchase or sell real property (including limited
partnership interests), except that the Fund may (a) purchase or
sell readily marketable interests in real estate investment
trusts or readily marketable securities of companies which invest
in real estate, (b) purchase or sell securities that are secured
by interests in real estate or interests therein, or (c) acquire
real estate through exercise of its rights as a holder of
obligations secured by real estate or interests therein or sell
real estate so acquired.

Although certain of the Trust's fundamental investment
restrictions permit the Trust to borrow money and to invest in
other open-end registered investment companies to a limited
extent, the Trust does not currently intend to do so.

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

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 a Fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of that Fund, or (2) 67% or more of the shares
of that Fund present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by
proxy.

MONEY MARKET INSTRUMENTS

The Funds may invest in high quality money market
instruments, which are securities rated at the time of
acquisition in one of the two highest categories by at least two
nationally recognized rating services (or if only one rating
service has rated the security, by that service) or if the
security is unrated, judged to be of equivalent quality by Putnam
Management.

FUND CHARGES AND EXPENSES

Under a Management Contract dated November 8, 1993, the Trust
pays a quarterly fee to Putnam Management based on the average
net assets of each Fund, as determined at the close of each
business day during the quarter, at an annual rate of 0.70% of
the first $500 million of the average net asset value of the
Fund, 0.60% of the next $500 million, 0.55% of the next $500
million and 0.50% of any excess over $1.5 billion.

EXPENSE LIMITATION. In order to limit each Fund's expenses
during its start-up period, Putnam Management has agreed to
reduce its compensation (and, to the extent necessary, absorb
other expenses of each Fund) until December 31, 1994, to the
extent that expenses of each Fund (exclusive of brokerage,
interest, taxes, deferred organizational and extraordinary
expenses, and payments under the Trust's Distribution Plans)
exceed an annual rate of 1.00% of the Funds' average net
assets. For the purpose of determining any such reduction in
Putnam Management's compensation, expenses of each Fund shall not
reflect the application of commissions or cash management credits
that may reduce designated Fund expenses. With Trustee approval,
this expense limitation may be terminated earlier, in which event
shareholders would be notified and this Statement of Additional
Information would be revised.

TRUSTEE FEES

Each Trustee of the Trust receives an annual fee of $300
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.

BROKERAGE

The Trust shall not effect any brokerage transactions in its
portfolio securities with any broker-dealer affiliated directly
or indirectly with its investment adviser or manager, unless the
transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith, and the selection of
the affiliated broker-dealer effecting the transactions, are not
unfair or unreasonable to the shareholders of the Trust.

OWNERSHIP OF FUND SHARES

At May 31, 1994, the officers and Trustees of the Funds as a
group owned less that 1% of the outstanding shares of the Funds,
and to the knowledge of the Funds no person owned of record
or beneficially 5% or more of the shares of the
Funds, except Putnam Investments, Inc owned 14.9%, 10.1%
and 7.5%, respectively, of the outstanding Class A shares of the
Conservative, Growth and Balanced Portfolios, respectively.

ADDITIONAL OFFICERS OF THE TRUST

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

PETER CARMAN, Vice President. Senior Managing Director of
Putnam Management. Prior to August 1, 1993, Mr. Carman was Chief
Investment Officer, Chairman of the U.S. Equity Investment Policy
Committee and a Director of Sanford C. Bernstein & Company, Inc.
Vice President of certain of the Putnam funds.
<PAGE>
GARY N. COBURN, Vice President. Senior Managing Director of
Putnam Management. Director, Putnam Investments, Inc. Vice
President of certain of the Putnam funds.

INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS

Price Waterhouse are the Funds' independent accountants,
providing audit services, tax return review and other tax
consulting services and assistance and consultation in connection
with the review of various Securities and Exchange Commission
filings. The Report of Independent Accountants and financial
statements included in the Funds' Semiannual Report for the
period ended March 31, 1994, filed electronically on June 8, 1994
(811-7121), are incorporated by reference into this Statement of
Additional Information. Financial highlights in the Prospectuses
and the financial statements incorporated by reference into the
Prospectuses and the Statement of Additional Information have
been so included and incorporated in reliance upon the report of
the independent accountants, given on their authority as experts
in auditing and accounting.
<PAGE>
<PAGE>

TABLE OF CONTENTS

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

TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-23

MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . . . . . . .II-28

DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . . . . . . .II-37

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

DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . . . .II-50

INVESTOR SERVICES . . . . . . . . . . . . . . . . . . . . . . . .II-51

SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . . . . . . . .II-57

SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . . . . . . . .II-57

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

STANDARD PERFORMANCE MEASURES . . . . . . . . . . . . . . . . . .II-58

COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . . . . . . . .II-59

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .II-64

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

INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES

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

SECURITIES LOANS

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

FORWARD COMMITMENTS

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

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

REPURCHASE AGREEMENTS

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

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

OPTIONS ON SECURITIES

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

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

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

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

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

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

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

RISK FACTORS IN OPTIONS TRANSACTIONS

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

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

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

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

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

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

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

OVER-THE-COUNTER OPTIONS

The Staff of the Division of Investment Management of the
Securities and Exchange Commission has taken the position that
over-the-counter ("OTC") options purchased by the Fund and assets
held to cover OTC options written by the Fund are illiquid
securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments,
the Fund intends to enter into OTC options transactions only with
primary dealers in U.S. Government Securities and, in the case of
OTC options written by the Fund, only pursuant to agreements that
will assure that the Fund will at all times have the right to
repurchase the option written by it from the dealer at a
specified formula price. The Fund will treat the amount by which
such formula price exceeds the amount, if any, by which the
option may be "in-the-money" as an illiquid investment. It is
the present policy of the Fund not to enter into any OTC option
transaction if, as a result, more than 15% of the Fund's net
assets would be invested in (i) illiquid investments (determined
under the foregoing formula) relating to OTC options written by
the Fund, (ii) OTC options purchased by the Fund, (iii)
securities which are not readily marketable, and (iv) repurchase
agreements maturing in more than seven days.

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

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 and forward
contracts) 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 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. If the Fund intends to be qualified to pay
exempt-interest dividends, the Fund may be limited in its ability
to engage in such taxable transactions as 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, 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.

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
currency-denominated debt securities, certain foreign currency
options, futures contracts, and forward contracts 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, 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. 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 Investment Management, Inc. 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 Fisher Price, Inc., IDEXX,
M/A-COM, Inc., EG&G, Inc. and Sun Company, Inc.

JAMESON A. BAXTER, Trustee. President, Baxter Associates,
Inc. (consultants to management). Director of Banta Corporation,
Avondale Federal Savings Bank and ASHTA Chemicals, Inc. 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, NYNEX Corporation, Northeast Utilities and
the Kentucky Home Life Insurance Companies and Trustee of the
University of Notre Dame.

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

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

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

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

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

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

W. NICHOLAS THORNDIKE, Trustee. Director of various
corporations and charitable organizations, including Providence
Journal Co. and Courier Corporation. 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.

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

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

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

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

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

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

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

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

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

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

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

PUTNAM MANAGEMENT

Putnam Management is one of America's oldest and largest
money management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the Fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $64 billion in assets
in nearly 3.5 million shareholder accounts at December 31, 1993.
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, 1993, Putnam Management and its affiliates managed
nearly $91 billion in assets, including over $17 billion in tax
exempt securities and nearly $31 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.
<PAGE>
The Management Contract provides that Putnam Management
shall not be subject to any liability to the Fund or to any
shareholder of the Fund for any act or omission in the course of
or connected with rendering services to the Fund in the absence
of willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties on the part of Putnam Management.

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

PORTFOLIO TRANSACTIONS

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

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

It has for many years been a common practice in the
investment advisory business for advisers of investment companies
and other institutional investors to receive brokerage and
research services (as defined in the Securities Exchange Act of
1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers
and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management
receives brokerage and research services and other similar
services from many broker-dealers with which Putnam Management
places the Fund's portfolio transactions and from third parties
with which these broker-dealers have arrangements. These
services include such matters as general economic and market
reviews, industry and company reviews, evaluations of
investments, recommendations as to the purchase and sale of
investments, newspapers, magazines, pricing services, quotation
services, news services and personal computers utilized by Putnam
Management's managers and analysts. Where the services referred
to above are not used exclusively by Putnam Management for
research purposes, Putnam Management, based upon its own
allocations of expected use, bears that portion of the cost of
these services which directly relates to their non-research use.
Some of these services are of value to Putnam Management and its
affiliates in advising various of their clients (including the
Fund), although not all of these services are necessarily useful
and of value in managing the Fund. The management fee paid by
the Fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management
might otherwise be required to purchase some of these services
for cash.
<PAGE>
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
earned the DALBAR Quality Tested Service Seal in 1990, 1991 and
1992. 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 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.
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, or 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 a 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 (both at the time of purchase and at the time of
valuation), 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 are sold with a sales charge payable at the
time of purchase (except for Class A 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 may be exempt from a sales charge or may be subject to a
contingent deferred sales charge. See "General--Sales without
sales charges or contingent deferred sales charges", "Additional
Information About Class A Shares", and "Contingent Deferred Sales
Charges--Class A shares".

Class B shares are sold subject to a contingent deferred
sales charge payable upon redemption within a specified period
after purchase. The Prospectus contains a table of applicable
contingent deferred sales charges.

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 contingent deferred sales
charges.

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, 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 as described below, 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. Distributions for Putnam Tax Exempt Income Fund,
Putnam Arizona Tax Exempt Income Fund, Putnam California Tax
Exempt Income Fund, Putnam Municipal Income Fund, Putnam Florida
Tax Exempt Income Fund, Putnam Massachusetts Tax Exempt Income
Fund II, Putnam Michigan Tax Exempt Income Fund II, Putnam
Minnesota Tax Exempt Income Fund II, Putnam New Jersey Tax Exempt
Income Fund, Putnam New York Tax Exempt Income Fund, Putnam New
York Tax Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income
Fund II, Putnam Pennsylvania Tax Exempt Income Fund and Putnam
Texas Tax Exempt Income Fund 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. 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.
Dividends for Putnam money market funds 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 Europe Growth Fund, Putnam
Overseas Growth Fund, Putnam Intermediate Tax Exempt Fund and
Putnam Diversified Equity Trust, transactions involving the
issuance of Fund shares for securities or assets other than cash
will be limited to a bona-fide re-organization or statutory
merger and to other acquisitions of portfolio securities that
meet all the following conditions: (a) such securities meet the
investment objectives and policies of the Fund; (b) such
securities are acquired for investment and not for resale; (c)
such securities are liquid securities which are not restricted as
to transfer either by law or liquidity of market; and (d) such
securities have a value which is readily ascertainable, as
evidenced by a listing on the American Stock Exchange, the New
York Stock Exchange or NASDAQ. In addition, Putnam Global
Governmental Income Trust may accept only investment grade bonds
with prices regularly stated in publications generally accepted
by investors, such as the London Financial Times and the
Association of International Bond Dealers manual, or securities
listed on the New York or American Stock Exchanges or with
NASDAQ, and Putnam Diversified Income Trust may accept only bonds
with prices regularly stated in publications generally accepted
by investors. For federal income tax purposes, a purchase of
Fund shares with securities will be treated as a sale or exchange
of such securities on which the investor will realize a taxable
gain or loss. The processing of a purchase of Fund shares with
securities involves certain delays while the Fund considers the
suitability of such securities and while other requirements are
satisfied. For information regarding procedures for payment in
securities, contact Putnam Mutual Funds. Investors should not
send securities to the Fund except when authorized to do so and
in accordance with specific instructions received from Putnam
Mutual Funds.

SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES
CHARGES. The Fund may sell shares without a sales charge or
contingent deferred sales charge 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 or more 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.
<PAGE>
ADDITIONAL INFORMATION ABOUT CLASS A SHARES

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

Putnam Mutual Funds offers several plans by which an
investor may obtain reduced sales charges on purchases of Class A
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 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 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 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 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
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. 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
contingent deferred sales charge ("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 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
(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 SHARES. Investors who set up a Systematic
Withdrawal Plan (SWP) for a Class B share account (see "Plans
Available To Shareholders -- Automatic Cash Withdrawal Plan") may
withdraw through the SWP 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 SWP and
recalculated thereafter on a pro rata basis at the time of each
SWP payment. Therefore, shareholders who have chosen a SWP based
on a percentage of the net asset value of their account of up to
12% will be able to receive SWP 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 SWP 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 SWP
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 no longer subject to a CDSC and CDSC Shares representing
reinvestment of distributions 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

CLASS A SHARES

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

CLASS B SHARES

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

ALL SHARES

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

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

EXCHANGE PRIVILEGE

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

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

Shares of the Fund must be held at least 15 days by the
shareholder desiring 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 desiring 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 cost. 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 contingent deferred sales charge 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 contingent deferred sales charge) 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 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 contingent deferred sales charge, 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 and net asset value for other classes of shares on
the last day of the base period. The result is annualized on a
compounding basis to determine the yield. For this calculation,
interest earned on debt obligations held by the Fund is generally
calculated using the yield to maturity (or first expected call
date) of such obligations based on their market values (or, in
the case of receivables-backed securities such as GNMA's, based
on cost). Dividends on equity securities are accrued daily at
their stated dividend rates.

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

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

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

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

COMPARISON OF PORTFOLIO PERFORMANCE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DEFINITIONS

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

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

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

"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the Fund's
investor servicing agent.
<PAGE>
PUTNAM ASSET ALLOCATION FUNDS

FORM N-1A
PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Index to Financial Statements and Supporting
Schedules:

(1) Financial Statements:

Statements of assets and liabilities --
March 31, 1994 (a).
Statement of operations --
period ended March 31, 1994 (a).
Statement of changes in net assets --
period ended March 31, 1994 (a).
Financial highlights (a) (b).
Notes to financial statement (a) .

(2) Supporting Schedules:

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

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

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

(B) EXHIBITS:

1. Amended and Restated Agreement and
Declaration of Trust dated December 2, 1993-
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
2. By-Laws -- Incorporated by reference to
Registrant's Initial Registration Statement.
3. Not applicable.
4a. Class A Specimen share certificates --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.<PAGE>

4b. Class B Specimen share certificates --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
4c. Class C Specimen share certificiates --
Exhibit 1 .
4c. Portions of Agreement and Declaration of
Trust Relating to Shareholders' Rights --
Incorporated by reference to Registrant's
Initial Registration Statement.
4d. Portions of By-Laws Relating to Shareholders'
Rights -- Incorporated by reference to
Registrant's Initial Registration Statement.
5. Copy of Management Contract dated November 8,
1993 -- Incorporated by reference to
Registrant's Initial Registration Statement.
6a. Form of Distributor's Contract
dated September , 1994-- Exhibit 2.
6b. Copy of Specimen Dealer Sales Contract --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
6c. Copy of Specimen Financial Institution
Sales Contract -- Incorporated by
reference to Pre-Effective Amendment No.
1 to the Registrant's Registration
Statement.
7. Not applicable.
8. Copy of Custodian Agreement with Putnam
Fiduciary Trust Company dated May 3, 1991 as
amended July 13, 1992 -- Incorporated by
reference to Registrant's Initial
Registration Statement.
9. Copy of Investor Servicing Agreement dated
June 3, 1991 with Putnam Fiduciary Trust
Company -- Incorporated by reference to
Registrant's Initial Registration Statement.
10. Opinion of Ropes & Gray, including consent --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investments,
Inc. to the Registrant -- Incorporated by
reference to Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement .
14a. Copy of Prototype Individual Retirement
Account Plan -- Incorporated by reference to
Registrant's Initial Registration Statement.<PAGE>

14b. Copy of Prototype Basic Plan Document and
related Plan Agreements -- Incorporated by
reference to Registrant's Initial
Registration Statement.
15a. Copy of Class A Distribution Plan and
Agreement dated November 8, 1993 --
Incorporated by reference to Registrant's
Initial Registration Statement.
15b. Copy of Class B Distribution Plan and
Agreement dated November 8, 1993 --
Incorporated by reference to Registrant's Initial
Registration Statement.
15c. Form of Class C Distribution Plan and
Agreement dated September , 1994 --
Exhibit 3.
15c. Copy of Specimen Dealer Service Agreement --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
15d. Copy of Specimen Financial Institution
Service Agreement -- Incorporated by
reference to Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement.
16. Not applicable.

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

None.

<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES

As of May 31, 1994 there were 1,857, 1729 and 643
holders, respectively, of Class A shares of beneficial interest
of the Growth Fund, Balanced Fund and Conservative Fund,
respectively, and 2,144, 2,403 and 940 holders, respectively, of
Class B shares of the Growth Fund, Balanced Fund and Conservative
Fund, respectively. No Class Y shares or Class C shares were
outstanding at May 31, 1994 .

ITEM 27. INDEMNIFICATION

The information required by this item is
incorporated herein by reference from the Registrant's
Registration Statement on Form N-1A under the Investment Company
Act of 1940 (File No. 811-7121) <PAGE>
<PAGE>

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

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

NAME NON-PUTNAM BUSINESS AND OTHER
CONNECTIONS

Christopher J. Ainley Prior to March, 1992, Vice President,
Vice President J.P. Morgan Investment Management,
522 Fifth Avenue, New York, NY 10021

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

Dolores Snyder Bamford Prior to June, 1992, Research
Assistant Vice President Associate, Fidelity Investments, 82
Devonshire St., Boston, MA 02109

Charles L. Beach Prior to May, 1992, Senior Analyst,
Assistant Vice President Dean Witter Investment Banking,
One Financial Center,
Boston, MA 02110

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

Kathleen M. Brant Prior to June, 1992, Global Bond
Vice President Trader, Fidelity Investments,
82 Devonshire St., Boston, MA 02109

Leslie J. Burke Prior to February, 1992, Research
Assistant Vice President Associate, Fidelity Investments, 82
Devonshire St., Boston, MA 02109

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

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

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

Kenneth L. Daly Prior to September, 1993, Vice
Senior Vice President President, Fidelity Investments,
82 Devonshire St., Boston, MA 02109

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

Joseph F. Feeney, Jr. Prior to June, 1992, Assistant
Assistant Vice President Vice President, Bank of Boston,
100 Federal St., Boston, MA 02110

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

Judy P. Frodigh Prior to June, 1992, Manager, Human
Vice President Resources, Massachusetts Financial
Services, Inc., 500 Boylston St.,
Boston, MA 02110

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

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

Corey A. Griffin Prior to June, 1992, Vice President,
Assistant Vice President Coldwell Banker Commercial Real
Estate
Services, 70-80 Lincoln St.,
Boston,
MA 02111

<PAGE>
Daniel J. Grim Prior to May 1993, Consultant,
Vice President Connie
Lee, 2445 M Street N.W.,
Washington, D.C. 20037;
Chief Operating Officer, Boardwalk,
Inc., Minocqua, WI 54548

Billy P. Han Prior to December, 1992, Vice
Assistant Vice President President, Scudder, Stevens & Clark,
Inc., 160 Federal Street, Boston, MA
02110

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

David J. Jallits Prior to August, 1992, Vice President,
Vice President Citibank Corp., 55 Water Street,
New York, NY 10043

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

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

Ami T. Kuan Prior to June, 1992, Equity Analyst,
Assistant Vice President Fidelity Investments, 82 Devonshire
St., Boston, MA 02109

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

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

Frederick S. Marius Prior to September, 1992, Associate

Assistant Vice President Attorney at Skadden Arps, One
Associate Counsel Beacon St., Boston, MA 02109
<PAGE>
Andrew S. Matteis Prior to March, 1993, Vice President,
Vice President Fitch Investors Service, One
State Street Plaza, New York
NY 10004

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

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

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

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

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

George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.
Director, The Boston Company, Inc.,
One Boston Place, Boston, MA 02108
Director, Boston Safe Deposit and
Trust Company, One Boston Place,
Boston, MA 02108
Director, Freeport-McMoRan, Inc., 200
Park Avenue, New York, NY 10166
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis,
MN 55440
Director, Houghton Mifflin Company,
One Beacon Street, Boston, MA 02108
Director, Marsh & McLennan Companies,
Inc., 1221 Avenue of the Americas,
New York, NY 10020
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas,
New York, NY 10020
<PAGE>
Christopher A. Ray Prior to January, 1993, Vice President
Vice President and Portfolio Manager at Scudder,
Stevens & Clark, Inc., 160 Federal
Street, Boston, MA 02110

Charles A. Ruys de Perez Prior to August, 1992, Associate,
Vice President and Debevoise and Plimpton,
Senior Counsel 875 Third Ave., New York, NY 19022

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

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

Harlan R. Sonderling Prior to March, 1992, Vice President,
Vice President Mutual of America Life Insurance
Company, 666 Fifth Avenue, New
York, NY 10103

Douglas T. Terreson Prior to October, 1992, Investment
Vice President Analyst, Sunbank Capital Management,
200 South Orange Avenue, Orlando,
FL, 32802

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

F. Mark Turner Prior to November, 1992, Managing
Managing Director Director, Scudder, Stevens & Clark,
160 Federal St., Boston, MA 02110

Thomas M. Turpin Prior to March, 1993, Vice President
Senior Vice President The Boston Company, One Boston
Place, Boston, MA 02108

John D. Weber Prior to June, 1992, Associate,
Assistant Vice President Citicorp Venture Capital, Ltd.
399 Park Avenue, New York, NY 10043

<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER

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

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

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

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

Mr. Anwar 25-49 86th Street, Jackson Heights, NY 11369
Mr. Bartlett, 1946 Westholme Avenue, Los Angeles, CA 90025
Mr. Besher, 8141 S. 77th East Ave., Tulsa, OK 74133
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brogan, 1601-Q Bridge Mill Road, Marietta, GA 30067
Ms. Buckner, 235 Walton Street, Englewood, NJ 07631
Mr. Burke, 2333 Stormcroft Court, Westlake Village, CA 91361
Mr. Busher, 12005 Ridge Knoll Drive, Fairfax, VA 22033
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 208 Water St., Newburyport, MA 01950
Mr. Edlin, 7 River Road, 305 Palmer Point, Cos Cob, CT 06807
Mr. English, 1184 Pintail Circle, Boulder, CO 80303
Mr. Goodman, 14 Clover Place, Cos Cob, CT 06807
Mr. Halloran, 19449 Misty Lake Drive, Strongsville, OH 44136
Mr. Hyde, 3305 Sulky, Marietta, GA 30067
Mr. Jacobsen, 3 Sylvan Court, Pompton Plains, NJ 07444
Ms. Kirk, 124 Rivermist Dr., Buffalo, NY 14202
Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010
Mr. Lewandowski, Jr., 2120 The Strand, Manhattan Beach, CA 90266
Mr. McFarland, P.O. Box 4189, Chesterfield, MO 63006
Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 528 Plum Street, Syracuse, NY 13024
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. Nickodemus, 1232 B Louden St., Cincinnati, OH 45202
Mr. Nyhus, 7203 Oak Pointe Curve, Bloomington, MN 55438
Mr. O'Fee, 1012 Vista Del Mar Drive, Delray Beach, FL 33483
Mr. Padgett, Jr., 7709 Charleston Drive, Bethesda, MD 20817
Mr. Papes, 1127 Olive Lake Drive, St. Louis, MO 63132
Mr. Pataccoli, 125 41st Street, Manhattan Beach, Ca 90266
Mr. Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093
Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075
Mr. Powell, 2823 34th Avenue West, Seattle, WA 98199
Mr. D. Rowe 2309 Woodmont Circle, Heath, TX 75087
Mr. R. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 3535 East Coast Highway, Corona Del Mar, CA 92625
Mr. Rowley, 10061 S. Wood, Chicago, IL 60643
Ms. Saunders, 6400 Christie Avenue, Emeryville, CA 94608
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Sheehan, Parkway Center, 1150 Galapago, Denver, CO 80204
Mr. Shore, 1100 Charlotte, Austin, TX 78203
Mr. B. Sullivan, 777 Pinoake Road, Mt. Lebanon, PA 15243
Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574
Ms. Sweeney, 8 Surf Street, Marblehead, MA 01945
Mr. Syring, 7540 Mandarian Dr., Boca Raton, FL 33433
Mr. Telling, 329 Belt Avenue, St. Louis, MO 63112
Mr. Unger, 212 E. Broadway, Suite 903, New York, NY 10002
Mr. Vessels, 7 Riverview Drive, Norwalk, CT 06850
Mr. Williamson, 32 Kramer Place, Mandeville, LA 70448
Mr. White, 23 Wellington St., Arlington, MA 02174
Mr. Woloshin, 730 North Bundy Drive, Los Angeles, CA 90049
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

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

ITEM 31. MANAGEMENT SERVICES

None.

ITEM 32. UNDERTAKINGS

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

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference
in the Prospectuses and Statement of Additional
Information constituting parts of this Registration
Statement on Form N-1A (File No. 33-51017) of our report dated
May 18, 1994 , relating to the financial statements
and financial highlights appearing in the March 31, 1994
Semiannual Report of each series constituting Putnam Asset
Allocation Funds, which financial statements and financial
highlights are also incorporated by references into the
Registration Statement . We also consent to the
references to us under the heading "Independent
Accountants and Financial Statements " in such Statement of
Additional Information and under the heading "Financial
highlights" in such Prospectuses .

Price Waterhouse
June 29, 1994
Boston, Massachusetts

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

NOTICE

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

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston, and The Commonwealth of Massachusetts, on the
29th day of June, 1994 .

Putnam Asset Allocation Funds

By: Gordon H. Silver, Vice President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement of Putnam Asset
Allocation Fund has been signed below by the following persons in
the capacities and on the dates indicated:

SIGNATURE TITLE

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

William F. Pounds Vice Chairman; Trustee

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

Paul G. Bucuvalas Assistant Treasurer and
Principal Accounting Officer

Jameson A. Baxter Trustee

Hans H. Estin Trustee

John A. Hill Trustee

Elizabeth T. Kennan Trustee

Lawrence J. Lasser Trustee

Robert E. Patterson Trustee

Donald S. Perkins Trustee

George Putnam, III Trustee

A.J.C. Smith Trustee

W. Nicholas Thorndike Trustee

By: Gordon H. Silver, as
Attorney-in-Fact
June 29, 1994

PUTNAM ASSET ALLOCATION FUNDS
A Massachusetts Business Trust

PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
Class C Shares

Trust Certificate

Account No. Certificate No. Shares

CUSIP 746444 87 6
THIS CERTIFIES THAT

is the owner of Class C shares of
beneficial interest in Putnam Asset Allocation Funds: Balanced
Portfolio, fully paid and nonassessable, the said shares being
issued, received and held under and subject to the terms and
provisions of the Agreement and Declaration of Trust dated as of
November 4, 1993, establishing the Trust, and all amendments
thereto, copies of which are on file with the Secretary of State
of The Commonwealth of Massachusetts. The said owner by
accepting this certificate agrees to and is bound by all of the
said terms and provisions. The shares represented hereby are
transferable in writing by the owner thereof in person or by
attorney upon surrender of this certificate to the Trustees
properly endorsed for transfer. This certificate is executed on
behalf of the Trustees as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Putnam Asset Allocation: Balanced Portfolio.
This certificate is not valid unless countersigned by the
Investor Servicing Agent.

In Witness Whereof the Trustees of Putnam Asset Allocation
Funds have caused the following facsimile signatures to be
affixed to this certificate.

Dated: COUNTERSIGNED:

PUTNAM INVESTOR SERVICES
a division of Putnam Fiduciary
Trust Company
INVESTOR SERVICING AGENT

FOR THE TRUSTEES AUTHORIZED SIGNATURE

<PAGE>

PUTNAM ASSET ALLOCATION FUNDS
A Massachusetts Business Trust

PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
Class C Shares

Trust Certificate

Account No. Certificate No. Shares

CUSIP 746444 85 0
THIS CERTIFIES THAT

is the owner of Class C shares of
beneficial interest in Putnam Asset Allocation Funds: Growth
Portfolio, fully paid and nonassessable, the said shares being
issued, received and held under and subject to the terms and
provisions of the Agreement and Declaration of Trust dated as of
November 4, 1993, establishing the Trust, and all amendments
thereto, copies of which are on file with the Secretary of State
of The Commonwealth of Massachusetts. The said owner by
accepting this certificate agrees to and is bound by all of the
said terms and provisions. The shares represented hereby are
transferable in writing by the owner thereof in person or by
attorney upon surrender of this certificate to the Trustees
properly endorsed for transfer. This certificate is executed on
behalf of the Trustees as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Putnam Asset Allocation: Growth Portfolio.
This certificate is not valid unless countersigned by the
Investor Servicing Agent.

In Witness Whereof the Trustees of Putnam Asset Allocation
Funds have caused the following facsimile signatures to be
affixed to this certificate.

Dated: COUNTERSIGNED:

PUTNAM INVESTOR SERVICES
a division of Putnam Fiduciary
Trust Company
INVESTOR SERVICING AGENT

FOR THE TRUSTEES AUTHORIZED SIGNATURE

<PAGE>
PUTNAM ASSET ALLOCATION FUNDS
A Massachusetts Business Trust

PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
Class C Shares

Trust Certificate

Account No. Certificate No. Shares

CUSIP 746444 86 8
THIS CERTIFIES THAT

is the owner of Class C shares of
beneficial interest in Putnam Asset Allocation Funds:
Conservative Portfolio, fully paid and nonassessable, the said
shares being issued, received and held under and subject to the
terms and provisions of the Agreement and Declaration of Trust
dated as of November 4, 1993, establishing the Trust, and all
amendments thereto, copies of which are on file with the
Secretary of State of The Commonwealth of Massachusetts. The
said owner by accepting this certificate agrees to and is bound
by all of the said terms and provisions. The shares represented
hereby are transferable in writing by the owner thereof in person
or by attorney upon surrender of this certificate to the Trustees
properly endorsed for transfer. This certificate is executed on
behalf of the Trustees as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Putnam Asset Allocation: Conservative
Portfolio. This certificate is not valid unless countersigned by
the Investor Servicing Agent.

In Witness Whereof the Trustees of Putnam Asset Allocation
Funds have caused the following facsimile signatures to be
affixed to this certificate.

Dated: COUNTERSIGNED:

PUTNAM INVESTOR SERVICES
a division of Putnam Fiduciary
Trust Company
INVESTOR SERVICING AGENT

FOR THE TRUSTEES AUTHORIZED SIGNATURE

PUTNAM ASSET ALLOCATION FUNDS
FORM OF
DISTRIBUTOR'S CONTRACT

Distributor's Contract dated September, 1994, by and between
PUTNAM ASSET ALLOCATION FUNDS, a Massachusetts business trust
(the "Funds"), and PUTNAM MUTUAL FUNDS CORP., a Massachusetts
corporation ("Putnam").

WHEREAS, the Funds and Putnam are desirous of entering into
this agreement to provide for the distribution by Putnam of
shares of the Funds;

NOW, THEREFORE, in consideration of the mutual agreements
contained in the Terms and Conditions of Distributor's Contract
attached to and forming a part of this Contract (the "Terms and
Conditions"), the Funds hereby appoints Putnam as a distributor
of shares of the Funds, and Putnam hereby accepts such
appointment, all as set forth in the Terms and Conditions.

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

IN WITNESS WHEREOF, PUTNAM ASSET ALLOCATION FUNDS and PUTNAM
MUTUAL FUNDS CORP. have each caused this Distributor's Contract
to be signed in duplicate in its behalf, all as of the day and
year first above written.

PUTNAM ASSET ALLOCATION FUNDS

By: -----------------------------
Executive Vice President

PUTNAM MUTUAL FUNDS CORP.

By: -----------------------------
President<PAGE>

TERMS AND CONDITIONS
OF
DISTRIBUTOR'S CONTRACT

1. RESERVATION OF RIGHT NOT TO SELL. The Funds reserves the
right to refuse at any time or times to sell any of its shares of
beneficial interest ("shares") hereunder for any reason deemed
adequate by it.

2. PAYMENTS TO PUTNAM. In connection with the distribution of
shares of the Funds, Putnam will be entitled to receive: (a)
payments pursuant to any Distribution Plan and Agreement from
time to time in effect between the Funds and Putnam with respect
to the Funds or any particular class of shares of the Funds, (b)
any contingent deferred sales charges applicable to the
redemption of shares of the Funds or of any particular class of
shares of the Funds, determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of the Funds and (c) subject to the provisions of Section 3
below, any front-end sales charges applicable to the sale of
shares of the Funds or of any particular class of shares of the
Funds, less any applicable dealer discount.

3. SALES OF SHARES TO PUTNAM AND SALES BY PUTNAM. Putnam will
have the right, as principal, to sell shares of the Funds to
investment dealers against orders therefor (a) at the public
offering price (calculated as described below) less a discount
determined by Putnam, which discount shall not exceed the amount
of the sales charge referred to below, or (b) at net asset value.
Upon receipt of an order to purchase Funds shares from an
investment dealer with whom Putnam has a Sales Contract, Putnam
will promptly purchase shares from the Funds to fill such order.
The public offering price of a class of shares shall be the net
asset value of such shares then in effect, plus any applicable
front-end sales charge determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of the Funds or as permitted by the Investment Company Act of
1940, as amended, and the Rules and Regulations of the Securities
and Exchange Commission promulgated thereunder. In no event
shall the public offering price exceed 1000/915ths of such net
asset value, and in no event shall any applicable sales charge
exceed 8 1/2% of the public offering price. The net asset value
of the shares shall be determined in the manner provided in the
Agreement and Declaration of Trust of the Funds as then amended
and when determined shall be applicable to transactions as
provided for in the then current Prospectus and Statement of
Additional Information of the Funds.
<PAGE>

Putnam will also have the right, as principal, to purchase
shares from the Funds at their net asset value and to sell such
shares to the public against orders therefor at the public
offering price or at net asset value.

Putnam will also have the right, as principal, to sell
shares at their net asset value and not subject to a contingent
deferred sales charge to such persons as may be approved by the
Trustees of the Funds, all such sales to comply with the
provisions of the Investment Company Act of 1940, as amended, and
the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder.

Putnam will also have the right, as agent for the Funds, to
sell shares at the public offering price or at net asset value to
such persons and upon such conditions as the Trustees of the
Funds may from time to time determine.

On every sale the Funds shall receive the applicable net
asset value of the shares. Putnam will reimburse the Funds for
any increased issue tax paid on account of sales charges. Upon
receipt of registration instructions in proper form and payment
for shares, Putnam will transmit such instructions to the Funds
or its agent for registration of the shares purchased.

4. SALES OF SHARES BY THE FUNDS. The Funds reserves the right
to issue shares at any time directly to its shareholders as a
stock dividend or stock split and to sell shares to its
shareholders or to other persons approved by Putnam at not less
than net asset value.

5. REPURCHASE OF SHARES. Putnam will act as agent for the
Funds in connection with the repurchase of shares by the Funds
upon the terms and conditions set forth in the then current
Prospectus and Statement of Additional Information of the Funds.

6. BASIS OF PURCHASES AND SALES OF SHARES. Putnam will use its
best efforts to place shares sold by it on an investment basis.
Putnam does not agree to sell any specific number of shares.
Shares will be sold by Putnam only against orders therefor.
Putnam will not purchase shares from anyone other than the Funds
except in accordance with Section 5, and will not take "long" or
"short" positions in shares contrary to the Agreement and
Declaration of Trust of the Funds.

7. RULES OF NASD, ETC. Putnam will conform to the Rules of
Fair Practice of the National Association of Securities Dealers,
Inc. and the sale of securities laws of any jurisdiction in which
it sells, directly or indirectly, any shares. Putnam also agrees
to furnish to the Funds sufficient copies of any agreements or
plans it intends to use in connection with any sales of shares in
adequate time for the Funds to file and clear them with the
proper authorities before they are put in use, and not to use
them until so filed and cleared.

8. PUTNAM INDEPENDENT CONTRACTOR. Putnam shall be an
independent contractor and neither Putnam nor any of its officers
or employees as such is or shall be an employee of the Funds.
Putnam is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or
employees. Putnam assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all
employer taxes thereunder.

Putnam will maintain at its own expense insurance against
public liability in such an amount as the Trustees of the Funds
may from time to time reasonably request.

9. EXPENSES. Putnam will pay all expenses of qualifying shares
of the Funds for sale under the so-called "Blue Sky" laws of any
state (except expenses of any action by the Funds relating to its
Agreement and Declaration of Trust or other matters in which the
Funds has a direct concern), and expenses of preparing, printing
and distributing advertising and sales literature (apart from
expenses of registering shares under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
and the preparation and printing of Prospectuses and Statements
of Additional Information and reports as required by said Acts
and the direct expenses of the issue of shares, except that
Putnam will pay the cost of the preparation and printing of
Prospectuses and Statements of Additional Information and
shareholders' reports used by it and by others in the sale of
Funds shares to the extent such cost is not paid by others).

10. INDEMNIFICATION OF FUNDS. Putnam agrees to indemnify and
hold harmless the Funds and each person who has been, is, or may
hereafter be a Trustee of the Funds against expenses reasonably
incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of
them may be a party, which arises out of or is alleged to arise
out of any misrepresentation or omission to state a material
fact, or out of any alleged misrepresentation or omission to
state a material fact, on the part of Putnam or any agent or
employee of Putnam or any other person for whose acts Putnam is
responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon written
information furnished by the Funds. Putnam also agrees likewise
to indemnify and hold harmless the Funds and each such person in
connection with any claim or in connection with any action, suit
or proceeding which arises out of or is alleged to arise out of
Putnam's (or an affiliate of Putnam's) failure to exercise
reasonable care and diligence with respect to its services
rendered in connection with investment, reinvestment, automatic
withdrawal and other plans for shares. The term "expenses"
includes amounts paid in satisfaction of judgments or in
settlements which are made with Putnam's consent. The foregoing
rights of indemnification shall be in addition to any other
rights to which the Funds or a Trustee may be entitled as a
matter of law.

11. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT. This Contract shall automatically terminate, without
the payment of any penalty, in the event of its assignment. This
Contract may be amended only if such amendment be approved either
by action of the Trustees of the Funds or at a meeting of the
shareholders of the Funds by the affirmative vote of a majority
of the outstanding shares of the Funds, and by a majority of the
Trustees of the Funds who are not interested persons of the Funds
or of Putnam by vote cast in person at a meeting called for the
purpose of voting on such approval.

12. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This
Contract shall take effect upon the date first above written and
shall remain in full force and effect continuously (unless
terminated automatically as set forth in Section 11) until
terminated:

(a) Either by the Funds or Putnam by not more
than sixty (60) days' nor less than ten (10) days'
written notice delivered or mailed by registered
mail, postage prepaid, to the other party; or

(b) If the continuance of this Contract after
January 31, 1995 is not specifically approved at
least annually by the Trustees of the Funds or the
shareholders of the Funds by the affirmative vote of
a majority of the outstanding shares of the Funds,
and by a majority of the Trustees of the Funds who
are not interested persons of the Funds or of Putnam
by vote cast in person at a meeting called for the
purpose of voting on such approval.

Action by the Funds under (a) above may be taken either (i)
by vote of its Trustees or (ii) by the affirmative vote of a
majority of the outstanding shares of the Funds. The requirement
under (b) above that continuance of this Contract be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940, as
amended, and the Rules and Regulations thereunder.

Termination of this Contract pursuant to this Section 12
shall be without the payment of any penalty.

13. CERTAIN DEFINITIONS. For the purposes of this
Contract, the "affirmative vote of a majority of the outstanding
shares of the Funds" means the affirmative vote, at a duly called
and held meeting of shareholders of the Funds, (a) of the holders
of 67% or more of the shares of the Funds present (in person or
by proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of the Funds entitled to
vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the
Funds entitled to vote at such meeting, whichever is less.

For the purposes of this Contract, the terms "interested
person" and "assignment" shall have the meanings defined in the
Investment Company Act of 1940, as amended, subject, however, to
such exemptions as may be granted by the Securities and Exchange
Commission under said Act.

PUTNAM ASSET ALLOCATION FUNDS
FORM OF
CLASS C
DISTRIBUTION PLAN AND AGREEMENT

This Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Class C shares of the portfolio series
(each a "Fund" and collectively the "Funds") of Putnam Asset
Allocation Funds, a Massachusetts business trust (the "Trust"),
adopted pursuant to the provisions of Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") and the related
agreement between the Trust and Putnam Mutual Funds Corp.
("PMF"). During the effective term of this Plan, the Trust may
incur expenses primarily intended to result in the sale of its
Class C shares upon the terms and conditions hereinafter set
forth:

SECTION 1. The Trust shall pay to PMF a monthly fee at the
annual rate of 1.00% of the average net asset value of the Class
C shares of the Trust, as determined at the close of each
business day during the month, to compensate PMF for services
provided and expenses incurred by it in connection with the
offering of the Trust's Class C shares, which may include,
without limitation, the payment by PMF to investment dealers of
commissions on the sale of Class C shares, as set forth in the
then current Prospectus or Statement of Additional Information of
the Trust and the payment of a service fee of up to 0.25% of such
net asset value for the purposes of maintaining or improving
services provided to shareholders by PMF and investment dealers.
Such fees shall be payable for each month within 15 days after
the close of such month. A majority of the Qualified Trustees,
as defined below, may, from time to time, reduce the amount of
such payments, or may suspend the operation of the Plan for such
period or periods of time as they may determine.

SECTION 2. This Plan shall not take effect until:

(a) it has been approved by a vote of a majority of
the outstanding Class C shares of the Trust;

(b) it has been approved, together with any related
agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be
required by Section 12(b) of the Act or the rules
and regulations thereunder) of both (i) the
Trustees of the Trust, and (ii) the Qualified
Trustees of the Trust, cast in person at a meeting
called for the purpose of voting on this Plan or
such agreement; and

SECTION 3. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 2(b).

SECTION 4. PMF shall provide to the Trustees of the Trust,
and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made.

SECTION 5. This Plan may be terminated at any time by vote
of a majority of the Qualified Trustees or by vote of the
majority of the outstanding Class C shares of the Trust.

SECTION 6. All agreements with any person relating to
implementation of this Plan shall be in writing, and any
agreement related to this Plan shall provide:

(a) that such agreement may be terminated at any time,
without payment of any penalty, by vote of a
majority of the Qualified Trustees or by vote of a
majority of the outstanding Class C shares of the
Trust, on not more than 60 days' written notice to
any other party to the agreement; and

(b) that such agreement shall terminate automatically
in the event of its assignment.

SECTION 7. This Plan may not be amended to increase
materially the amount of distribution expenses permitted pursuant
to Section 1 hereof without the approval of a majority of the
outstanding Class C shares of the Trust and all material
amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).

SECTION 8. As used in this Plan, (a) the term "Qualified
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the term "majority of the
outstanding Class C shares of the Trust" means the affirmative
vote, at a duly called and held meeting of Class C shareholders
of the Trust, (i) of the holders of 67% or more of the Class C
shares of the Trust present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the
outstanding Class C shares of the Trust entitled to vote at such
meeting are present in person or by proxy, or (ii) of the holders
of more than 50% of the outstanding Class C shares of the Trust
entitled to vote at such meeting, whichever is less, and (c) the
terms "assignment" and "interested person" shall have the
respective meanings specified in the Act and the rules and
regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.

SECTION 9. A copy of the Agreement and Declaration of Trust
of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually, and that the obligations
of or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Trust.

Executed as of September , 1994

PUTNAM MUTUAL FUNDS CORP. PUTNAM ASSET ALLOCATION FUNDS

/s/ William N. Shiebler /s/ Charles E.
Porter
By: -------------------------- By: ------------------------
William N. Shiebler Charles E. Porter
President Executive Vice President

shared\funds\1992\a01dip.c