Putnam Equity Income Fund
One Post Office Square, Boston, MA 02109
Class A shares
INVESTMENT STRATEGY: GROWTH AND INCOME
PROSPECTUS - March 30, 1997, as revised May 30, 1997
This prospectus explains concisely what you should know before
investing in class A shares of Putnam Equity Income Fund (the
"fund") which are offered without a sales charge through eligible
employer-sponsored retirement plans. Please read it carefully
and keep it for future reference. You can find more detailed
information about the fund in the March 30, 1997 statement of
additional information (the "SAI"), as amended from time to time.
For a free copy of the SAI or for other information, including a
prospectus regarding class A shares for other investors, call
Putnam Investor Services at 1-800-752-9894. The SAI has been
filed with the Securities and Exchange Commission (the
"Commission") and is incorporated into this prospectus by
reference. The Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated
by reference into this prospectus and the SAI, and other
information regarding registrants that file electronically with
the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PUTNAMINVESTMENTS
Putnam Defined
Contribution Plans<PAGE>
ABOUT THE FUND
Expenses summary. .......................................
Financial highlights. ...................................
Objectives. .............................................
How the fund pursues its objectives. ....................
How performance is shown. ...............................
How the fund is managed. ................................
Organization and history. ...............................
ABOUT YOUR INVESTMENT
How to buy shares. ......................................
Distribution plan. ......................................
How to sell shares. .....................................
How to exchange shares. .................................
How the fund values its shares. .........................
How the fund makes distributions to shareholders;
tax information. ...................................
ABOUT PUTNAM INVESTMENTS, INC. ..........................
<PAGE>
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes expenses attributable to class A
shares based on the fund's most recent fiscal year. The example
shows the cumulative expenses attributable to a hypothetical
$1,000 investment in class A shares over specified periods.
Annual fund operating expenses
(as a percentage of average net assets)
Management fees 0.63%
12b-1 fees 0.25%
Other expenses 0.23%
Total fund operating expenses 1.11%
The table is provided to help you understand the expenses of
investing in the fund and your share of fund operating expenses
that the fund incurs. The expenses shown in the table do not
reflect the application of credits that reduce fund expenses.
The annual management fees shown in the table have been restated
to reflect an increase in the management fees payable to Putnam
Investment Management, Inc., the fund's investment manager
("Putnam Management"). Actual management fees and total fund
operating expenses were 0.61% and 1.09% for class A shares.
Example
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years
$11 $35 $61 $135
The example does not represent past or future expense levels and
actual expenses may be greater or less than those shown. Federal
regulations require the example to assume a 5% annual return, but
actual annual return varies. The example does not reflect any
charges or expenses related to your employer's plan.
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A shares. This information has been derived from the
fund's financial statements, which have been audited and reported
on by the independent accountants. The "Report of independent
accountants" and financial statements included in the fund's
annual report to shareholders for the 1996 fiscal year are
incorporated by reference into this prospectus. The fund's
annual report, which contains additional unaudited performance
information, is available without charge upon request.
On March 7, 1991, the shareholders of the fund approved the
fund's current investment objectives and current distribution
policies. Prior to March 7, 1991, the investment objective of
the fund was to seek as high a level of current return as Putnam
Management believed not to involve undue risk, primarily by
investing in dividend-paying common stocks and securities
convertible into common stocks and by writing covered call
options to increase its current return. Under the fund's former
distribution policies, at certain times the fund paid quarterly
distributions at a level rate even though the fund did not
achieve projected investment results for a given period. As a
result, the fund's distributions at times included a return of
capital. Consequently, the information in the table relating to
periods before March 7, 1991 does not reflect the fund's
performance under its current investment objectives or
distribution policies.
<TABLE>
<CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FOR THE PERIOD
FOR THE PERIOD
DECEMBER 2,
1994 SEPTEMBER 13, 1993
(COMMENCEMENT
OF (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
YEAR ENDED OPERATIONS) TO YEAR ENDED
NOVEMBER 30 NOVEMBER 30
NOVEMBER 30 NOVEMBER 30 NOVEMBER 30
1996 1995
1996 1995 1994 1993 1996
<S> <C> <C>
<C> <C> <C> <C> <C>
CLASS M
CLASS B CLASS A
NET ASSET VALUE, BEGINNING OF PERIOD $10.89 $8.45
$10.89 $8.46 $8.65 $8.66 $10.93
INVESTMENT OPERATIONS
Net investment income .25 .28(c)
.21 .23 .26 .06(c) .31
Net realized and unrealized gain
(loss) on investments 2.36 2.45
2.37 2.46 (.18) (.07) 2.37
TOTAL FROM INVESTMENT OPERATIONS 2.61 2.73
2.58 2.69 .08 (.01) 2.68
LESS DISTRIBUTIONS:
From net investment income (.27) (.29)
(.24) (.26) (.27) -- (.32)
In excess of net investment income -- --
- -- -- -- -- --
TOTAL DISTRIBUTIONS (.27) (.29)
(.24) (.26) (.27) -- (.32)
NET ASSET VALUE, END OF PERIOD $13.23 $10.89
$13.23 $10.89 $8.46 $8.65 $13.29
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE (%)(a) 24.35 32.89*
24.06 32.30 .86 (.12)* 24.96
NET ASSETS, END OF PERIOD
(in thousands) $22,254
$7,051$221,259 $83,646 $32,114 $14,800
$566,133
Ratio of expenses
to average net assets (%)(b) 1.59 1.60*
1.84 1.87 1.78 .44* 1.09
Ratio of net investment
income to average net assets (%) 2.11 2.99*
1.86 2.63 3.02 .55* 2.61
Portfolio turnover (%) 67.56 70.39
67.56 70.39 82.49 125.85(d) 67.56
Average commission rate paid (e) $.0509
$.0509 $.0509
</TABLE>
<PAGE>
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period) [continued]
YEAR ENDED NOVEMBER 30
1995 1994 1993
1992 1991 1990 1989 1988 1987
CLASS A
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $8.49 $8.67 $7.72
$7.29 $6.60 $8.62 $8.47 $7.87 $10.81
INVESTMENT OPERATIONS
Net investment income .32 .32 .28
.42 .30 .25 .29 .24 .21
Net realized and unrealized gain
(loss) on investments 2.44 (.18) 1.01
.41 .93 (1.08) 1.14 1.87 (1.44)
TOTAL FROM INVESTMENT OPERATIONS 2.76 .14 1.29
.83 1.23 (.83) 1.43 2.11 (1.23)
LESS DISTRIBUTIONS:
From net investment income (.32) (.32) (.31)
(.40) (.30) (.25) (.32) (.32) (.21)
In excess of net investment income -- -- (.03)
- -- -- -- -- -- --
Net realized gain on investments -- -- --
- -- (.24) -- (.06) (1.19) (1.50)
Paid in capital -- -- --
- -- -- (.94) (.90) -- --
TOTAL DISTRIBUTIONS (.32) (.32) (.34)
(.40) (.54) (1.19) (1.28) (1.51) (1.71)
NET ASSET VALUE, END OF PERIOD $10.93 $8.49 $8.67
$7.72 $7.29 $6.60 $8.62 $8.47 $7.87
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE (%)(a) 33.17 1.59 17.06
11.66 19.13 (10.56) 17.75 28.23 (15.33)
NET ASSETS, END OF PERIOD
(in thousands) $391,551 $304,124 $328,251
$334,127 $397,237 $585,011 $934,823 $1,005,981 $902,370
Ratio of expenses to
average net assets (%)(b) 1.13 1.04 1.16
1.23 1.20 1.09 .84 .87 .83
Ratio of net investment
income to average net assets (%) 3.32 3.67 3.40
5.57 4.13 3.30 3.28 2.75 1.92
Portfolio turnover (%) 70.39 82.49 125.85(d)
340.99 198.18 222.84 153.35 38.32 225.30
Average commission rate paid (e)
<PAGE>
<FN>
* Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended
on or after November 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior
period ratios exclude these amounts.
(c) Per share net investment income has been determined on the
basis of the weighted average number of shares
outstanding during the period.
(d) Portfolio turnover excludes the impact of assets received by
the fund, then known as Putnam Strategic Income Trust,
from Putnam Equity Income Fund, formerly known as Putnam Total
Return Fund.
(e) Average commission rate paid is required for fiscal periods
beginning on or after September 1, 1995.
</TABLE>
OBJECTIVE
The investment objective of Putnam Equity Income Fund is to seek
current income.
Capital growth is a secondary
objective when consistent with seeking current income. The fund
is not intended
to be a complete investment program,
and there is no assurance that it will achieve its objectives.
HOW THE FUND PURSUES ITS OBJECTIVES
Basic investment strategy
The fund seeks current income by investing primarily in a
diversified portfolio
of income-producing equity securities.
The fund will normally invest at least 65% of its assets in
income-producing
equity securities, which may include common
stocks, preferred stocks, and securities convertible into common
or preferred
stocks. The income-producing equity
securities the fund purchases will normally have current dividend
yields higher
than the currently available dividend
yield quoted on the Standard & Poor's 500 Composite Stock Price
Index, although
there is no assurance that such yields
will be achieved. The fund may also invest in debt securities
rated at least
CCC or Caa by a nationally recognized
securities rating agency, such as Standard & Poor's ("S&P") or
Moody's Investors
Service, Inc. ("Moody's") or, if
unrated, determined by Putnam Management to be of comparable
quality.
Securities in the rating categories CCC and Caa
are considered to be of poor standing and predominantly
speculative. The fund
will not necessarily dispose of a
security when its rating is reduced below its rating at the time
of purchase,
although Putnam Management will monitor
the investment to determine whether continued investment in the
security will
assist in meeting the fund's investment
objectives. The foregoing investment limitation 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. See "Investments in fixed-income
securities."
The fund may hold a portion of its assets
in cash or money market instruments.
The fund seeks its secondary objective of capital growth, when
consistent with
its primary objective of current income,
by investing in securities which Putnam Management believes have
the potential
to appreciate in value over time.
The fund will not limit its investments to any particular type of
company.
The fund may invest in companies, large or
small, whose securities Putnam Management believes have the
potential to
provide above-average current income and,
secondarily, capital growth. It may invest in small and
relatively less
well-known companies. Such companies may have
limited product lines, markets or financial resources, or may
depend on a
limited management group. Their securities may
trade less frequently and in limited volume, and only in the
over-the-counter
market or on a regional securities
exchange. As a result, these securities may fluctuate in value
more than those
of larger, more established companies.
Alternative investment strategies
At times Putnam Management may judge that conditions in the
securities markets
make pursuing the fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such
times Putnam Management may temporarily use
alternative strategies primarily designed to reduce fluctuations
in the value
of fund assets.
In implementing these defensive strategies, the fund may invest
without limit
in debt securities, money market
instruments, or any other securities Putnam Management considers
consistent
with such defensive strategies.
It is impossible to predict when, or for how long, the fund will
use these
alternative stategies.
Foreign investments
The fund may invest in securities of foreign issuers that are not
actively
traded in U.S. markets. These foreign
investments involve certain special risks described below.
Foreign securities are normally denominated and traded in foreign
currencies.
As a result, the value of the fund's
foreign investments and the value of its shares may be affected
favorably or
unfavorably by changes in currency exchange
rates relative to the U.S. dollar. The fund may engage in a
variety of foreign
currency exchange transactions in
connection with its foreign investments, including transactions
involving
futures contracts, forward contracts and options.
Investments in foreign securities may subject the fund to other
risks as well.
For example, there may be less
information publicly available about a foreign issuer than about
a U.S. issuer,
and foreign issuers are not generally
subject to accounting, auditing and financial reporting standards
and practices
comparable to those in the United
States. The securities of some foreign issuers are less liquid
and at times
more volatile than securities of comparable
U.S. issuers. Foreign brokerage commissions and other fees are
also generally
higher than in the United States.
Foreign settlement procedures and trade regulations may involve
certain risks
(such as delay in payment or delivery of
securities or in the recovery of the fund's assets held abroad)
and expenses
not present in the settlement of
investments in U.S. markets.
In addition, the fund's investments in foreign securities may be
subject to the
risk of nationalization or expropriation
of assets, imposition of currency exchange controls or
restrictions on the
repatriation of foreign currency,
confiscatory taxation, political or financial instability and
diplomatic
developments which could affect the value of
the fund's investments in certain foreign countries. Dividends
or interest on,
or proceeds from the sale of, foreign
securities may be subject to foreign withholding taxes, and
special U.S. tax
considerations may apply.
Legal remedies available to investors in certain foreign
countries may be more
limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of
some foreign countries may limit the
fund's ability to invest in securities of certain issuers
organized under the
laws of those foreign countries.
The risks described above are typically increased in connection
with investments
in less developed and developing
nations, which are sometimes referred to as "emerging markets."
For example,
political and economic structures in these
countries may be in their infancy and developing rapidly, causing
instability.
High rates of inflation or currency
devaluations may adversely affect the economies and securities
markets of such
countries. Investments in emerging
markets may be considered speculative.
The fund expects that its investments in foreign securities
generally will not exceed 20% of its total assets, although
the fund's investments in foreign securities may exceed this
amount from time to time. Certain of the foregoing risks
may also apply to some extent to securities of U.S. issuers that
are denominated in foreign currencies or that are
traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.
For more information about foreign securities and the risks
associated with investment in such securities, see the SAI.
Investments in fixed-income securities
Although the fund will invest primarily in common stocks, it may
also invest in both higher-rated and lower-rated fixed-
income securities. The values of fixed-income securities
generally fluctuate in response to changes in interest rates.
Thus, a decrease in interest rates will generally result in an
increase in the value of the fund's fixed-income
investments. Conversely, during periods of rising interest
rates, the value of the fund's fixed-income investments will
generally decline. The values of lower-rated fixed-income
securities, commonly known as "junk bonds," generally
fluctuate more than those of higher-rated fixed-income
securities. Securities in the lower rating categories may,
depending on the rating, have large uncertainties or major
exposures to adverse conditions, and may include securities
in default. The rating services' descriptions of securities in
the various rating categories, including the speculative
characteristics of securities in the lower rating categories, are
set forth in the SAI.
The lower ratings of these securities reflect a greater
possibility that adverse changes in the financial condition of
their issuers, or in general economic conditions, or both, or an
unanticipated rise in interest rates, may impair the
ability of their issuers to make payments of interest and
principal. In addition, under such circumstances the values
of such securities may be more volatile, and the markets for such
securities may be less liquid, than those for higher-
rated securities, and the fund may as a result find it more
difficult to determine the value of such securities. When
the fund invests in securities in the lower rating categories,
the achievement of the fund's goals is more dependent on
Putnam Management's ability than would be the case if the fund
were investing in securities in the higher rating
categories.
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A
change in the securities held by the fund is known as "portfolio
turnover." As a result of the fund's investment
policies, under certain market conditions its portfolio turnover
rate may be higher than that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in
realization of taxable capital gains. Portfolio turnover rates
are shown in the section "Financial highlights."
Futures and options
The fund may buy and sell index futures contracts. An "index
future" is a contract to buy or sell units of a particular
securities index at an agreed price on a specified future date.
Depending on the change in value of the index between
the time the fund enters into and terminates an index future
transaction, the fund realizes a gain or loss. In addition
to or as an alternative to purchasing or selling index futures,
the fund may buy and sell call and put options on index
futures or securities indexes. The fund may engage in index
futures and options transactions for hedging purposes and
for nonhedging purposes, such as to adjust its exposure to
relevant markets or as a substitute for direct investment.
The fund may also purchase warrants, issued by banks and other
financial institutions, whose values are based on the
values from time to time of one or more securities indices.
The use of index futures and related options involves certain
special risks. Futures and options transactions involve
costs and may result in losses.
Certain risks arise from the possibility of imperfect
correlations among movements in the prices of financial futures
and options purchased or sold by the fund, of the underlying
securities index, currencies or securities and, in the case
of hedging transactions, of the securities that are the subject
of the hedge. The successful use of the strategies
described above further depends on Putnam Management's ability to
forecast market movements correctly.
Other risks arise from the potential inability to close out index
futures or options positions. There can be no
assurance that a liquid secondary market will exist for any index
future or option at any particular time. The fund's
ability to terminate option positions established in the
over-the-counter market may be more limited than for exchange-
traded options and may also involve the risk that securities
dealers participating in such transactions would fail to
meet their obligations to the fund. Certain provisions of the
Internal Revenue Code and certain regulatory requirements
may limit the use of index futures and options transactions.
A more detailed explanation of index futures and options
transactions, including the risks associated with them, is
included in the SAI.
Other investment practices
The fund may also engage in the following investment practices,
each of which involves certain special risks. The SAI
contains more detailed information about these practices,
including limitations designed to reduce these risks.
Options. The fund may seek to increase its current return by
writing covered call and put options on securities it owns
or in which it may invest. The fund receives a premium from
writing a call or put option, which increases the return if
the option expires unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the opportunity
to profit from any increase in the price of a security
above the exercise price of the option; when it writes a put
option, it takes the risk that it will be required to
purchase a security from the option holder at a price above the
current market price of the security. The fund may
terminate an option that it has written prior to its expiration
by entering into a closing purchase transaction in which
it purchases an option having the same terms as the option
written.
The fund may also buy and sell put and call options, including
combinations of put and call options on the same
underlying security. The aggregate value of the securities
underlying the options may not exceed 25% of fund assets.
The use of these strategies may be limited by applicable law.
Securities loans, repurchase agreements and forward commitments.
The fund may lend portfolio securities amounting to
not more than 25% of its assets to broker-dealers and may enter
into repurchase agreements on up to 25% of its assets.
These transactions must be fully collateralized at all times.
The fund may also purchase securities for future
delivery, which may increase its overall investment exposure and
involves a risk of loss if the value of the securities
declines prior to the settlement date. These transactions involve
some risk if the other party should default on its
obligation and the fund is delayed or prevented from recovering
the collateral or completing the transaction.
Diversification
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect
to 75% of its total assets, the fund may not invest more than 5%
of its total assets in the securities of any one issuer
(except U.S. government securities). The remaining 25% of its
total assets is not subject to this restriction. To the
extent the fund invests a significant portion of its assets in
the securities of a particular issuer, it will be subject
to an increased risk of loss if the market value of such issuer's
securities declines.
Derivatives
Certain of the instruments in which the fund may invest, such as
index futures contracts, forward contracts and options,
are considered to be "derivatives." Derivatives are financial
instruments whose value depends upon, or is derived from,
the value of an underlying asset, such as a security or an index.
Although the fund may use derivatives for purposes
other than hedging, such as to earn additional income, the fund
does not consider its use of derivatives for such
purposes to be speculative because each fund expects, whenever
appropriate, to either "cover" its positions or segregate
assets sufficient to pay any potential liabilities resulting from
such investments. Further information about these
instruments and the risks involved in their use is included
elsewhere in this prospectus and in the SAI.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for the fund's shareholders. These restrictions
prohibit the fund, with respect to 75% of its total assets, from
acquiring more than 10% of the voting securities of any
one issuer.* They also prohibit the fund from investing more
than:
(a) (with respect to 75% of its total assets) 5% of its total
assets in securities of any one issuer other than the U.S.
government;*
(b) 25% of its total assets in any one industry;* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, in securities restricted as
to resale (excluding securities determined by the Trustees (or
the person designated by the Trustees to make such
determinations) to be readily marketable), and in repurchase
agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the SAI for the
full text of these policies and other fundamental investment
policies. Except for investment policies designated as
fundamental in this prospectus or the SAI, the investment
policies described in this prospectus and in the SAI are not
fundamental policies. The Trustees may change any
non-fundamental investment policy without shareholder approval.
As a
matter of policy, the Trustees would not materially change the
fund's investment objectives without shareholder
approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time , include performance
information. "Yield" for each class of shares is
calculated by dividing the annualized net investment income per
share during a recent 30-day period by the maximum
public offering price per share of the class on the last day of
that period.
"Total return" for the one-, five- and ten-year periods (or for
the life of the class A shares, if shorter) through the
most recent calendar quarter represents the average annual
compounded rate of return on an investment of $1,000 in the
fund invested at the maximum public offering price. Total return
may also be presented for other periods or based on
investment at reduced sales charge levels. Any quotation of
investment performance not reflecting the maximum initial
sales charge would be reduced if the sales charge were used.
All data are based on past investment results and do not predict
future performance.
Investment performance, which will vary, is based on many
factors, including market conditions, portfolio composition,
fund operating expenses and which class of shares the investor
purchases. Investment performance also often reflects
the risks associated with the fund's investment objectives and
policies. These factors should be considered when
comparing the fund's investment results with those of other
mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The fund's performance may be
compared to that of various indexes. See the SAI.
Because shares sold through eligible employer-sponsored
retirement plans are sold without a sales charge, quotations of
investment performance reflecting the deduction of a sales charge
will be lower than the actual investment performance
of shares purchased through such plans.
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the conduct
of fund business. Subject to such policies as the
Trustees may determine, Putnam Management furnishes a continuing
investment program for the fund and makes investment
decisions on its behalf. Subject to the control of the Trustees,
Putnam Management also manages the fund's other
affairs and business.
The fund pays Putnam Management a quarterly fee for these
services based on average net assets. See "Expenses summary"
and the SAI.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of the fund's
portfolio since the years stated below:
Business experience
Year (at least 5 years)
---- -------------------------
Edward P. Bousa 1992 Employed as an investment
Senior Vice
President professional by Putnam
Management since October,
1992.
Prior to October, 1992,
Mr. Bousa was a Vice President
and Portfolio Manager at
Fidelity Investments.
Kenneth J. Taubes 1994 Employed as an investment
Senior Vice President professional by Putnam
Management since 1991.
Rosemary H. Thomsen 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1986.
Robert M. Paine Employed as an investment
Senior Vice President 1996 professional by Putnam
Management since 1987.
The fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial,
investor servicing and shareholder reporting expenses, and
payments under its distribution plans (which are in turn
allocated to the relevant class of shares). The fund also
reimburses Putnam Management for the compensation and related
expenses of certain fund officers and their staff who provide
administrative services. The total reimbursement is
determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most
favorable price and execution available, Putnam Management may
consider sales of fund shares (and, if permitted by law,
of the other Putnam funds) as a factor in the selection of
broker-dealers.
ORGANIZATION AND HISTORY
Putnam Equity Income Fund is a Massachusetts business trust
organized on April 27, 1977. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is
on file with the Secretary of State of The Commonwealth
of Massachusetts. Prior to September 13, 1993, the fund was
known as Putnam Strategic Income Trust.
The fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest which may be divided without shareholder
approval into two or more classes of shares having such
preferences and special or relative rights and privileges as the
Trustees determine.
Only the fund's class A shares are offered by this prospectus.
The fund also offers other classes of shares with
different sales charges and expenses. Because of these different
sales charges and expenses, the investment performance
of the classes will vary. For more information, including your
eligibility to purchase any other class of shares,
contact your investment dealer or Putnam Mutual Funds (at
1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of all classes will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable,
are entitled to dividends as declared by the Trustees, and, if
the fund were liquidated, would receive the net assets of
the fund. The fund may suspend the sale of shares at any time
and may refuse any order to purchase shares. Although
the fund is not required to hold annual meetings of its
shareholders, shareholders holding at least 10% of the
outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees or to take other
actions as provided in the Agreement and Declaration of Trust.
If you own fewer shares than the minimum set by the Trustees
(presently 20 shares), the fund may choose to redeem your
shares. You will receive at least 30 days' written notice before
the fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. The fund
may also redeem shares if you own shares above a maximum
amount set by the Trustees. There is presently no maximum, but
the Trustees may establish one at any time, which could
apply to both present and future shareholders.
The fund's Trustees: George Putnam,* Chairman. President of the
Putnam funds. Chairman and Director of Putnam
Management and Putnam Mutual Funds Corp. ("Putnam Mutual Funds").
Director, Marsh & McLennan Companies, Inc.; William
F. Pounds, Vice Chairman. Professor of Management, Alfred P.
Sloan School of Management, Massachusetts Institute of
Technology; Jameson Adkins Baxter, President, Baxter Associates,
Inc.; Hans H. Estin, Vice Chairman, North American
Management Corp.; John A. Hill, Chairman and Managing Director,
First Reserve Corporation; Ronald J. Jackson, Former
Chairman, President and Chief Executive Officer of Fisher-Price,
Inc., Director of Safety 1st, Inc., Trustee of Salem
Hospital and the Peabody Essex Museum; Elizabeth T. Kennan,
President Emeritus and Professor, Mount Holyoke College;
Lawrence J. Lasser,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Management. Director, Marsh &
McLennan Companies, Inc.; Robert E. Patterson, Executive
Vice President and Director of Acquisitions, Cabot Partners
Limited Partnership; Donald S. Perkins,* Director of various
corporations, including Cummins Engine Company, Lucent
Technologies, Inc., Springs Industries, Inc. and Time Warner
Inc.; George Putnam, III,* President, New Generation Research,
Inc.; A.J.C. Smith,* Chairman and Chief Executive
Officer, Marsh & McLennan Companies, Inc.; and W. Nicholas
Thorndike, Director of various corporations and charitable
organizations, including Data General Corporation, Bradley Real
Estate, Inc. and Providence Journal Co. Also, Trustee
of Massachusetts General Hospital and Eastern Utilities
Associates. The Trustees are also Trustees of the other Putnam
funds. Those marked with an asterisk (*) are or may be deemed to
be "interested persons" of the fund, Putnam Management
or Putnam Mutual Funds.
About Your Investment
HOW TO BUY SHARES
All orders to purchase shares must be made through your
employer's retirment plan. For more information about how to
purchase shares of the fund through your employer's plan or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible
employer-sponsored retirement plans at the net asset value per
share
next determined after receipt of an order to receive that day's
net asset value. A class A qualified benefit plan (an
employer-sponsored retirement plan for which Putnam Fiduciary
Trust Company provides recordkeeping or other services) is
eligible to purchase fund shares at net asset value beginning two
years after the plan's initial purchase of class A
shares. A class A qualified benefit plan that initially invested
at least $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates and
that received a proposal from Putnam Mutual Funds prior
to April 15, 1997 may purchase fund shares at net asset value
without regard to this two-year period. An employer-
sponsored retirement plan, other than a class A qualified benefit
plan, is eligible to purchase fund shares at net asset
value if its investment in class A shares is at least $1 million,
or it has at least 200 eligible employees, and the
dealer of record waives its commission with the consent of Putnam
Mutual Funds. Employer-sponsored retirement plan
participating in a "multi-fund" program approved by Putnam Mutual
Funds may include amounts invested in other mutual
funds participating in such program for purposes of determining
whether the plan may purchase class A shares at net
asset value. Employer-sponsored plans may make additional
investments of any amount at any time. To eliminate the need
for safekeeping, the fund will not issue certificates for your
shares.
On sales at net asset value to a class A qualified benefit plan,
Putnam Mutual Funds makes payments to the dealer of
record on net monthly purchases at rates of up to 1.00%. See the
SAI for more information about the rates at which
sales commissions are paid.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to
dealers that sell shares of the Putnam funds. These incentives
or payments may include payments for travel expenses,
including lodging, incurred in connection with trips taken by
invited registered representatives and their guests to
locations within and outside the United States for meetings or
seminars of a business nature. In some instances, these
incentives or payments may be offered only to certain dealers who
have sold or may sell significant amounts of shares.
Certain dealers may not sell all classes of shares.
DISTRIBUTION PLAN
The fund has adopted a distribution plan to compensate Putnam
Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers mentioned below. The plan provides for
payments by the fund to Putnam Mutual Funds at the annual rate
(expressed as a percentage of average net assets) of up
to 0.35% on class A shares. The Trustees currently limit
payments under the plan to the annual rate of 0.25%.
Putnam Mutual Funds compensates qualifying dealers (including,
for this purpose, certain financial institutions) for
sales of shares and the maintenance of shareholder accounts at
the annual rate of up to 0.25% of the average net asset
value of class A shares. The payments to dealers for shares held
by class A qualified benefit plans are made at reduced
rates, as described in the SAI. Putnam Mutual Funds makes
quarterly payments on all other shares at the annual rate of
0.20% of the average net asset value of class A shares
outstanding as of December 31, 1989 and 0.25% of the average net
asset value of shares acquired after that date (including shares
inquired through reinvestment of distributions).
Putnam Mutual Funds may suspend or modify its payments to
dealers. The payments are also subject to the continuation of
the relevant distribution plan, the terms of service agreements
between dealers and Putnam Mutual Funds, and any
applicable limits imposed by the National Association of
Securities Dealers, Inc.
HOW TO SELL SHARES
Subject to any restrictions imposed by your employer's plan, you
can sell your shares through the plan to the fund any
day the New York Stock Exchange is open. For more information
about how to sell shares of the fund through your
employer's plan, including any charges that may be imposed by the
plan, please consult with your employer.
Your plan administrator must send a signed letter of instruction
to Putnam Investor Services. The price you will
receive is the next net asset value calculated after the fund
receives the request in proper form. All requests must be
received by the fund prior to the close of regular trading on the
New York Stock Exchange in order to receive that day's
net asset value. If your plan sells shares having a net asset
value of $100,000 or more, the signatures of registered
owners or their legal representatives must be guaranteed by a
bank, broker-dealer or certain other financial
institutions. See the SAI for more information about where to
obtain a signature guarantee.
The fund generally provides payment for redeemed shares the
business day after the request is received. Under unusual
circumstances, the fund may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law. The fund will only redeem shares for which it
has received payment.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your plan, you can
exchange your shares for shares of other Putnam funds
available through your plan at net asset value. Contact your
plan administrator or Putnam Investor Services for more
information on how to exchange your shares or how to obtain
prospectuses of other Putnam funds in which you may invest.
The exchange privilege is not intended as a vehicle for
short-term trading. Excessive exchange activity may interfere
with portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity
and in other circumstances where Putnam Management or the
Trustees believe doing so would be in the best interests of
your fund, the fund reserves the right to revise or terminate the
exchange privilege, limit the amount or number of
exchanges or reject any exchange. Consult Putnam Investor
Services before requesting an exchange. See the SAI to find
out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less
liabilities, by the number of its shares outstanding. Shares are
valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open.
Portfolio securities for which market quotations are readily
available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at
amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund distributes any net investment income at least quarterly
and any net realized capital gains at least annually.
Distributions from capital gains are made after applying any
available capital loss carryovers. A capital loss
carryover is currently available.
The terms of your plan will govern how your plan may receive
distributions from the fund. Generally, periodic
distributions from the fund to your plan are reinvested in
additional fund shares, although your plan may permit you to
receive fund distributions from net investment income in cash
while reinvesting capital gains distributions in
additional shares or to receive all fund distributions in cash.
If another option is not selected, all distributions
will be reinvested in additional fund shares.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal taxes on
income and gains it distributes to shareholders. The
fund will distribute substantially all of its ordinary income and
capital gain net income on a current basis.
Generally, fund distributions are taxable as ordinary income,
except that any distributions of net long-term capital
gains will be taxed as such regardless of how long you have held
your shares. However, distributions by the fund to
employer-sponsored retirement plans that qualify for tax-exempt
treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax adviser to determine
the suitability of the fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable to an investment in the
fund) from such a plan.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including
possible liability for state and local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the
fund and of other Putnam funds. Putnam Defined Contribution
Plans is a division of Putnam Mutual Funds. Putnam
Fiduciary Trust Company is the fund's custodian. Putnam Investor
Services, a division of Putnam Fiduciary Trust
Company, is the fund's investor servicing and transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are located at One Post Office Square, Boston,
Massachusetts 02109 and are subsidiaries of Putnam Investments,
Inc., which is wholly owned by Marsh & McLennan
Companies, Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.
