PUTNAM MUNICIPAL BOND FUND

                        (a Massachusetts business trust)



               AUCTION RATE MUNICIPAL PREFERRED SHARES ["AMPS"(R)]



                              2,920 Shares Series A



                              2,400 Shares Series B



                    Liquidation Preference $25,000 Per Share



                               PURCHASE AGREEMENT







                                                                October __, 2001

MERRILL LYNCH & CO.

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

4 World Financial Center

New York, New York 10281-1201



         As Representative of the Several Underwriters



Dear Sirs and Mesdames:



                  Putnam Municipal Bond Fund, a Massachusetts business trust

(the "Fund"), and Putnam Investment Management, LLC, a Delaware limited

liability company (the "Adviser"), each confirms its agreement with Merrill

Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the

"Representative") and the other Underwriters named on Schedule I hereto (the

"Underwriters") with respect to the sale by the Fund and the purchase by the

Underwriters of 2,920 Auction Rate Municipal Preferred Shares of beneficial

interest, Series A of the Fund (the "Series A AMPS") and 2,400 Auction Rate

Municipal Preferred Shares of beneficial interest, Series B of the Fund (the

"Series B AMPS"), all without par value and with a liquidation preference of

$25,000 per share plus an amount equal to accumulated but unpaid dividends

(whether or not earned or declared). The Series A AMPS and Series B AMPS are

herein collectively referred to as the "Shares". The Underwriters will purchase

Shares as set forth on said Schedule I.



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

(R) Registered trademark of Merrill Lynch & Co., Inc.



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                  Prior to the purchase and public offering of the Shares by the

Underwriters, the Fund and the Underwriters shall enter into an agreement

substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The

Pricing Agreement may take the form of an exchange of any standard form of

written telecommunication between the Fund and the Underwriters and shall

specify such applicable information as is indicated in Exhibit A hereto. The

offering of the Shares will be governed by this Agreement, as supplemented by

the Pricing Agreement. From and after the date of the execution and delivery of

the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing

Agreement.



                  The Fund has filed with the Securities and Exchange Commission

(the "Commission") a registration statement on Form N-2 (No. 333-68370) and a

related preliminary prospectus for the registration of the Shares under the

Securities Act of 1933, as amended (the "1933 Act"), which registration

statement also constitutes an amendment to the registration statement of the

Fund under the Investment Company Act of 1940, as amended (the "1940 Act"), and

the published rules and regulations of the Commission under the 1940 Act

(together with the published rules and regulations under the 1933 Act, the

"Rules and Regulations") and has filed such amendments to such registration

statement on Form N-2, if any, and such amended preliminary prospectuses as may

have been required to the date hereof. The Fund will prepare and file such

additional amendments thereto and such amended prospectuses as may hereafter be

required pursuant to the terms hereof. Such registration statement (as amended

at the time it becomes effective, if applicable) and the prospectus constituting

a part thereof (including in each case the information, if any, deemed to be

part thereof pursuant to Rule 430A(b) or Rule 434 of the Rules and Regulations),

as from time to time amended or supplemented pursuant to the 1933 Act, are

hereinafter referred to as the "Registration Statement" and the "Prospectus,"

respectively, except that if any revised prospectus shall be provided to the

Underwriters by the Fund for use in connection with the offering of the Shares

which differs from the Prospectus on file at the Commission at the time the

Registration Statement becomes effective (whether such revised prospectus is

required to be filed by the Fund pursuant to Rule 497(c) or Rule 497(h) of the

Rules and Regulations) the term "Prospectus" shall refer to such revised

prospectus from and after the time it is first provided to the Underwriters for

such use. If the Fund elects to rely on Rule 434 of the Rules and Regulations,

all references to the Prospectus shall be deemed to include, without limitation,

the form of prospectus and the term sheet, taken together, provided to the

Underwriters by the Fund in reliance on Rule 434 of the Rules and Regulations

(the "Rule 434 Prospectus"). If the Fund files a registration statement to

register a portion of the Shares and relies on Rule 462(b) for such registration

statement to become effective upon filing with the Commission (the "Rule 462

Registration Statement"), then any reference to "Registration Statement" herein

shall be deemed to include both the registration statement referred to above

(No. 333-68370) and the Rule 462 Registration Statement, as each such

registration statement may be amended pursuant to the 1933 Act.



                  The Fund understands that the Underwriters propose to make a

public offering of the Shares as soon as the Underwriters deem advisable after

the Registration Statement becomes effective and the Pricing Agreement has been

executed and delivered.



                  SECTION 1. Representations and Warranties. (a) The Fund and

the Adviser each severally represents and warrants to the Underwriters as of the

date hereof and as of the date of the Pricing Agreement (such latter date being

hereinafter referred to as the "Representation Date") as follows:



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                                    (i) At the time the Registration Statement

                           becomes effective and at the Representation Date, the

                           Registration Statement will comply in all material

                           respects with the requirements of the 1933 Act, the

                           1940 Act and the Rules and Regulations and will not

                           contain an untrue statement of a material fact or

                           omit to state a material fact required to be stated

                           therein or necessary to make the statements therein

                           not misleading. The Prospectus, at the Representation

                           Date (unless the term "Prospectus" refers to a

                           prospectus which has been provided to the

                           Underwriters by the Fund for use in connection with

                           the offering of the Shares which differs from the

                           Prospectus on file at the Commission at the time the

                           Registration Statement becomes effective, in which

                           case at the time it is first provided to the

                           Underwriters for such use) and at Closing Time

                           referred to in Section 2, will not contain an untrue

                           statement of a material fact or omit to state a

                           material fact necessary in order to make the

                           statements therein, in the light of the circumstances

                           under which they were made, not misleading; provided,

                           however, that the representations and warranties in

                           this subsection shall not apply to statements in or

                           omissions from the Registration Statement or

                           Prospectus made in reliance upon and in conformity

                           with information furnished to the Fund in writing by

                           the Underwriters expressly for use in the

                           Registration Statement or Prospectus and, with

                           respect to the representations and warranties of the

                           Fund, shall not apply to the description of the

                           Investment Advisor contained in the Prospectus under

                           the caption "Management of the Fund".



                                    (ii) The accountants who certified the

                           financial statements included in the Registration

                           Statement are independent public accountants as

                           required by the 1933 Act and the Rules and

                           Regulations.



                                    (iii) The financial statements included in

                           the Registration Statement present fairly the

                           financial position of the Fund as of the dates

                           indicated; and such financial statements have been

                           prepared in conformity with generally accepted

                           accounting principles applied on a consistent basis.



                                    (iv) Since the date as of which information

                           is given in the Registration Statement and the

                           Prospectus, except as otherwise stated therein, (a)

                           there has been no material adverse change in the

                           condition, financial or otherwise, of the Fund, or in

                           the earnings, business affairs or business prospects

                           of the Fund, whether or not arising in the ordinary

                           course of business, (b) there have been no

                           transactions entered into by the Fund which are

                           material to the Fund other than those in the ordinary

                           course of business and (c) except for regular monthly

                           dividends on the outstanding common shares of

                           beneficial interest, without par value, of the Fund

                           (the "Common Shares") there has been no dividend or

                           distribution of any kind declared, paid or made by

                           the Fund on any class of the Common Shares.



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                                    (v) The Fund has been duly established and

                           is validly existing as a voluntary association

                           (commonly referred to as a business trust) under the

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