PROSPECTUS
March 30, 1997 , as revised October 30, 1997
PUTNAM EQUITY INCOME FUND
CLASS A, B AND M SHARES
INVESTMENT STRATEGY: GROWTH AND INCOME
This prospectus explains concisely what you should know before
investing in shares of Putnam Equity Income Fund (the "fund").
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, call
Putnam Investor Services at 1-800-225-1581. 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.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * L ONDON * TOKYO
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ABOUT THE FUND
EXPENSES SUMMARY
.................................................................
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes of the
fund's shares. Use it to help you estimate the impact of
transaction costs on your investment over time.
FINANCIAL HIGHLIGHTS
.................................................................
Study this table to see, among other things, how the fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.
OBJECTIVES
.................................................................
Read this section to make sure the fund's objectives are
consistent with your own.
HOW THE FUND PURSUES ITS OBJECTIVES
.................................................................
This section explains in detail how the fund seeks its investment
objectives.
HOW PERFORMANCE IS SHOWN
................................................................
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
HOW THE FUND IS MANAGED
................................................................
Consult this section for information about the fund's management,
allocation of its expenses, and how purchases and sales of
securities are made.
ORGANIZATION AND HISTORY
................................................................
In this section, you will learn when the fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
................................................................
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
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HOW TO BUY SHARES
................................................................
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on each class
of shares.
DISTRIBUTION PLANS
................................................................
This section tells you what distribution fees are charged against
each class of shares.
HOW TO SELL SHARES
................................................................
In this section you can learn how to sell fund shares, either
directly to the fund or through an investment dealer.
HOW TO EXCHANGE SHARES
................................................................
Find out in this section how you may exchange fund shares for
shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.
HOW THE FUND VALUES ITS SHARES
................................................................
This section explains how the fund determines the value of its
shares.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
.................................................................
This section describes the various options you have in choosing
how to receive fund dividends. It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
................................................................
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account services
to Putnam funds and their shareholders.
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ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs from
investing in the fund and expenses based on the most recent fiscal
year. The examples show the cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
CLASS A CLASS B CLASS M
SHARES SHARES SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 5.75% NONE* 3.50%*
Deferred sales charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Total fund
Management 12b-1 Other operating
fees fees expenses expenses
- ---------- ----- -------------------
Class A 0.63% 0.25% 0.23% 1.11%
Class B 0.63% 1.00% 0.23% 1.86%
Class M 0.63% 0.75% 0.23% 1.61%
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. 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
were 0.61% for all classes of shares, and total fund operating
expenses were 1.09%, 1.84% and 1.59% for class A, B and M shares,
respectively.
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EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 3 5 10
year years years years
CLASS A $68 $91 $115 $185
CLASS B $69 $88 $121 $198***
CLASS B (NO REDEMPTION) $19 $58 $101 $198***
CLASS M $51 $84 $120 $219
The examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the examples to assume a 5% annual return, but
actual annual return varies.
* The higher 12b-1 fees borne by class B and class M shares
may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end
sales charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were purchased
without an initial sales charge. See "How to buy shares --
Class A shares."
*** Reflects conversion of class B shares to class A shares
(which pay lower ongoing expenses) approximately eight
years after purchase. See "Alternative sales
arrangements."
FINANCIAL HIGHLIGHTS
The following tables present per share financial
information for class A, B and M shares. This information has
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
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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.
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<TABLE><CAPTION>
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
CLASS M CLASS B CLASS A
<S> <C> <C> <C> <C> <C> <C> <C>
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> [/CAPTION]
<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>
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)
</TABLE> [/CAPTION]
<PAGE>
* 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.
<PAGE>
OBJECTIVES
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 the fund's 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
strategies.
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 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 to the fund if the other party
should default on its obligation and the fund is delayed or
prevented from recovering the collateral or completing the
transaction.
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.
<PAGE>
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.
Yield is based on the price of the shares, including the maximum
initial sales charge in the case of class A and class M shares,
but does not reflect any contingent deferred sales charge in the
case of class B shares.
"Total return" for the one-, five- and ten-year periods (or for
the life of a class, 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 (in the case of class A and class M shares) or
reflecting the deduction of any applicable contingent deferred
sales charge (in the case of class B shares). Total return may
also be presented for other periods or based on investment at
reduced sales charge levels. Any quotation of investment
performance not reflecting the maximum initial sales charge or
contingent deferred 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. Fund performance may be
compared to that of various indexes. See the SAI.
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 1992. <PAGE>
Kenneth J. Taubes 1994 Employed as an investment
Senior Vice President professional by Putnam
Management since 1991 .
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
class A, B and M shares are offered by this prospectus. The fund
may also offer 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. , 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. ; W. THOMAS STEPHENS, President and
Chief Executive Officer of MacMillan Bloedel Ltd., Director of
Mail-Well Inc., Qwest Communications, The Eagle Picher Trust and
New Century Energies ; 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
ALTERNATIVE SALES ARRANGEMENTS
CLASS A SHARES. An investor who purchases class A shares pays a
sales charge at the time of purchase. As a result, class A shares
are not subject to any charges when they are redeemed, except for
certain sales at net asset value that are subject to a contingent
deferred sales charge ("CDSC"). Certain purchases of class A
shares qualify for reduced sales charges. Class A shares bear a
lower 12b-1 fee than class B and class M shares. See "How to buy
shares -- Class A shares" and "Distribution plans."
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a specified
period after purchase. Class B shares also bear a higher 12b-1
fee than class A and class M shares. Class B shares automatically
convert into class A shares, based on relative net asset value,
approximately eight years after purchase. For more information
about the conversion of class B shares, see the SAI. This
discussion includes information about how shares acquired through
reinvestment of distributions are treated for conversion purposes.
The discussion also notes certain circumstances under which a
conversion may not occur. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the
time the investment is made. Until conversion, class B shares
will have a higher expense ratio and pay lower dividends than
class A and class M shares because of the higher 12b-1 fee. See
"How to buy shares -- Class B shares" and "Distribution plans."
CLASS M SHARES. An investor who purchases class M shares pays a
sales charge at the time of purchase that is lower than the sales
charge applicable to class A shares. Certain purchases of class M
shares qualify for reduced sales charges. Class M shares bear a
12b-1 fee that is lower than class B shares but higher than class
A shares. Class M shares are not subject to any CDSC and do not
convert into any other class of shares. See "How to buy shares --
Class M shares" and "Distribution plans."
WHICH ARRANGEMENT IS BEST FOR YOU? The decision as to which class
of shares provides a more suitable investment for an investor
depends on a number of factors, including the amount and intended
length of the investment. Investors making investments that
qualify for reduced sales charges might consider class A or class
M shares. Investors who prefer not to pay an initial sales charge
might consider class B shares. Orders for class B shares for
$250,000 or more will be treated as orders for class A shares or
declined. For more information about these sales arrangements,
consult your investment dealer or Putnam Investor Services.
Shares may only be exchanged for shares of the same class of
another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make
additional investments at any time with as little as $50. You can
buy fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order form
and write a check for the amount you wish to invest, payable to
the fund. Return the completed form and check to Putnam Mutual
Funds, which will act as your agent in purchasing shares through
your designated investment dealer.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms are
available from your investment dealer or through Putnam Investor
Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must receive
your order before the close of regular trading on the New York
Stock Exchange. If you buy shares through your investment dealer,
the dealer must receive your order before the close of regular
trading on the New York Stock Exchange to receive that day's
public offering price.
CLASS A SHARES
The public offering price of class A shares is the net asset value
plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam <PAGE>
Mutual Funds,
in its discretion, allocates the entire amount to
your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------
-
Under 50,000 6.10% 5.75% 5.00%
50,000 but under 100,000 4.71 4.50 3.75
100,000 but under 250,000 3.63 3.50 2.75
250,000 but under 500,000 2.56 2.50 2.00
500,000 but under 1,000,000 2.04 2.00 1.75
- -----------------------------------------------------------------
No initial sales charge applies to purchases of
class A shares of $1 million or more or to purchases by
employer-sponsored retirement plans that have at
least 200 eligible employees. However, a CDSC of 1.00% or
0.50% is imposed on redemptions of these shares within the first
or second year, respectively, after purchase, unless the
dealer of record waived its commission with Putnam
Mutual Funds' approval, or unless the purchaser is a class A
qualified benefit plan (a retirement plan for which Putnam
Fiduciary Trust Company or its affiliates provide recordkeeping or
other services in connection with the purchase of class A
shares).
[lass A qualified benefit plans may also purchase class A shares
with no initial sales charge. However, except as stated below, a
CDSC of 0.75% of the total amount redeemed (1.00% in the case of
plans for which Putnam Mutual Funds and its affiliates do
not act as trustee or recordkeeper) is imposed on redemptions of
these shares if, within two years of a plan's initial purchase of
class A shares, it redeems 90% or more of its cumulative
purchases. Thereafter, such a plan is no longer liable for any
CDSC. The two-year CDSC applicable to class A qualified benefit
plans for which Putnam Mutual Funds or its
affiliates serve as trustee or recordkeeper ("full service plans")
is 0.50% of the total amount redeemed for full service plans that
initially invest at least $5 million but less than $10
million in Putnam funds and other investments managed by Putnam
Management or its affiliates ("Putnam Assets"), and is 0.25% of
the total amount redeemed for full service plans that initially
invest at least $10 million but less than $20 million in Putnam
Assets. Class A qualified benefit plans that initially invest at
least $20 million in Putnam Assets, or whose dealer or record has,
with Putnam Mutual Funds' approval, waived its commission or
agreed to refund its commission to Putnam Mutual Funds in
the event a CDSC would otherwise be applicable, are not subject to
any CDSC.
A class A qualified benefit 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. These investments will also be
included for purposes of the discount privileges and programs
described elsewhere in this prospectus and in the SAI.
As described in the SAI, Putnam Mutual Funds pays the dealer of
record a commission of up to 1% on sales to class A qualified
benefit plans. Putnam Mutual Funds pays dealers of record
commissions on sales of class A shares of $1 million or more and
sales of class A shares to employer-sponsored retirement plans
that have at least 200 eligible employees and that are not class A
qualified benefit plans based on an investor's cumulative
purchases during the one-year period beginning with the date of
the initial purchase at net asset value. Each subsequent one-year
measuring period for these purposes will begin with the first net
asset value purchase following the end of the prior period. Such
commissions are paid at the rate of 1.00% of the first $3 million
of shares purchased, 0.50% of the next $47 million and 0.25%
thereafter.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below. The following
types of shares may be redeemed without charge at any time: (i)
shares acquired by reinvestment of distributions, and (ii) shares
otherwise exempt from the CDSC, as described in "How to buy shares
- -- General" below. For other shares, the amount of the charge is
determined as a percentage of the lesser of the current market
value or the cost of the shares being redeemed.
YEAR 1 2 3 4 5 6 7+
- -------------------------------------------------------------
CHARGE 5% 4% 3% 3% 2% 1% 0%
CLASS M SHARES
The public offering price of class M shares is the net asset value
plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------
Under 50,000 3.63% 3.50% 3.00%
50,000 but under 100,000 2.56 2.50 2.00
100,000 but under 250,000 1.52 1.50 1.00
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above None None None
Class M qualified benefit plans (retirement plans for which
Putnam Fiduciary Trust Company or its affiliates provide
recordkeeping or other services in connection with the purchase of
class M shares) and members of qualified groups may
purchase class M shares without a sales charge.
GENERAL
YOU MAY BE ELIGIBLE TO BUY FUND SHARES AT REDUCED SALES CHARGES.
Consult your investment dealer or Putnam Mutual Funds for details
about Putnam's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, qualified
retirement plans and other plans. Descriptions are also included
in the order form and in the SAI.
The fund may sell class A, class B and class M shares at net asset
value without an initial sales charge or a CDSC to current and
retired Trustees (and their families), current and retired
employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of fund shares), financial
institution trust departments investing an aggregate of $1 million
or more in Putnam funds, clients of certain administrators of
tax-qualified plans, tax-qualified plans when proceeds from
repayments of loans to participants are invested (or reinvested)
in Putnam funds, "wrap accounts" for the benefit of clients of
broker-dealers, financial institutions or financial planners
adhering to certain standards established by Putnam Mutual Funds,
and investors meeting certain requirements who sold shares of
certain Putnam closed-end funds pursuant to a tender offer by the
closed-end fund.
In addition, the fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by the fund of assets of an investment company or
personal holding company. The CDSC will be waived on redemptions
of shares arising out of the death or post-purchase disability of
a shareholder or settlor of a living trust account, and on
redemptions in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares at reduced sales charges.
In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed first, followed
by shares held longest during the CDSC period. Any CDSC will be
based on the lower of the shares' cost and net asset value. For
this purpose, the amount of any increase in a share's value above
its initial purchase price is not regarded as a share exempt from
the CDSC. Thus, when you redeem a share that has appreciated in
value during the CDSC period, a CDSC is assessed on its initial
purchase price. Shares acquired by reinvestment of distributions
may be redeemed without a CDSC at any time. For information on
how sales charges are calculated if you exchange your shares, see
"How to exchange shares." Putnam Mutual Funds receives the entire
amount of any CDSC you pay. See the SAI for more information
about the CDSC.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares at net asset value.
If you are considering redeeming or transferring shares to another
person shortly after purchase, you should pay for those shares
with a certified check to avoid any delay in redemption or
transfer. Otherwise, payment may be delayed until the purchase
price of those shares has been collected or, if you redeem by
telephone, until 15 calendar days after the purchase date. To
eliminate the need for safekeeping, certificates will not be
issued for your shares unless you request them.
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 PLANS
CLASS A DISTRIBUTION PLAN. The class A plan provides for payments
by the fund to Putnam Mutual Funds at the annual rate of up to
0.35% of average net assets attributable to class A shares. The
Trustees currently limit payments under the class A plan to the
annual rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying dealers
(including, for this purpose, certain financial institutions) to
compensate them for services provided in connection with sales of
class A shares and the maintenance of shareholder accounts. The
payments are based on the average net asset value of class A
shares attributable to shareholders for whom the dealers are
designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value by shareholders investing $1 million
or more. Also excluded until one year after purchase are shares
purchased at net asset value by qualified retirement plans
with at least 200 eligible employees. These shares are not
subject to the one-year exclusion provision in cases where certain
shareholders who invested $1 million or more have made
arrangements with Putnam Mutual Funds and the dealer of record
waived the sales commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.20% of such average net asset
value for shares outstanding as of December 31, 1989 and 0.25% of
such average net asset value for shares acquired after that date
(including shares acquired through reinvestment of distributions).
For qualified retirement plans initially investing less
than $20 million in Putnam funds and other investments managed by
Putnam Management or its affiliates, Putnam Mutual Funds' payments
to qualifying dealers on shares purchased at net asset value are
100% of the rate stated above if average plan assets in Putnam
funds (excluding money market funds) during the quarter are less
than $20 million, 60% of the stated rate if average plan assets
are at least $20 million but under $30 million, and 40% of the
stated rate if average plan assets are $30 million or more.
For all other qualified retirement plans purchasing shares
at net asset value, Putnam Mutual Funds makes quarterly payments
to qualifying dealers at the annual rate of 0.10% of the average
net asset value of such shares.
CLASS B AND CLASS M DISTRIBUTION PLANS. The class B and class M
plans provide for payments by the fund to Putnam Mutual Funds at
the annual rate of up to 1.00% of average net assets attributable
to class B shares and class M shares, as the case may be. The
Trustees currently limit payments under the class M plan to the
annual rate of 0.75% of such assets.
Although class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested to dealers who sell class B shares. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
The amount paid to dealers at the time of the sale of class M
shares is set forth above under "How to buy shares -- Class M
shares." In addition, to further compensate dealers (including
qualifying financial institutions) for services provided in
connection with sales of class B shares and class M shares and the
maintenance of shareholder accounts, Putnam Mutual Funds makes
quarterly payments to qualifying dealers.
The payments are based on the average net asset value of class B
shares and class M shares attributable to shareholders for whom
the dealers are designated as the dealer of record. Putnam Mutual
Funds makes the payments at an annual rate of 0.25% of such
average net asset value of class B shares and class M shares, as
the case may be.
Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of class M shares, 0.40% of
such average net asset value of class M shares. For class M
shares, the total annual payment to dealers equals 0.65% of such
average net asset value.
GENERAL. Payments under the plans are intended 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 above. Putnam Mutual Funds may suspend or
modify such 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
You can sell your shares to the fund any day the New York Stock
Exchange is open, either directly to the fund or through your
investment dealer. The fund will only redeem shares for which it
has received payment.
SELLING SHARES DIRECTLY TO YOUR FUND. Send a signed letter of
instruction or stock power form to Putnam Investor Services, along
with any certificates that represent shares you want to sell. The
price you will receive is the next net asset value calculated
after the fund receives your request in proper form less any
applicable CDSC. In order to receive that day's net asset value,
Putnam Investor Services must receive your request before the
close of regular trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal representatives
must be guaranteed by a bank, broker-dealer or certain other
financial institutions. See the SAI for more information about
where to obtain a signature guarantee. Stock power forms are
available from your investment dealer, Putnam Investor Services
and many commercial banks.
If you want your redemption proceeds sent to an address other than
your address as it appears on Putnam's records, a signature
guarantee is required. Putnam Investor Services usually requires
additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
YOUR FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER YOUR 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.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 unless you have notified Putnam
Investor Services of an address change within the preceding 15
days. Unless an investor indicates otherwise on the account
application, Putnam Investor Services will be authorized to act
upon redemption and transfer instructions received by telephone
from a shareholder, or any person claiming to act as his or her
representative, who can provide Putnam Investor Services with his
or her account registration and address as it appears on Putnam
Investor Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions. For information, consult Putnam
Investor Services.
During periods of unusual market changes and shareholder activity,
you may experience delays in contacting Putnam Investor Services
by telephone. In this event, you may wish to submit a written
redemption request, as described above, or contact your investment
dealer, as described below. The Telephone Redemption Privilege is
not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be
modified or terminated without notice.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value. Not all Putnam
funds offer all classes of shares. If you exchange shares subject
to a CDSC, the transaction will not be subject to the CDSC.
However, when you redeem the shares acquired through the exchange,
the redemption may be subject to the CDSC, depending upon when you
originally purchased the shares. The CDSC will be computed using
the schedule of any fund into or from which you have exchanged
your shares that would result in your paying the highest CDSC
applicable to your class of shares. For purposes of computing the
CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be
affected by any exchange.
To exchange your shares, simply complete an Exchange Authorization
Form and send it to Putnam Investor Services. The form is
available from Putnam Investor Services. For federal income tax
purposes, an exchange is treated as a sale of shares and generally
results in a capital gain or loss. A Telephone Exchange Privilege
is currently available for amounts up to $500,000. Putnam
Investor Services' procedures for telephonic transactions are
described above under "How to sell shares." The Telephone
Exchange Privilege is not available if you were issued
certificates for shares that remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio
management and have an adverse effect on all shareholders. In
order to limit excessive exchange activity and in other
circumstances where 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.
<PAGE>
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. Distributions paid on class A shares will
generally be greater than those paid on class B shares and class M
shares because expenses attributable to class B shares and class M
shares will generally be higher.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS:
- - Reinvest all distributions in additional shares without a
sales charge;
- - Receive distributions from net investment income in cash
while reinvesting capital gains distributions in additional
shares without a sales charge; or
- - Receive all distributions in cash.
You can change your distribution option by notifying Putnam
Investor Services in writing. If you do not select an option when
you open your account, all distributions will be reinvested. All
distributions not paid in cash will be reinvested in shares of the
class on which the distributions are paid. You will receive a
statement confirming reinvestment of distributions in additional
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the reinvestment
occurs.
If a check representing a fund distribution is not cashed within a
specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting the
distribution in the fund or in another Putnam fund. If Putnam
Investor Services does not receive your election, the distribution
will be reinvested in the fund. Similarly, if correspondence sent
by the fund or Putnam Investor Services is returned as
"undeliverable," fund distributions will automatically be
reinvested in the fund or in another Putnam fund.
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.
Fund distributions will be taxable to you as ordinary income to
the extent derived from the fund's investment income and net
short-term gains (that is, net gains from securities held for not
more than a year). Distributions designated by the fund as
deriving from net gains on securities held for more than one year
but not more than 18 months and from net gains on securities held
for more than 18 months will be taxable to you as such,
regardless of how long you have held the shares. Distributions
will be taxable as described above whether received in cash or in
shares through the reinvestment of distributions.
Early in each year Putnam Investor Services will notify you of the
amount and tax status of distributions paid to you for the
preceding year.
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 Fiduciary Trust Company is the
custodian of the fund. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing and
transfer agent for the fund.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned
holding company whose principal businesses are international
insurance and reinsurance brokerage, employee benefit consulting
and investment management.
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PUTNAM EQUITY INCOME FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
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Differences between the typeset (printed) prospectus and the
EDGAR filing version.
1. Each interior page of the prospectus includes the word
"prospectus" at the bottom of the page.
2. Pagination is different in printed prospectus.
3. Section headings and subheadings in the printed prospectus
are printed in boldface type with colored ink.
4. The first page of the printed prospectus contains an
illustration of balanced scales, Putnam's logo.
5. The last page of the printed prospectus contains a graphic
recyclable logo.
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