SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934

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Filed by the Registrant / X /
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Filed by a Party other than the Registrant / /
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CHECK THE APPROPRIATE BOX:
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/ X / Preliminary Proxy Statement
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/ / Preliminary Additional Materials
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/ / Definitive Proxy Statement
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/ / Definitive Additional Materials
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/ / Soliciting Material Pursuant to Sec. 240.14a-11(e) or
- ---- Sec. 240.14a-12

PUTNAM FEDERAL INCOME TRUST
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
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/ x / $125 per Exchange Act Rules 0-11(c)(1)(ii),
- ---- 14a-6(i)(1), or 14a-6(i)(2).
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/ / $500 per each party to the controversy pursuant
- ---- to Exchange Act Rule 14a-6(i)(3).
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/ / Fee computed on table below per Exchange Act Rules
- ---- 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which
transaction applies:

(2) Aggregate number of securities to which
transaction applies:

(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11:

(4) Proposed maximum aggregate value of transaction:

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/ / Check box if any part of the fee is offset as provided
- ---- by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

PUTNAM FEDERAL INCOME TRUST
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109

February , 1994

Dear Shareholder:

You are cordially invited to attend the 1994 Meeting of
Shareholders of your Fund, which will be held on May 5, 1994 at
1:00 p.m., Boston time, on the eighth floor of One Post Office
Square, Boston, Massachusetts.

The matters to be acted upon at the meeting -- (1) electing
Trustees, (2) ratifying the Trustees' selection of Coopers &
Lybrand as independent auditors of the Fund for its current
fiscal year, (3) considering a proposal to eliminate the Fund's
fundamental investment restriction with respect to investments in
investment companies, (4) considering a proposal to amend the
Fund's fundamental investment restriction with respect to
investments in restricted securities and (5) considering a
proposal to amend the Fund's Agreement and Declaration of Trust
to permit the issuance of additional classes of shares -- ARE
DESCRIBED IN THE ATTACHED NOTICE AND PROXY STATEMENT.

Although we would like very much to have each shareholder
attend the 1994 Meeting, we realize this is not possible.
Whether or not you plan to be present at the meeting, WE NEED
YOUR VOTE. WE URGE YOU TO COMPLETE, SIGN AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY. A POSTAGE-PAID ENVELOPE IS ENCLOSED FOR
THIS PURPOSE.

If you return your proxy promptly, you can help your Fund
avoid the expense of follow-up mailings to achieve a quorum so
that the meeting can be held. If you decide between now and May
that you can attend the meeting in person, you can revoke your
proxy at that time and vote your shares at the meeting. If your
shares are held in street name, only your bank or broker can vote
your shares, and only upon receipt of your specific instructions.
Please contact the person responsible for your account and
instruct him or her to execute a proxy card today.

We look forward to seeing you at the meeting or receiving
your proxy so that your shares may be voted at the meeting.

Sincerely yours,

/s/George Putnam
George Putnam, Chairman
PUTNAM FEDERAL INCOME TRUST

NOTICE OF THE 1994 MEETING OF SHAREHOLDERS

To The Shareholders of Putnam Federal Income Trust:

The 1994 Meeting of Shareholders of Putnam Federal Income
Trust (the "Fund") will be held on May 5, 1994 at 1:00 p.m.,
Boston time, on the eighth floor of One Post Office Square,
Boston, Massachusetts, for the following purposes:

1. Electing Trustees, as described in Part I of the
attached Proxy Statement. (p. )

2. Ratifying or rejecting the selection of independent
accountants as auditors for the Fund for the current
fiscal year, as described in Part II of the attached
Proxy Statement. (p. )

3. Approving or disapproving a proposal to eliminate the
Fund's fundamental investment restriction with respect
to investments in investment companies, as described in
Part III of the attached Proxy Statement. (p. )

4. Approving or disapproving a proposal to amend the
Fund's fundamental investment restriction with respect
to investments in restricted securities, as described
in Part IV of the attached Proxy Statement. (p. )

5. Approving or disapproving a proposal to amend the
Fund's Agreement and Declaration of Trust to permit the
issuance of additional classes of shares, as described
in Part V of the attached Proxy Statement. (p. )

6. Such other matters as may properly come before the
meeting.

By the Trustees

GEORGE PUTNAM, CHAIRMAN
WILLIAM F. POUNDS, VICE CHAIRMAN
JAMESON A. BAXTER DONALD S. PERKINS
HANS H. ESTIN WILLIAM F. POUNDS
JOHN A. HILL GEORGE PUTNAM, III
ELIZABETH T. KENNAN A.J.C. SMITH
LAWRENCE J. LASSER W. NICHOLAS THORNDIKE

February , 1994
WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED
PROXY IN THE ENCLOSED ENVELOPE SO YOU WILL
BE REPRESENTED AT THE MEETING.
PUTNAM FEDERAL INCOME TRUST
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109

PROXY STATEMENT

THE ENCLOSED PROXY IS SOLICITED BY THE TRUSTEES OF PUTNAM
FEDERAL INCOME TRUST (the "Fund") for use at the 1994 Meeting of
Shareholders to be held on May 5, 1994, and at any adjournments
thereof, for the purposes set forth in the accompanying Notice of
Meeting of Shareholders. Shareholders of record at the close of
business on February 11, 1994 are entitled to be present and to
vote at the meeting or any adjourned session thereof. The Notice
of Meeting, proxy and this Proxy Statement have been mailed to
such shareholders of record on or about February , 1994.

A copy of the Annual Report of the Fund for its most recent
fiscal year, including financial statements, has previously been
mailed to shareholders. A representative of Coopers & Lybrand,
auditors of the Fund, is expected to be present at the meeting
with the opportunity to make statements and to respond to
appropriate questions.

Each share of beneficial interest is entitled to one vote.
Shares represented by duly executed proxies will be voted for the
election of the persons named herein as Trustees, unless such
authority has been withheld. With respect to the other matters
specified in the proxy, shares will be voted in accordance with
the instructions made. If no instructions are made, the proxy
will be voted for the matters specified in the proxy. Proxies
may be revoked at any time before they are voted by a written
revocation received by the Clerk of the Fund, by properly
executing a later-dated proxy or by attending the meeting and
voting in person.

I. ELECTION OF TRUSTEES

The Trustees have fixed the number of Trustees for election
at this meeting at eleven. The nominees for Trustees of the Fund
who are proposed for election at the meeting, their ages, and a
description of their principal occupations are set forth below.
All the nominees have been recommended by the Nominating
Committee, which consists solely of Trustees who are not
"interested persons" (as defined in the Investment Company Act of
1940) of the Fund or Putnam Investment Management, Inc., the
Fund's investment manager ("Putnam Management"). All the
nominees are presently Trustees of the Fund. Each of the current
Trustees was elected by the shareholders in July, 1991 (except
for Messrs. Lasser and Thorndike, who were elected by the
Trustees effective January 1, 1992, Mrs. Kennan, who was elected
by the Trustees effective May 7, 1992 and Mrs. Baxter, who was
elected by the Trustees effective January 6, 1994). All of the
Trustees are also Trustees of all of the other open-end Putnam
funds. Except as shown, the principal occupations and business
experience for the last five years of the nominees have been with
the employers indicated, although in some cases they have held
different positions with such employers.

The term of office of each person elected as a Trustee will
be until the next meeting held for the purpose of electing
Trustees and until his or her successor is elected and qualified.
Each of the nominees has agreed to serve as a Trustee if elected.
If any of the nominees should be unavailable for election at the
time of the meeting (which is not presently anticipated), the
persons named as proxies may vote for other persons in their
discretion, or the Trustees may vote to fix the number of
Trustees at fewer than eleven.

PRINCIPAL OCCUPATION
NOMINEE FOR LAST FIVE YEARS

Jameson Adkins Baxter (50) President, Baxter Associates, Inc.
Prior to 1992 Vice President and
Principal, Regency Group, Inc. and
Consultant, The First Boston
Corporation. Also, Director, Banta
Corporation, International
Acoustics, Inc., ASHTA Chemicals,
Inc. and B3 Systems. Trustee,
Mount Holyoke College and Emma
Willard School. Member, Governing
Council, Good Shepherd Hospital.

Hans H. Estin (65) Vice Chairman, North American
Management Corp. (a registered
investment adviser). Also,
Director, The Boston Company, Inc.
and Boston Safe Deposit and Trust
Company. Member, Massachusetts
General Hospital. Trustee, New
England Aquarium.

John A. Hill (52) Chairman and Managing Director,
First Reserve Corporation (a
registered investment adviser).
Prior to 1989, General Partner,
Meridien Capital Corporation (a
venture capital investment firm).
Also, Director, Lantana
Corporation, Snyder Oil
Corporation, Maverick Tube
Corporation, Hattiesburg Gas
Corporation and various First
Reserve Funds.

Elizabeth T. Kennan (55) President, Mount Holyoke College.
Also, Director, NYNEX Corporation,
Northeast Utilities and the
Kentucky Home Life Insurance
Companies. Trustee, University of
Notre Dame.

*Lawrence J. Lasser (51) Vice President of the Putnam funds.
President, Chief Executive Officer
and Director of Putnam Investments,
Inc. and Putnam Management.
Director, Marsh & McLennan
Companies, Inc. and INROADS/Central
New England Inc. Member, Board of
Overseers, Museum of Science,
Boston and Museum of Fine Arts,
Boston. Also, Trustee, Beth Israel
Hospital, Buckingham, Browne and
Nichols School and (ex officio)
Isabella Stewart Gardner Museum.

PRINCIPAL OCCUPATION
NOMINEE FOR LAST FIVE YEARS

Robert E. Patterson (48) Executive Vice President of Cabot
Partners Limited Partnership (a
registered investment adviser to
institutional clients in the
acquisition and management of their
real estate portfolios). Also,
Trustee, Joslin Diabetes Center.
From May, 1987 to October, 1990,
Executive Vice President of Cabot,
Cabot & Forbes Realty Advisors,
Inc. (predecessor of Cabot Partners
Limited Partnership).

Donald S. Perkins (66) Director of various corporations,
including American Telephone &
Telegraph Company, AON Corp.,
Cummins Engine Company, Inc.,
Illinois Power Co., Inland Steel
Industries, Inc., K mart
Corporation, LaSalle Street Fund,
Inc., Springs Industries, Inc.,
TBG, Inc., and Time Warner Inc.
Also, Trustee and Vice Chairman,
Northwestern University. Chairman,
The Hospital Research and Education
Trust. Member, The Business
Council. Founding Chairman, the
Civic Committee of the Commercial
Club of Chicago.

William F. Pounds (65) Vice Chairman. Professor of
Management, Alfred P. Sloan School
of Management, Massachusetts
Institute of Technology. Director,
IDEXX, M/A-COM, Inc., EG&G, Inc.,
Fisher-Price Inc., and Sun Company,
Inc. Also, Overseer, Museum of
Fine Arts, Boston and WGBH
Educational Foundation.

PRINCIPAL OCCUPATION
NOMINEE FOR LAST FIVE YEARS

*George Putnam (67) Chairman and President of the
Putnam funds. Chairman and
Director of Putnam Management and
Putnam Mutual Funds Corp. Also,
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. Trustee, Massachusetts
General Hospital, McLean Hospital,
Vincent Memorial Hospital, WGBH
Educational Foundation, The
Colonial Williamsburg Foundation
and Museum of Fine Arts, Boston.

*George Putnam, III (42) President, New Generation Research,
Inc. (publisher of bankruptcy
information). Director, World
Environment Center. Also, Trustee,
Sea Education Association.

*A.J.C. Smith (59) Chairman and Chief Executive
Officer, Marsh & McLennan
Companies, Inc. Also, Trustee of
The American Institute for
Chartered Property Casualty
Underwriters, The Employee Benefit
Research Institute, the Central
Park Conservancy, and the Carnegie
Hall Society.

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*Nominees who are "interested persons" (as defined in the
Investment Company Act of 1940) of the Fund, Putnam Management,
and Putnam Mutual Funds Corp. ("Putnam Mutual Funds"), the
principal underwriter for all the open-end Putnam funds and an
affiliate of Putnam Management. Mr. Putnam, Mr. Lasser and Mr.
Smith are deemed "interested persons" of the Fund, Putnam
Management and Putnam Mutual Funds by virtue of their positions
as officers of the Fund or officers or directors of Putnam
Management, Putnam Mutual Funds, or their parent, Marsh &
McLennan Companies, Inc., or their ownership of stock of Marsh &
McLennan Companies, Inc. Mr. George Putnam, III, Mr. Putnam's
son, is also an "interested person" of the Fund, Putnam
Management and Putnam Mutual Funds. The balance of the nominees
are not "interested persons."
W. Nicholas Thorndike (60) Director of various corporations
and charitable organizations,
including Providence Journal Co.
and Courier Corporation. Also,
Trustee and President,
Massachusetts General Hospital.
Trustee, Bradley Real Estate Trust
and Eastern Utilities Associates.
Prior to December, 1988, Mr.
Thorndike was Chairman of the Board
and Managing Partner of Wellington
Management Company/Thorndike,
Doran, Paine & Lewis (a registered
investment adviser).

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. The annual fee paid,
the number of Trustees' meetings held and the aggregate fees paid
to all Trustees are set forth in "Trustees and Officers
Information" below.

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

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 arising 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.

AUDIT AND NOMINATING COMMITTEES. The voting members of the
Audit Committee of the Fund include only Trustees who are not
"interested persons" of the Fund or Putnam Management. The Audit
Committee recommends to the Trustees the independent public
accountants to be selected for the Fund. It also reviews the
performance, scope of work and compensation of such accountants,
and reviews with such accountants the quality, accounting
controls, procedures and adequacy of the accounting services
rendered to the Fund by Putnam Management and by the Fund's
investor servicing agent and custodian. The Audit Committee
reports to the Trustees the results of its inquiries. The Audit
Committee currently consists of Messrs. Estin (Chairman),
Perkins, Putnam, III (without vote), Smith (without vote) and
Mrs. Kennan.

The Nominating Committee consists only of Trustees who are
not "interested persons" of the Fund or Putnam Investment
Management. It recommends to the Trustees persons to be elected
as Trustees and as Chairman, Vice Chairman, President and certain
other officers of the Fund. The Nominating Committee will
consider individuals proposed by a shareholder for election as a
Trustee. Shareholders wishing to submit the name of any
individual must submit in writing a brief description of the
proposed nominee's business experience and other information
relevant to the qualifications of the individual to serve as a
Trustee of the Fund. The Nominating Committee currently consists
of Mrs. Kennan and Dr. Pounds (Co-chairmen), and Messrs. Estin,
Hill, Patterson, Perkins and Thorndike.

The number of meetings of the Audit and Nominating
Committees in the Fund's most recent fiscal year is set forth in
"Trustees and Officers Information" below.

TRUSTEES AND OFFICERS INFORMATION

The shareholdings of each Trustee in the Fund are shown
below. Unless noted below, each Trustee has sole investment
power and sole voting power with respect to his or her shares of
the Fund and no Trustee owns 1% or more of the outstanding shares
of the Fund.

OWNERSHIP OF
YEAR FIRST OWNERSHIP OF SHARES OF ALL
ELECTED AS SHARES OF THE PUTNAM FUNDS
TRUSTEES TRUSTEE FUND AS OF 1/14/94 AS OF
1/14/94*

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Jameson A. Baxter 1994
Hans H. Estin 1986
John A. Hill 1986
Elizabeth T. Kennan 1992
Lawrence J. Lasser 1992
Robert E. Patterson 1986
Donald S. Perkins 1986
William F. Pounds 1986
George Putnam 1986
George Putnam, III 1986
A.J.C. Smith 1986
W. Nicholas Thorndike 1992

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* Does not include shares owned in Putnam Capital Manager
Trust, Putnam Daily Dividend Trust, Putnam Tax Exempt Money
Market Fund, Putnam California Tax Exempt Money Market Fund, and
Putnam New York Tax Exempt Money Market Fund.

As of January 14, 1994, the Trustees and officers of the
Fund owned in aggregate shares of the Fund comprising %
of the outstanding shares of the Fund on that date. With respect
to of these shares which are held for their individual
accounts in the Putnam Investments, Inc. Profit Sharing
Retirement Plan, certain Trustees who are "interested persons" of
the Fund and Putnam Management and certain officers of the Fund
each individually has sole investment power and shared voting
power. With respect to the remainder of these shares, the
Trustees and officers individually have sole investment power and
sole voting power.

FOR THE FISCAL YEAR ENDED OCTOBER 31, 1993

MEETINGS OF THE TRUSTEES DURING THE YEAR

Full Board of Trustees meetings: 11

Audit Committee meetings: 3

Nominating Committee meetings: 3

TRUSTEES' FEES

Annual retainer fee per Trustee: $

Additional attendance fee per
Trustees' meeting: $

Aggregate fees paid to all Trustees for the
year*: $

*Includes both annual fees and fees for attendance at Trustees'
meetings and certain meetings of committees of the Trustees.
These committees include: Compensation, Legal, Administration;
Audit; Closed-End Funds; Distribution; Pricing/Brokerage/Special
Investments; Communication and Service; Contract; Executive;
Board Policy and Nominating; and Proxy.

In addition to George Putnam and Lawrence J. Lasser, the
officers of the Fund are Charles E. Porter, Executive Vice
President, Patricia C. Flaherty, Senior Vice President, Gordon H.
Silver, Gary N. Coburn, Alan J. Bankart, Kenneth J. Taubes, Max
S. Senter (Messrs. Taubes and Senter are the Fund's Portfolio
Managers), William N. Shiebler (President of Putnam Mutual
Funds), John R. Verani and Paul M. O'Neil, each of whom serves
as a Vice President, John D. Hughes, Vice President and
Treasurer, and Beverly Marcus, Clerk of the Fund. All of the
officers of the Fund are employees of Putnam Management or its
affiliates. Because of their positions with Putnam Management or
its affiliates or their ownership of stock of Marsh & McLennan
Companies, Inc. (the parent corporation of Putnam Management and
Putnam Mutual Funds), Messrs. Putnam, George Putnam, III, Lasser
and Smith (nominees for Trustees of the Fund), as well as the
officers of the Fund, will benefit from the management fees,
distribution fees, underwriting commissions, custodian fees, and
investor servicing fees paid or allowed by the Fund.

PUTNAM INVESTMENT MANAGEMENT, INC. Putnam Management and
its affiliates, Putnam Mutual Funds, the principal underwriter
for shares of the Fund, and Putnam Fiduciary Trust Company, the
Fund's investor servicing agent and custodian, are wholly owned
by Putnam Investments, Inc., One Post Office Square, Boston,
Massachusetts 02109, a holding company that is in turn wholly
owned by Marsh & McLennan Companies, Inc., which has executive
offices at 1166 Avenue of the Americas, New York, New York 10036.
Marsh & McLennan Companies, Inc. and its operating subsidiaries
are professional services firms with insurance and reinsurance
brokering, consulting and investment management businesses. A
certified balance sheet of Putnam Management as of December 31,
1992 is attached to this Proxy Statement as Exhibit A-1, and an
uncertified balance sheet of Putnam Management as of September
30, 1993 is attached hereto as Exhibit A-2. To Putnam
Management's knowledge, there has been no material adverse change
in its financial condition since September 30, 1993. Proxies
solicited by the Trustees for the meeting will not be voted for
approval of any proposal to be voted on by the shareholders
unless (a)(1) in the Trustees' judgment, there has been no
material adverse change in Putnam Management's financial
condition between September 30, 1993 and December 31, 1993, and
(2) the Fund has received a certificate from the President or a
Senior Vice President of Putnam Management, dated May 5, 1994,
that, to his or her knowledge, there has been no material adverse
change in Putnam Management's financial condition since December
31, 1993, except as otherwise disclosed to the shareholders in
additional proxy solicitation materials, or (b) the Fund shall
have mailed to all shareholders of record a certified balance
sheet of Putnam Management as of December 31, 1993 and given the
shareholders the opportunity to revoke any proxies previously
furnished.

The directors of Putnam Management are George Putnam,
Lawrence J. Lasser and Gordon H. Silver. Mr. Lasser is the
principal executive officer of Putnam Management. The principal
occupations of Messrs. Putnam, Lasser and Silver are as officers
and directors of Putnam Management and certain of its corporate
affiliates. The address of Putnam Management and the business
address of the directors and officers of Putnam Management is One
Post Office Square, Boston, Massachusetts 02109.

In addition to its services to the Fund, Putnam Management
acts as investment adviser or subadviser of other publicly-owned
investment companies having differing investment objectives.

Putnam Management is also affiliated with The Putnam
Advisory Company, Inc., which together with subsidiaries
furnishes investment advice to domestic and foreign institutional
clients and foreign mutual funds. Another affiliate, Putnam
Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers.
The advisory fees charged by such firms to their institutional
clients are generally at lower rates than those charged the
Putnam funds. The services performed and responsibilities
assumed by these firms for such clients are, however, not as
extensive as those performed or assumed by Putnam Management for
the Putnam funds.

Some officers and directors of Putnam Management, including
some who are officers of the Fund, serve as officers or directors
of some of these affiliates. Putnam Management may also enter
into other businesses.

THE MANAGEMENT CONTRACT. Putnam Management serves as
investment manager of the Fund pursuant to a Management Contract.
The management fee payable under the Contract is based on the
following annual rates: 0.75% of the first $100 million of
average net assets, 0.65% of the next $100 million, 0.55% of the
next $300 million, 0.45% of the next $500 million, and 0.40% of
any amount over $1.0 billion, subject to reduction in any year by
the amount of certain brokerage commissions and fees (less
expenses) received by affiliates of Putnam Management on the
Fund's portfolio transactions. Management fees are payable
quarterly, based on the average net assets of the Fund as
determined at the close of each business day. Such fees are in
addition to the compensation of Trustees and certain officers and
other expenses borne by the Fund. The compensation payable to
Putnam Management is subject to reduction or reimbursement to the
extent that expenses of the Fund in any fiscal year exceed the
limits on investment company expenses imposed by any statute or
regulatory authority in any jurisdiction where shares of the Fund
are qualified for offer and sale. The term "expenses" is defined
in the statutes and regulations of such jurisdictions and,
generally speaking, excludes brokerage commissions, taxes,
interest and extraordinary expenses. The only limitation in
effect as of the date of this Proxy Statement is 2.5% of the
first $30 million of average net assets, 2% of the next $70
million and 1.5% of the remaining average net assets. The fee
payable to Putnam Management is also subject to reduction by the
amount of certain possible commissions, fees, brokerage or
similar payments received by Putnam Mutual Funds, less expenses
approved by the Trustees of the Fund, in respect of purchases and
sales of the Fund's portfolio investments. The fees paid to
Putnam Management in the most recent fiscal year are shown in
"Fund Information" below.

Under the Contract, 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 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 that furnish Putnam Management,
without cost to it, certain brokerage and research 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. See "Brokerage and research services" below.

The Fund also pays, or reimburses Putnam Management for, the
compensation and related expenses of certain officers of the Fund
and their assistants. Currently, the Fund is reimbursing Putnam
Management for a portion of the compensation and related expenses
of certain officers of the Fund who provide certain
administrative services to the Fund and the other Putnam funds,
each of which bears an allocated share of the costs. The
aggregate amount of all such payments and reimbursements is
determined annually by the Trustees, and the amount paid in the
most recent fiscal year is set forth in "Fund Information" below.
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 agent and shareholder reporting
expenses.

The 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 thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties.

The Contract may be terminated without penalty upon 30 days'
written notice by Putnam Management, by the Trustees of the Fund,
or by the affirmative vote of the holders of a "majority of the
outstanding voting securities" of the Fund (as defined in the
Investment Company Act of 1940). It may be amended only by an
affirmative vote of the holders of a majority of the outstanding
voting securities of the Fund and by a majority of the Trustees
who are not "interested persons" of the Fund or Putnam
Management.

The Contract will terminate automatically if it is assigned,
or unless its continuance is approved at least annually by either
the Trustees or shareholders of the Fund and in either case by a
majority of the Trustees who are not "interested persons" of
Putnam Management or the Fund.

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 each
client's 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 and sold for 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 some clients when other
clients are selling the security. In some cases, one client may
sell a particular security to another client. When two or more
clients simultaneously purchase or sell the same security, each
day's transactions in the security are, insofar as possible,
averaged as to price and allocated between the clients in a
manner which in the opinion of Putnam Management is equitable to
each and in accordance with the total amount of the security
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 certain
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.

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 the portion of the cost of
these services that directly relates to their non-research use.
Some of these services are of value to Putnam Management and its
affiliates in advising various of their clients (including the
Fund), although not all of these services are necessarily useful
and of value in managing the Fund. The management fee paid by
the Fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management
might otherwise be required to purchase some of these services
for cash.

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

As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the Fund to pay
a broker-dealer that 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 efforts 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.

PAYMENTS TO AFFILIATES OF PUTNAM MANAGEMENT. Putnam Mutual
Funds is the principal underwriter of shares of the Fund and of
the other continuously offered Putnam funds. Putnam Fiduciary
Trust Company is the Fund's investor servicing agent and
custodian. The amount of sales charges retained by Putnam Mutual
Funds and the investor servicing fees and custodian fees paid to
Putnam Fiduciary Trust Company in the Fund's most recent fiscal
year are set forth in "Fund Information" below.

Under the terms of its Distribution Plan, the Fund
compensates Putnam Mutual Funds at the annual rate of up to 0.35%
of the average net assets of the Fund, although a limit of 0.25%
is currently in effect. Payments under the Distribution Plan
compensate Putnam Mutual Funds for service provided and expenses
incurred by it in promoting the sale of shares of the Fund,
reducing redemptions or maintaining or improving services
provided to shareholders by Putnam Mutual Funds or by dealers.
The fee paid to Putnam Mutual Funds under the Plan in the Fund's
most recent fiscal year is set forth in "Fund Information" below.
FUND INFORMATION

ASSETS OF THE FUND; SHARES OUTSTANDING

Net assets of the Fund as of January 14, 1994 $

Shares of the Fund outstanding and authorized
to vote as of February 11, 1994 shares

Persons beneficially owning
more than 5% of the Fund's shares
as of January 31, 1994

FOR THE FISCAL YEAR ENDED OCTOBER 31, 1993

MANAGEMENT CONTRACT

The Management Contract dated
December 21, 1988 was approved by the
shareholders on December 20, 1988
and was last approved by the Trustees
on January 7, 1994.

Management fee paid to Putnam
Management for the fiscal year $

Reimbursement paid by the Fund to Putnam
Management for compensation, related expenses
and employee benefit plan contributions
for the Fund's Executive Vice President
(Charles E. Porter), Senior Vice President
(Patricia C. Flaherty), Clerk (Beverly
Marcus) and those who assist them $

PAYMENTS TO AFFILIATES

Sales charges on sales of
Fund shares retained by Putnam Mutual Funds
after payments to selling broker-dealers $

Payments under Rule 12b-1 Plan to
Putnam Mutual Funds $

Investor servicing and custodian fees
paid to Putnam Fiduciary Trust Company
(after application of credits) $

BROKERAGE

Total Fund payments to broker-dealers as
commissions on agency transactions $

Total Fund payments to broker-dealers as
commissions on underwritten transactions $

The Fund placed agency and underwritten transactions having
an approximate aggregate dollar value of $ ( % of the
Fund's agency and underwritten transactions, on which
approximately $ of commissions were paid) with brokers and
dealers whose research, statistical and quotation services Putnam
Management considered to be particularly useful to it and its
affiliates. However, many of such transactions were placed with
such brokers and dealers without regard to the furnishing of such
services.

II. RATIFICATION OR REJECTION OF SELECTION OF
INDEPENDENT AUDITORS

Coopers & Lybrand, One Post Office Square, Boston,
Massachusetts, independent accountants, has been selected by the
Trustees as auditors of the Fund for the current fiscal year.
Unless otherwise indicated, the proxy will be voted in favor of
ratifying the selection of Coopers & Lybrand as auditors.

III. APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF
THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO INVESTMENTS IN INVESTMENT COMPANIES

The Fund currently has a fundamental investment restriction
that prohibits the Fund from investing in the securities of other
registered investment companies, except as they may be acquired
as part of a merger or consolidation or acquisition of assets.

From time to time new investment vehicles arise that would
assist the Fund in meeting its investment objective but that may
be registered investment companies (as defined in the Investment
Company Act of 1940) (the "1940 Act") and therefore prohibited by
the Fund's investment restrictions. Generally, the credit
support for these securities is the issuer of a bond that has
been purchased by a trust or other pass-through entity. This
entity, which is registered under the 1940 Act as a unit
investment trust, in turn sells securities. Even though the
securities that are issued by such pass-through entities may
involve the duplication of some fees and expenses, Putnam
Management believes that they may provide attractive investment
opportunities that, except for the restriction stated above,
would be consistent with the Fund's investment objective and
policies. However, the issuers of such securities may be
registered investment companies because they are organized as
unit investment trusts, which invest solely in the underlying
bonds. To permit maximum flexibility to take advantage of future
investment opportunities, the Trustees, therefore, recommend that
the Fund's fundamental investment restriction with respect to
investments in investment companies be eliminated.

If shareholders approve the elimination of this restriction,
the Trustees intend to adopt a more flexible non-fundamental
investment restriction that would prohibit investments by the
Fund in registered open-end investment companies such as the
Fund, but not investments in other entities that might otherwise
be registered investment companies, such as the unit investment
trusts mentioned above. Such a non-fundamental investment
restriction could be amended or eliminated by the Trustees
without a shareholder vote.

The Trustees recommend changing the fundamental investment
restriction with respect to investments in investment companies
to a non-fundamental policy (with the language to be added shown
in (( ))) to provide that the Fund may not:

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

REQUIRED VOTE. Approval of this proposal will require the
affirmative vote of a "majority of the outstanding voting
securities" of the Fund, which for this purpose means the
affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
of the Fund present at the meeting if more than 50% of the Fund's
outstanding shares are present at the meeting in person or by
proxy.

If the shareholders do not approve the proposal, the
fundamental investment restriction of the Fund with respect to
investments in investment companies will remain unchanged.

IV. APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION WITH RESPECT
TO INVESTMENTS IN RESTRICTED SECURITIES

The Trustees recommend that the Fund's fundamental
investment restriction with respect to restricted securities be
revised to permit the Fund to invest a greater portion of its
assets in securities restricted as to resale under the federal
securities laws ("restricted securities"). Putnam Management has
recommended the proposed change to the Trustees because it
believes that the increased flexibility will assist the Fund in
achieving its investment objective.

The Fund's current investment restrictions prohibit it from
investing more than 10% of its net assets in restricted
securities. In order to permit maximum flexibility in investing
the Fund's assets, the proposed amendment would raise the current
limit from 10% to 15% of the Fund's net assets that may be
invested in such securities and would exclude from the
restriction certain restricted securities that are readily
marketable. Putnam Management believes that the proposed
amendment would benefit the Fund by permitting it to respond to
regulatory and market developments regarding restricted
securities.

The Securities and Exchange Commission ("SEC") has long
taken the position that an open-end investment company should
limit its investments in illiquid securities because such
securities may present problems of accurate valuation and because
it is possible that the investment company would have difficulty
satisfying redemptions within seven days. In general, illiquid
securities have included restricted securities and those
securities for which there is no readily available market. While
it had been the SEC's position that an open-end investment
company should not invest more than 10% of its assets in illiquid
securities, the SEC has recently revised its position to permit
an open-end investment company to invest up to 15% of its net
assets in illiquid securities.

In recognition of the increased size and liquidity of the
institutional markets for unregistered securities and the
importance of institutional investors in the capital formation
process, the SEC has also adopted Rule 144A, which is designed to
facilitate efficient trading of restricted securities among
institutional investors. Rule 144A allows for an even broader
institutional trading market for restricted securities. In
adopting Rule 144A, the SEC specifically stated that restricted
securities traded under Rule 144A may be treated as liquid for
purposes of investment limitations if the trustees of an
investment company determine that the securities are, in fact,
liquid. The Trustees of the Fund have delegated to Putnam
Management the daily function of determining and monitoring
liquidity of restricted securities. The Trustees, however, will
retain general oversight and be ultimately responsible for the
determinations.

As the securities markets evolve and new types of
instruments are developed, Putnam Management believes that the
Fund's present restriction may become overbroad and unnecessarily
restrictive. The fact that a security may be restricted will not
necessarily adversely affect either the liquidity of such
investment or the ability of the Fund to determine the value of
such investment. As institutional markets develop, the Fund
would be constrained by its current investment restriction even
though the institutional restricted securities markets could
provide both readily ascertainable values for restricted
securities and the ability to reduce an investment to cash in
order to satisfy Fund share redemption orders on a timely basis.

In order to be able to take advantage of these regulatory
initiatives and the increasingly liquid institutional trading
markets for restricted securities, the Trustees recommend that
the proposed amendments to the Fund's fundamental restriction be
adopted by shareholders to increase the current limit from 10% to
15% of the Fund's net assets that may be invested in restricted
securities and to provide that certain restricted securities that
are nonetheless liquid may be purchased without regard to the 15%
limit. If the proposed amendment is approved, this investment
practice could have the effect of increasing the level of
illiquidity of the Fund's portfolio securities to the extent that
institutional investors become uninterested, for a time, in
purchasing these restricted securities.

Certain state securities laws may limit the ability of the
Fund to invest in restricted securities, including restricted
securities that are readily marketable.

The Trustees recommend changing the fundamental investment
restriction with respect to restricted securities (with the
language to be deleted shown in // //, and the language to be
added shown in (( ))) to provide that the Fund may not:

Purchase securities the disposition of which is
restricted under federal securities laws, if as a
result such investments would exceed //10%// ((15%)) of
the value of the Fund's net assets.

REQUIRED VOTE. Approval of this proposal will require
the affirmative vote of a "majority of the outstanding voting
securities" of the Fund, which for this purpose means the
affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
of the Fund present at the meeting if more than 50% of the Fund's
outstanding shares are present at the meeting in person or by
proxy.

If shareholders do not approve the proposal, the fundamental
investment restriction of the Fund with respect to investments in
restricted securities will remain unchanged.

V. APPROVAL OR DISAPPROVAL OF AMENDMENTS TO THE
FUND'S AGREEMENT AND DECLARATION OF TRUST TO
PERMIT ISSUANCE OF ADDITIONAL CLASSES OF SHARES

The Agreement and Declaration of Trust of the Fund (the
"Declaration of Trust") currently provides for the issuance of
one class of shares with each share representing an equal
proportionate interest in the Fund. The Trustees recommend that
they be authorized to amend the Declaration of Trust to permit
the Trustees, without further shareholder action, to issue one or
more additional classes of shares having such preferences and
special or relative rights and privileges as the Trustees may
determine.

The purpose of these amendments would be to permit the Fund
to take advantage of alternative methods of selling Fund shares.
At present the Fund's shares generally are sold to investors at a
public offering price which includes a sales charge. The Fund
and its principal underwriter, Putnam Mutual Funds, are currently
considering offering new investors the option of buying Fund
shares at net asset value without an initial sales charge.
Shares sold on this basis would be subject to a contingent
deferred sales charge on redemption and would bear the cost of
ongoing distribution fees paid to Putnam Mutual Funds for its
services and expenses in connection with the sale of such shares,
including commissions paid to investment dealers, which would
likely be higher than the level of the Fund's current
distribution fee.

The creation of one or more separate classes of shares for
this purpose would permit the Trustees to allocate costs
associated with the distribution of such shares to those
investors who elect this optional method of purchasing shares
without an initial sales charge. SHAREHOLDERS WHO CURRENTLY OWN
SHARES OF THE FUND WOULD NOT BEAR ANY PORTION OF SUCH COSTS.

Any such additional class of shares would participate in all
other respects on an equal proportionate basis with all other
classes of shares, including as to investment income, realized
and unrealized gains and losses on portfolio investments and all
other operating expenses of the Fund. All classes of shares will
generally vote together as a single class at meetings of
shareholders, except that shares of a class which is affected by
any matter materially differently from shares of other classes
will vote as a separate class and that holders of shares of a
class not affected by a matter will not vote on that matter.

The Trustees believe that providing investors this
alternative method of purchasing Fund shares may lead to
increased sales of shares, resulting in greater investment
flexibility for the Fund and, to the extent of any increase in
the size of the Fund, possible reductions in operating expense
ratios due to economies of scale--thus benefiting both existing
and future shareholders.

The proposed amendments would permit the creation of
additional classes of shares for other purposes as well. While
the Fund has no present intention of creating additional classes
of shares for purposes other than as described above, it may
choose to do it at any time if the proposal is approved.

REQUIRED VOTE. Approval of this proposal will require the
affirmative vote of a majority of the outstanding shares of the
Fund.

If shareholders do not approve the proposal, the Agreement
and Declaration of Trust will remain unchanged.

VI. MISCELLANEOUS

QUORUM AND METHODS OF TABULATION. Thirty percent of the
shares entitled to vote, present in person or represented by
proxy, constitutes a quorum for the transaction of business with
respect to such proposals at the Meeting. Votes cast by proxy or
in person at the meeting will be counted by persons appointed by
the Trust as tellers for the Meeting.

The eleven nominees for election as Trustees at the Meeting
who receive the greatest number of votes properly cast for the
election of Trustees shall be elected Trustees. A majority of
the votes properly cast on the matter is necessary to ratify the
selection of independent auditors.

The tellers will count the total number of votes cast "for"
approval of the proposals for purposes of determining whether
sufficient affirmative votes have been cast. The tellers will
count shares represented by proxies that reflect abstentions and
"broker non-votes" (i.e., shares held by brokers or nominees as
to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on
a particular matter) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a
quorum. With respect to the election of Trustees and selection
of auditors, neither abstentions nor broker non-votes have any
effect on the outcome of the proposal. With respect to other
proposals, abstentions and broker non-votes have the effect of a
negative vote on the proposal.

OTHER BUSINESS. The Trustees know of no other business to
be brought before the meeting. However, if any other matters
properly come before the meeting, it is their intention that
proxies that do not contain specific restrictions to the contrary
will be voted on such matters in accordance with the judgment of
the persons named as proxies in the enclosed form of proxy.

SIMULTANEOUS MEETINGS. The meeting of shareholders of the
Fund is called to be held at the same time as the meetings of
shareholders of certain of the other Putnam funds. It is
anticipated that all meetings will be held simultaneously. If
any Fund shareholder at the meeting objects to the holding of a
simultaneous meeting and moves for an adjournment of the meeting
to a time promptly after the simultaneous meetings, the persons
named as proxies will vote in favor of such adjournment.

SOLICITATION OF PROXIES. In addition to the solicitation of
proxies by mail, Trustees of the Fund and employees of Putnam
Management, Putnam Fiduciary Trust Company and Putnam Mutual
Funds may solicit proxies in person or by telephone. The Fund
may also arrange to have votes recorded by telephone. If this
procedure were subject to a successful legal challenge, such
votes would not be counted at the meeting. Persons holding
shares as nominees will upon request be reimbursed for their
reasonable expenses in sending soliciting material to their
principals. The Fund has retained at its expense
, to aid in the solicitation of nominee
accounts for a fee not to exceed $ plus reasonable
out-of-pocket expenses.

DATE FOR RECEIPT OF SHAREHOLDERS' PROPOSALS FOR SUBSEQUENT
MEETINGS OF SHAREHOLDERS. The Fund's Agreement and Declaration
of Trust does not provide for annual meetings of shareholders,
and the Fund does not currently intend to hold such a meeting in
1995. Shareholder proposals for inclusion in the proxy statement
for any subsequent meeting must be received by the Fund within a
reasonable period of time prior to any such meeting.

ADJOURNMENT. If sufficient votes in favor of any of the
proposals set forth in the Notice of the Meeting are not received
by the time scheduled for the meeting, the persons named as
proxies may propose one or more adjournments of the meeting for a
period or periods of not more than 60 days in the aggregate to
permit further solicitation of proxies with respect to any of
such proposals. Any adjournment will require the affirmative
vote of a majority of the votes cast on the question in person or
by proxy at the session of the meeting to be adjourned. The
persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of such
proposals. They will vote against any such adjournment those
proxies required to be voted against any of such proposals. The
Fund pays the costs of any additional solicitation and of any
adjourned session.

SCHEDULE A

NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

0.35% of average net Putnam Capital Manager Trust:
assets PCM Money Market Fund
($)
- ----------------------------------------------------------------
0.45% of the first Putnam California Tax Exempt Money
$500 million of average Market Fund
net assets, 0.35% of the ($)
next $500 million, 0.30%
of the next $500 million, Putnam New York Tax Exempt Money
and 0.25% of any excess Market Fund
over $1.5 billion ($)

Putnam Tax Exempt Money Market Fund
($)
- ----------------------------------------------------------------
0.50% of the first $100 Putnam Daily Dividend Trust
million of average net ($)
assets, 0.40% of the next
$100 million, 0.35% of the
next $300 million, 0.325%
of the next $500 million,
and 0.30% of any excess
over $1.0 billion
- ----------------------------------------------------------------
0.50% of the first $100 Putnam Income Fund
million of average net ($)
assets, 0.40% of the next
$100 million, and 0.35%
of any excess over $200
million
- -----------------------------------------------------------------
0.50% of the first Putnam Municipal Opportunities Trust
$500 million of average ($)
net assets, 0.43% of the
next $500 million, 0.39% Putnam Investment Grade Intermediate
of the next $500 million, Municipal Trust
and 0.35% of any excess ($)
over $1.5 billion
Putnam Investment Grade Municipal
Trust III
($)

NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

0.55% of the first Putnam Managed High Yield Trust
$500 million of average ($)
net assets, 0.48% of the
next $500 million, 0.44%
of the next $500 million,
and 0.40% of any excess
over $1.5 billion
- -----------------------------------------------------------------
0.60% of average net Putnam Capital Manager Trust:
assets PCM Diversified Income Fund
($)

PCM Global Growth Fund
($)

PCM Growth and Income Fund
($)

PCM High Yield Fund
($)

PCM U.S. Government and High
Quality Bond Fund
($)

PCM Asset Allocation Fund
($)

PCM Utilities Growth and Income
Fund
($)

PCM Voyager Fund
($)
- ----------------------------------------------------------------
0.60% of the first $1.0 Putnam Balanced Government Fund
billion, 0.50% of the ($)
next $500 million, and
0.45% of any excess over
$1.5 billion

NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

0.60% of the first $500 Putnam American Government Income
million of average net Fund
assets, 0.50% of the next ($)
$1.0 billion, 0.45% of
the next $1.0 billion,
0.40% of the next $4.5
billion, 0.375% of the
next $2.5 billion, and
0.35% of any excess over
$9.5 billion
- -----------------------------------------------------------------
0.60% of the first $500 Putnam Adjustable Rate U.S.
million of average net Government Fund
assets, 0.50% of the ($)
next $500 million, 0.45%
of the next $500 million, Putnam Arizona Tax Exempt Income Fund
and 0.40% of any excess ($)
over $1.5 billion
Putnam California Tax Exempt Income
Fund
($)

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 Ohio Tax Exempt Income Fund II
($)

NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

Putnam Pennsylvania Tax Exempt Income
Fund
($)

Putnam Tax Exempt Income Fund
($)

Putnam Tax-Free Income Trust:
Putnam Tax-Free Insured Fund
($)

Putnam Texas Tax Exempt Income Fund
($)

Putnam U.S. Government Income Trust
($)

- -----------------------------------------------------------------
0.60% of the first $100 The George Putnam Fund of Boston
million of average net ($)
assets, 0.50% of the next
$100 million, 0.40% of the
next $300 million, 0.325%
of the next $500 million,
and 0.30% of any excess
over $1.0 billion
- ----------------------------------------------------------------
0.65% of the first $500 Putnam Capital Appreciation Fund
million of average net ($)
assets, 0.55% of the next
$500 million, 0.50% of the Putnam Capital Growth and Income Fund
next $500 million, and ($)
0.45% of any excess over
$1.5 billion Putnam Corporate Asset Trust
($)

Putnam Dividend Growth Fund
($)

The Putnam Fund for Growth and Income
($)

Putnam Growth Fund
($)

Putnam Investors Fund
($)

Putnam Managed Income Trust
($)

NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

Putnam Municipal Income Fund
($)

Putnam New York Tax Exempt
Opportunities Fund
($)

Putnam Research Analysts Fund
($)

Putnam Vista Fund
($)

0.70% of average net Putnam High Yield Municipal Trust*
assets ($)

Putnam Investment Grade Municipal
Trust**
($)

Putnam Tax-Free Health Care Fund
($)

*If dividends payable on the Trust's Preferred Shares during any
dividend payment period plus expenses attributable to the
Preferred Shares for that period exceed the portion of the
Trust's net income attributable to the liquidation value of the
Preferred Shares during that period, then the fee payable to
Putnam Management for that period will be reduced by the amount
of the excess (but not more than an amount equal to 0.70% of the
liquidation preference of the Preferred Shares outstanding during
the period).

**If dividends payable on the Trust's Preferred Shares during any
dividend period plus expenses attributable to the Preferred
Shares for that period exceed the portion of the Trust's net
income and net short-term capital gains (but not long-term
capital gains) attributable to the investment of the proceeds of
the Preferred Shares during that period, then the fee payable to
Putnam Management for that period will be reduced by the amount
of the excess (but not more than an amount equal to 0.70% of the
liquidation preference of the Preferred Shares outstanding during
the period).
NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

0.70% of the first $500 Putnam California Investment Grade
million of average net Municipal Trust*
assets, 0.60% of the next ($)
$500 million, 0.55% of the
next $500 million, and Putnam Diversified Income Trust
0.50% of any excess over ($)
$1.5 billion
Putnam Energy-Resources Trust
($)

Putnam Health Sciences Trust
($)

Putnam High Yield Trust
($)

Putnam Investment Grade Municipal
Trust II*
($)
Putnam Asset Allocation Funds
($)

Putnam Managed Municipal Income
Trust**
($)

Putnam New Opportunities Fund
($)

*If dividends payable on the Trust's Remarketed Preferred Shares
during any dividend payment period plus any expenses attributable
to the Remarketed Preferred Shares for that period exceed the
Trust's net income attributable to the liquidation value of the
Remarketed Preferred Shares during that period, then the fee
payable to Putnam Management for that period will be reduced by
the amount of the excess, but not more than .70% (or such lower
percentage as reflects the applicable reduction in the management
fee if the net asset value of the Trust exceeds $500 million) of
the liquidation preference of the Remarketed Preferred Shares
outstanding during the period.

Putnam OTC Emerging Growth Fund
($)

Putnam New York Investment Grade
Municipal Trust*
($)

Putnam Utilities Growth and Income
Fund
($)

Putnam Voyager Fund
($)
- -----------------------------------------------------------------
0.75% of the first $500 Putnam Dividend Income Fund**
million of average net ($)
assets, 0.65% of the next
$500 million, 0.60% of the Putnam High Income Convertible and
next $500 million, and Bond Fund
0.55% of any excess over ($)
$1.5 billion

*If dividends payable on the Trust's Preferred Shares during any
dividend payment period plus any expenses attributable to the
Preferred Shares for that period exceed the Trust's net income
attributable to the liquidation value of the Preferred Shares
during that period, then the fee payable to Putnam Management for
that period will be reduced by the amount of the excess, but not
more than .70% (or such lower percentage as reflects the
applicable reduction in the management fee if the net asset value
of the Trust exceeds $500 million) of the liquidation preference
of the Preferred Shares outstanding during that period.

**If dividends payable on the Fund's Preferred Shares during any
dividend payment period plus any expenses attributable to the
Preferred Shares for that period, as determined by the Trustees,
exceed the portion of the Fund's net income and net short-term
capital gains (but not long-term capital gains) attributable to
the proceeds of the Preferred Shares during that period, then the
fee payable to Putnam Management for that period will be reduced
by the amount of the excess (but not more than the fee that
otherwise would have been payable to Putnam Management for such
period attributable to the aggregate liquidation preference of
the Preferred Shares outstanding during the period).

NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

Putnam Intermediate Government Income
Trust
($)

Putnam Master Income Trust
($)

Putnam Master Intermediate Income
Trust
($)

Putnam Premier Income Trust
($)
- ---------------------------------------------------------------
0.75% of the first $100 Putnam Federal Income Trust
million of average net ($)
assets, 0.65% of the next
$100 million, 0.55% of the
next $300 million, 0.45% of
the next $500 million, and
0.40% of any excess over
$1.0 billion
- ----------------------------------------------------------------
0.75% of the first $100 Putnam Equity Income Fund
million of average net ($)
assets, 0.65% of the next
$100 million, 0.55% of
the next $300 million,
0.50% of the next $1.0
billion, 0.45% of the
next $1.0 billion, and
0.40% of any excess over
$2.5 billion

NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

0.80% of the first $500 Putnam Asia Pacific Growth Fund
million of average net ($)
assets, 0.70% of the next
$500 million, 0.65% of the Putnam Europe Growth Fund
next $500 million, and ($)
0.60% of any excess over
$1.5 billion Putnam Global Governmental Income
Trust
($)

Putnam Global Growth Fund
($)

Putnam Overseas Growth Fund
($)
- -----------------------------------------------------------------
0.70% of the first $100 Putnam Convertible Income-Growth
million of average net Trust
assets, 0.60% of the next ($)
$100 million, 0.50% of the
next $300 million, 0.45% Putnam High Yield Advantage Fund
of the next $500 million, ($)
and 0.425% of any excess
over $1.0 billion Putnam Tax-Free Income Trust:
Putnam Tax-Free High Yield Fund
($)

Proposed to be changed to
0.65% of the first $500
million of average net
assets, 0.55% of the next
$500 million, 0.50% of the
next $500 million, and 0.45%
of any excess over $1.5 billion

NAME OF FUND
MANAGEMENT FEE RATE (NET ASSETS AS OF JANUARY 14, 1994)

0.635% of average net Nomura Dividend Income Fund, Inc.
assets ($)

0.75% of the first $200 Lincoln National Putnam Master
million of average net Fund, Inc.*
assets, 0.70% of the next ($)
$200 million, and 0.68%
of any excess over $400
million
- -----------------------------------------------------------------
%50 of average net CIGNA Annuity Equity Fund
assets ($)

CIGNA Annuity Growth and Income Fund
($)

CIGNA Annuity Aggressive Equity Fund
($)
- -----------------------------------------------------------------

FUNDS IN REGISTRATION OR IN INITIAL PUBLIC OFFERING AS OF JANUARY
14, 1994:

Putnam Qualified Dividend Income Fund
($0)

*Management fee paid by the Fund to its investment advisor.
Putnam Management, as subadviser, receives annually from the
investment advisor the greater of (a) $40,000 or (b) 0.47% of the
first $200 million of average net assets, 0.42% of the next $200
million, and 0.40% of any excess over $400 million.

GENERAL. Except for fees paid by Putnam OTC Emerging
Growth Fund and Putnam Tax-Free Income Trust, all of the above
fees are payable quarterly, based on the average net assets of
the fund as determined at the close of each business day (or for
Putnam Intermediate Government Income Trust, Putnam High Yield
Municipal Trust, Putnam Investment Grade Municipal Trust, Putnam
Managed Municipal Income Trust, Putnam Investment Grade
Intermediate Municipal Trust, Putnam High Income Convertible and
Bond Fund, Putnam Managed High Yield Trust, Putnam Master Income
Trust, Putnam Master Intermediate Income Trust, Putnam Premier
Income Trust, Putnam Dividend Income Fund, Putnam Tax-Free Health
Care Fund, Putnam Investment Grade Municipal Trust II, Putnam
Investment Grade Municipal Trust III, Putnam California
Investment Grade Municipal Trust, Putnam Municipal Opportunities
Trust, Putnam New York Investment Grade Municipal Trust, and
Nomura Dividend Income Fund, Inc., at the close of each business
week) during the quarter, at the annual rates shown. For Putnam
OTC Emerging Growth Fund and Putnam Tax-Free Income Trust, fees
are payable monthly at the end of each month, based on valuations
during the month. For the Putnam funds, such fees are in
addition to the compensation of Trustees and certain officers and
other expenses borne by each fund, as described in the Proxy
Statement under "The Management Contract."

Except for fees paid by Nomura Dividend Income Fund,
Inc., the compensation payable to Putnam Management is subject to
reduction or reimbursement to the extent that expenses of a fund
in any fiscal year exceed the limits on investment company
expenses imposed by any statute or regulatory authority in any
jurisdiction where shares of the fund are qualified for offer and
sale. The term "expenses" is defined in the statutes and
regulations of such jurisdictions and, generally speaking,
excludes brokerage commissions, taxes, interest and extraordinary
expenses. The only limitation in effect as of the date of this
Proxy Statement is 2.5% of the first $30 million of average net
assets, 2% of the next $70 million and 1.5% of the remaining
average net assets. The fee payable to Putnam Management is also
subject to reduction by the amount of certain possible
commissions, fees, brokerage or similar payments received by
Putnam Mutual Funds, less expenses approved by the Trustees of
the fund in respect of purchases and sales of fund portfolio
investments.

ADDITIONAL REDUCTIONS APPLICABLE TO CERTAIN FUNDS. In
the case of certain funds, the Management Contracts provide that
Putnam Management's compensation shall be reduced to the extent
that annual expenses of the fund exceed any expense limitation
which Putnam Management may, by written notice to the fund,
declare to be effective. Currently, Putnam Management has
assumed the following expense limitations:

0.80% of average daily net assets for the following fund:

Putnam Balanced Government Fund

0.90% of average daily net assets for the following fund:

Putnam Texas Tax Exempt Income Fund

1.00% of average daily net assets for the following funds:

Putnam Growth Fund
Putnam Capital Appreciation Fund
Putnam Capital Growth and Income Fund
CIGNA Annuity Equity Fund
CIGNA Annuity Growth and Income Fund
CIGNA Annuity Aggressive Equity Fund

1.20% of average daily net assets for the following fund:

Putnam Capital Manager Trust:
PCM Diversified Income Fund

1.50% of average daily net assets for the following fund:

Putnam Research Analysts Fund

and 1.90% of average daily net assets for the following funds:

Putnam Asia Pacific Growth Fund
Putnam Overseas Growth Fund

Expenses subject to the foregoing limitations are
generally exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expenses, if any, and
expenses incurred pursuant to Distribution Plan(s), if any, under
SEC Rule 12b-1.

H:\shared\proxy\working\swing294

EXHIBIT A

PUTNAM INVESTMENT MANAGEMENT, INC.
BALANCE SHEET
DECEMBER 31, 1992

ASSETS: NOTES
Cash..................................... $ 300
Investments......................... 2 50,000
Investment management fees receivable.... 42,500,239
Accounts receivable from affiliates...... 6 8,231,201
Prepaid expenses and other assets........ 1,919,451
Property and equipment - net............. 2, 3 2,902,616
-----------
TOTAL ASSETS............................. $55,603,807
===========

LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses.... 5 $12,804,260
Accounts payable to affiliate............ 6 181,206
-----------
Total liabilities........................ 12,985,466
-----------

STOCKHOLDER'S EQUITY:

Common stock - $1 par value; authorized
and outstanding, 1,000 shares........ 1,000
Paid-in surplus.......................... 4,696,665
Retained earnings........................ 37,920,676
-----------
Total stockholder's equity............... 42,618,341
-----------

TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY............................... $55,603,807
===========

See notes to balance sheet.

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

PUTNAM INVESTMENT MANAGEMENT, INC.

NOTES TO BALANCE SHEET

1. CORPORATE AFFILIATION

Putnam Investment Management, Inc., formerly The Putnam
Management Company, Inc., (the Company) is a wholly-owned
subsidiary of Putnam Investments, Inc., formerly The Putnam
Companies, Inc., (the Parent), which is a wholly-owned subsidiary
of Marsh & McLennan Companies, Inc. (MMC).

The Company's primary business is to provide investment
advisory services to Putnam-sponsored mutual funds. In
connection with providing these services, the Company receives a
management fee which is based upon the average net asset value of
the respective fund to which the services are provided.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS

Investments consist of time deposits held by an affiliate.
Investments are recorded at the lower of cost or market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Office and
data processing equipment are depreciated using the straight-line
method over their estimated useful lives of four to ten years.
Leasehold improvements are amortized using the straight-line
method over ten years or the period covered by the lease,
whichever is less. Additions, renewals and betterments of
property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to income when incurred.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Office and data processing equipment..... $ 2,785,939
Less accumulated depreciation............ (1,952,916)
------------
Total.................................... 833,023
------------
Leasehold improvements................... 3,922,612
Less accumulated amortization............ (1,853,019)
------------
Total.................................... 2,069,593
------------

Property and equipment - net............. $ 2,902,616
============
4. INCOME TAXES

In 1992, the Company adopted STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES (SFAS
109). In accordance with the provisions of SFAS 109, the Company
records a current liability or asset for the estimated taxes
payable or refundable on tax returns for the current year and a
deferred tax liability or asset for the estimated future tax
effects attributable to temporary differences.

The Company, through MMC, files its federal tax return as a
member of a consolidated group. The Parent allocates its current
and deferred tax provision or benefit to the Company in a manner
which is representative of how the Company would compute its
provision as a separate entity.

Under an agreement with its Parent, the Company pays its
Parent each month for the amount of its net current and deferred
tax provision. If the Company has a net tax benefit, the Parent
pays the Company that amount. The Parent then assumes
responsibility for the payment of all taxes in accordance with
federal, state and local laws. As a result of this agreement,
the Company has no current or deferred tax liability or asset
reflected in its balance sheet at December 31, 1992.

5. EMPLOYEE BENEFIT PLANS

PROFIT SHARING PLAN

The Company, its Parent and affiliates sponsor a
profit-sharing plan (the Plan) covering substantially all
employees, providing for annual contributions as determined by
the Board of Directors. The Company's provision is limited to
the maximum amount deductible under the Internal Revenue Code.
Contributions payable to the Plan at December 31, 1992 were
$426,000.

RETIREE HEALTH CARE PLAN

MMC provides a health care plan which covers all eligible
retirees of the Company and its affiliates. The Parent
subsidizes a portion of the cost of the plan. In 1992, the
Parent allocated its cost of the plan to the Company and its
affiliates in a manner which management believed reflected the
actual cost of the plan on a cash basis.

In 1992, the Parent adopted STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 106 - EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106). This
statement requires the Parent to account for the cost of the plan
on an accrual basis instead of a cash basis. The transition
obligation related to adopting SFAS 106 was absorbed by the
Parent.

6. RELATED PARTY TRANSACTIONS

The Company shares office facilities and personnel with
other wholly-owned subsidiaries of the Parent. Accordingly, the
related costs of such arrangements have been allocated among the
various subsidiaries in a manner which management believes is
representative of the actual costs incurred.

Accounts receivable from affiliates primarily represents
advances made to the Parent in connection with the Parent's cash
management policy.

In 1992, the Company paid a dividend of $70,000,000 to the
Parent.

INDEPENDENT AUDITORS' REPORT

Putnam Investment Management, Inc.

We have audited the accompanying balance sheet of Putnam
Investment Management, Inc., formerly The Putnam Management
Company, Inc. (a wholly-owned subsidiary of Putnam Investments,
Inc., formerly The Putnam Companies, Inc.) as of December 31,
1992. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the balance sheet is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the
balance sheet provides a reasonable basis for our opinion.

In our opinion, such balance sheet presents fairly, in all
material respects, the financial position of Putnam Investment
Management, Inc. at December 31, 1992 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE

March 18, 1993
Boston, Massachusetts

EXHIBIT A-2

PUTNAM INVESTMENT MANAGEMENT, INC.
BALANCE SHEET
SEPTEMBER 30, 1993
(UNAUDITED)

ASSETS:
Cash $ 300
Investments (note 2) 50,000
Investment management fees receivable 57,545,441
Accounts receivable from affiliates (note 6) 76,289,965
Prepaid expenses and other assets 3,453,641
Property and equipment - net (notes 2 & 3) 4,485,402
------------

TOTAL ASSETS $141,824,749
============

LIABILITIES AND STOCKHOLDER'S EQUITY

LIABILITIES:
Accounts payable and accrued
expenses (note 5) $ 24,925,578
Accounts payable to affiliate 938
------------

TOTAL LIABILITIES 24,926,516
------------

STOCKHOLDER'S EQUITY:

Common stock - $1 par value; authorized
and outstanding, 1,000 shares 1,000
Paid-in surplus 4,696,665
Retained earnings 112,200,568
------------

TOTAL STOCKHOLDER'S EQUITY 116,898,233
------------

TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $141,824,749
============

See notes to balance sheet.

PUTNAM INVESTMENT MANAGEMENT, INC.

NOTES TO BALANCE SHEET
(Unaudited)

1. CORPORATE AFFILIATION

Putnam Investment Management, Inc. (the Company) is a
wholly-owned subsidiary of Putnam Investments, Inc., (the
Parent), which is a wholly-owned subsidiary of Marsh &
McLennan Companies, Inc. (MMC).

The Company's primary business is to provide investment
advisory services to Putnam-sponsored mutual funds. In
connection with providing these services, the Company
receives a management fee which is based upon the average
net asset value of the respective fund to which the services
are provided.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments - Investments consist of time deposits held by
an affiliate. Investments are recorded at the lower of cost
or market.

Property and Equipment - Property and equipment are recorded
at cost. Office and data processing equipment are
depreciated using the straight-line method over their
estimated useful lives of four to ten years. Leasehold
improvements are amortized using the straight-line method
over ten years or the period covered by the lease, whichever
is less. Additions, renewals and betterments of property
and equipment are capitalized. Expenditures for maintenance
and repairs are charged to income when incurred.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Office and data processing equipment $ 3,465,917
Less accumulated depreciation (2,169,511)
------------
1,296,406
------------

Leasehold improvements 5,356,264
Less accumulated amortization (2,167,268)
------------
3,188,996
------------

Property and equipment - net $ 4,485,402
============

4. INCOME TAXES

In accordance with the provisions of STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES,
the Company records a current liability or asset for the
estimated taxes payable or refundable on tax returns for the
current year and a deferred tax liability or asset for the
estimated future tax effects attributable to temporary
differences.

The Company, through MMC, files its federal tax return as a
member of a consolidated group. The Parent allocates its
current and deferred tax provision or benefit to the Company
in a manner which is representative of how the Company would
compute its provision as a separate entity.

Under an agreement with the Parent, the Company pays the
Parent each month for the amount of its net current and
deferred tax provision. If the Company has a net tax
benefit, the Parent pays the Company that amount. The
Parent then assumes responsibility for the payment of all
taxes in accordance with federal, state and local laws. As
a result of this agreement, the Company has no current or
deferred tax liability or asset reflected in its balance
sheet at September 30, 1993.

5. EMPLOYEE BENEFIT PLANS

Profit Sharing Plan

The Company, its Parent and affiliates sponsor a
profit-sharing plan (the Plan) covering substantially all
employees, providing for annual contributions as determined
by the Board of Directors. Contributions payable to the
Plan at September 30, 1993 were $457,000.

Retiree Health Care Plan

MMC provides a health care plan which covers all eligible
retirees of the Company and its affiliates. The Parent
subsidizes a portion of the cost of the plan. The Parent
allocates its cost of the plan to the Company and its
affiliates in a manner which management believes reflects
the actual cost of the plan on an accrual basis.

6. RELATED PARTY TRANSACTIONS

The Company shares office facilities and personnel with
other wholly-owned subsidiaries of the Parent. Accordingly,
the related costs of such arrangements have been allocated
among the various subsidiaries in a manner which management
believes is representative of the actual costs incurred.

Accounts receivable from affiliates primarily represents
advances made to the Parent in connection with the Parent's
cash management policy.

PUTNAM FEDERAL INCOME TRUST PROXY BALLOT

PROXY FOR THE MEETING OF
SHAREHOLDERS, MAY 5, 1994

THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE FUND.

The undersigned hereby appoints George Putnam, Hans H. Estin and
William F. Pounds, and each of them separately, proxies, with
power of substitution, and hereby authorizes them to represent
and to vote, as designated below, at the Meeting of Shareholders
of Putnam Federal Income Trust on May 5, 1994, at 1:00 p.m.,
Boston time, and at any adjournments thereof, all of the shares
of the Fund which the undersigned would be entitled to vote if
personally present.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR ELECTING TRUSTEES AS SET
FORTH IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.

PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.

NOTE: Please sign exactly as name appears on this card. All
joint owners should sign. When signing as executor,
administrator, attorney, trustee or guardian or as
custodian for a minor, please give full title as such. If
a corporation, please sign in full corporate name and
indicate the signer's office. If a partner, sign in the
partnership name.

Please fold at perforation before detaching

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

----
Please mark your choices / X / in blue or black ink.
----
(Control #)

(Control #)

THE TRUSTEES RECOMMEND A VOTE FOR ELECTING ALL OF THE NOMINEES FOR TRUSTEES AND FOR THE PROPOSALS LISTED BELOW.

1. ELECTION OF TRUSTEES: NOMINEES: PROPOSAL TO: FOR AGAINST ABSTAIN

---- FOR electing all the J. A. Baxter 2. RATIFY THE SELECTION ----
/ / nominees H. H. Estin OF COOPERS & LYBRAND / /
---- (EXCEPT AS MARKED TO J. A. Hill AS AUDITORS. ----
- ----
THE CONTRARY BELOW). E. T. Kennan
L. J. Lasser 3. APPROVE THE ELIMINATION OF THE ---- ---- ----
R. E. Patterson FUND'S FUNDAMENTAL INVESTMENT / / / / / /
D. S. Perkins RESTRICTION WITH RESPECT TO ---- ---- ----

W. F. Pounds INVESTMENTS IN INVESTMENT COMPANIES.
---- WITHHOLD authority G. Putnam
/ / to vote for all G. Putnam, III 4. APPROVE AN AMENDMENT TO THE F
---- nominees. A.J.C. Smith FUNDAMENTAL INVESTMENT RESTRI
W. N. Thorndike WITH RESPECT TO INVESTMENTS ---- ---- ----
IN RESTRICTED SECURITIES.

TO WITHHOLD AUTHORITY TO 5. APPROVE AMENDMENTS TO THE FUND'S ---- ---- ----
VOTE FOR AN INDIVIDUAL AGREEMENT AND DECLARATION OF / / / / / /
NOMINEE, WRITE THAT TRUST TO PERMIT THE ISSUANCE ---- ---- ----
NOMINEE'S NAME BELOW. OF ADDITIONAL CLASSES OF SHARES.

--------------------------
-------------------------- Please be sure to sign and date this Proxy. (Account #) (Shares #)

............................./ .......................... Date .......... (Name & Address)
Shareholder sign here Co-owner sign here
Please fold at perforation before detaching
/TABLE

(Detachable attachment to proxy card; Page 3 is on the same side as page 1;
and Page 4 is on the reverse side, i.e., the same side as Page 2.)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(Putnam Logo)

CHANGE OF ADDRESS NOTIFICATION. Please use this form to inform us of any change in address or telephone number or to
provide us with your comments. Detach this form from the Proxy Ballot and return it with your executed Proxy in the
enclosed envelope.

HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?

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

Telephone ............................................. ......................................................
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Dear Shareholder: (Name and Address)

YOUR VOTE IS IMPORTANT. Please help us to eliminate the
expense of follow-up mailings by executing and returning
this Proxy as soon as possible. A postage-paid
business reply envelope is enclosed for your convenience.

Thank you! (Account #)