38420, 11/97
Prospectus Supplement
dated November 10, 1997 to:
PUTNAM MUNICIPAL INCOME FUND
Prospectus dated July 30, 1997
1. The following paragraph is added to the cover page of the
prospectus immediately following the first paragraph:
The fund may invest in lower-rated bonds, commonly known as
"junk bonds." These investments are subject to a greater
risk of loss of principal and nonpayment of interest.
Purchasers should carefully assess the risks associated with
an investment in the fund.
2. The following replaces the first sentence of the first
paragraph of the section entitled "Basic investment strategy":
The fund invests under normal market conditions at least 55%
of its net assets in investment-grade tax-exempt securities.
3. The following replaces the second paragraph of the section
entitled "Basic investment strategy":
Differing yields on tax-exempt securities of the same
maturity are a function of several factors, including the
relative financial strength of the issuers. High yields are
generally available from securities rated below BBB or Baa
by a rating agency or from unrated securities of comparable
quality. Securities rated below BBB or Baa (and comparable
unrated securities) are commonly known as "junk bonds," and
are considered to be of poor standing and predominantly
speculative. The fund may invest up to 10% of its total
assets in securities that are rated below B by each of the
agencies rating the security, including securities in the
lowest rating category of each rating agency, and in unrated
securities of comparable quality. Such securities may be in
default and are generally regarded by the rating agencies as
having extremely poor prospects of ever attaining any real
investment standing. The rating services' descriptions of
securities in the lower rating categories, including their
speculative characteristics, are set forth in the appendix
to this prospectus. The foregoing investment limitations
will be measured at the time of purchase and, to the extent
a security is assigned a different rating by one or more of
the various rating agencies, Putnam Management will use the
highest rating assigned by any agency. For more detailed
information about the risks associated with investing in
lower-rated securities, see "Risk factors" below.
