Putnam
Preferred
Income
Fund
SEMIANNUAL REPORT
May 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "We stayed true to your fund's primary objective: generating a high
level of current income while keeping principal fluctuations to a
minimum."
-- Jeanne L. Mockard, Manager, Putnam Preferred Income Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
17 Financial statements
[GRAPHIC OMITTED:Photo George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
The preferred stocks that predominate in Putnam Preferred Income Fund's
portfolio did not enjoy a particularly hospitable market environment
during the six months ended May 31, 1996, the first half of the fund's
current fiscal year. Given the circumstances, we believe Fund Manager
Jeanne L. Mockard made the best of a challenging situation.
Besides maintaining a high level of current income while holding share
value fluctuations to a minimum, Jeanne has positioned your fund to take
advantage of opportunities that may develop down the road. Brighter days
may not be on the immediate horizon, but the long-term prospects for
this fund remain strong.
In the accompanying report, Jeanne discusses the semiannual period just
ended and prospects in the challenging months ahead.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
July 17, 1996
Report from the Fund Manager
Jeanne L. Mockard
The six months ended May 31, 1996, proved to be a challenging semiannual
period for Putnam Preferred Income Fund. Calendar 1996 has not been very
favorable for fixed-income investments. The bond market began the year
both overbought and overvalued -- primarily the result of investors'
reaction to the backdrop of benign inflation, slow economic growth, and
an easing Federal Reserve Board policy.
Toward the end of the report period, bond market interest rates rose
dramatically, bringing the 10-month rally to an abrupt halt. This rising
rate environment also was difficult for preferred stocks, which,
although classified as equities on corporate balance sheets, function
more like bonds in the marketplace.
When shareholders compare the fund's performance to that of government
bonds, it's easy to see that the fund stayed true to its primary
objective of generating a high level of current income while keeping
principal fluctuations to a minimum. During the period, the Lehman
Government Bond Index returned -1.67%. Given this market environment, we
consider that your fund's 1.46% and 1.21% total returns for class A and
class M shares, respectively, at net asset value is very respectable. At
public offering price, class A and class M share returns were -1.85% and
- -0.87%, respectively, over the same period.
* EMPHASIS ON PERPETUAL PREFERREDS CONTINUES
During the period, perpetual preferred stocks made up the largest
section of your fund's portfolio. These stocks, which carry fixed
dividend rates, are technically equity securities but their income
characteristics cause them to behave more like fixed-income investments.
Unlike bonds, however, they have no maturity dates; hence the name
"perpetual."
When interest rates are rising, perpetual preferred stock prices are
generally more volatile than those of securities offering some assurance
of future redemption. Thus the size of the fund's current allocation to
these securities may prompt a raised eyebrow or two in light of the
rising rate environment. However, many of the perpetual preferreds that
the fund now holds were purchased at particularly attractive prices --
the direct result of recent volatility -- which should help minimize any
additional risk.
Sinking-fund preferred stocks can be a more stable alternative. With a
sinking-fund preferred stock, regular payments are made to a sinking
fund. The accumulated money is used to redeem preferred stock issues.
This method assures investors that the issues are safer than preferred
stocks for which the issuer must make payment all at once, without the
benefit of a sinking fund. As of May 31, 1996, approximately 11.6% of
the fund was invested in sinking-fund preferred stocks.
* COLLARED ARPs: BEST OF BOTH WORLDS
In a rising rate environment, the prices of adjustable-rate preferred
stocks (ARPs) tend to be even more stable than those of sinking-fund
preferreds. This is because ARPs pay dividends that are adjusted to
reflect changes in interest rates, causing their price movements to be
comparable with those of shorter-maturity bonds.
[GRAPHIC OF VERTICAL BAR CHART OMITTED: PORTFOLIO COMPOSITION*]
Information in chart reads:
Perpetual preferreds 66.4%
Adjustable-rate preferreds 13.6%
Sinking-fund preferreds 11.6%
Common stocks 2.2%
Convertible securities 1.2%
Cash and short-term securities 5.0%
*Based on net assets as of 5/31/96. Holdings will vary over time.
All ARPs carry specific coupon collars that mark off the high and low
limits above or below which their coupons cannot reset. Once an ARP has
reached its lower coupon collar, its coupon income is locked in at that
level and the security becomes known as a collared ARP. Within the
adjustable-rate preferred portion of the fund's portfolio, we have
recently maintained a significant position in collared ARPs. We believe
these securities provide the best of both worlds. When interest rates
are falling, collared ARPs act much like perpetual preferreds.
Conversely, when rates rise, they offer some defensive characteristics
because the coupons will similarly move up, preserving the stock's
value. At period's end, approximately 13.6% of the fund's net assets was
invested in ARPs, roughly two thirds of which were collared ARPs.
* UTILITIES AND FINANCIAL SECURITIES OFFER OPPORTUNITIES
Public utilities and financial companies are the dominant issuers in the
preferred stock market. Investors are often attracted to the securities
of utility companies because of their potential to provide steady growth
and attractive income with moderate risk. McDermott, Inc., one of the
fund's largest holdings, manufactures power generation systems and
equipment for the electric industry, utilities, and the U.S. government.
The company is also involved in offshore production and transportation
structures for the oil and gas industries as well as provides
replacement parts, process recovery boilers, and pollution control
systems. While this portfolio holding, along with others discussed in
this report, was viewed favorably at the end of the period, all are
subject to review and adjustment in accordance with the fund's
investment strategy and may well vary in the future.
In general, gas holdings in the utility sector have recently benefited
from earnings increases, the result of colder winter temperatures. Cost-
cutting measures set in place when profits were under pressure during
the warm winters of previous years also enhanced the bottom lines of
these companies.
We believe the gas industry may ultimately benefit from the deregulation
of the electric power sector partly because gas enjoys favor as the low-
cost, environmentally friendly fuel for electricity production. Given
the attractive valuation of this sector, increasing merger activity is
in prospect, which should provide further opportunities for potential
appreciation. An example is the acquisition of Enserch, a gas pipeline
company, by one of your fund's largest holdings, Texas Utilities, an
electric power company.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
Chart information reads:
SunAmerica, Inc. Series A, $7.00 adjustable-rate preferred
Insurance and investment management services
McDermott, Inc. Series B, $2.60 sinking-fund preferred
Petroleum services
Texas Utilities Co. Series B, $1.805 preferred
Electric utility
Aon Corporation, $2.00 preferred
Insurance
Bank of Boston Corp. Series E, $2.15 preferred
Multinational banking and financial services
Boise Cascade Corp. Series F, $2.35 preferred
Forest products and paper manufacturing
General Motors Corp. Series B, $2.281
Multinational automobile manufacturing
Lasalle National Corp. Series K, $4.375 preferred
Banking and financial services
Baltimore Gas and Electric Co. Series 93, $7.125 preferred
Gas and electric utilities
Travelers Corp. Series D, $2.313 preferred
Insurance and financial services
These holdings represent 28.4% of the fund's assets as of 5/31/96.
Portfolio holdings will vary over time.
SunAmerica, Inc., and Aon Corporation were among your fund's largest
holdings in the financial sector. SunAmerica is a financial services
company that specializes in retirement savings products and services.
The SunAmerica companies -- Sun Life of America, Anchor National, and
First SunAmerica -- issue various long-term and tax-deferred savings
products and annuities. Aon Corporation is an insurance holding company
that underwrites accident and health, life, and specialty property-
casualty insurance.
* OUTLOOK: A NEUTRAL-TO-POSITIVE ENVIRONMENT
Looking forward, we expect a less robust year in the preferred market
for the remainder of calendar 1996. We expect the yield curve will
steepen and look for more opportunity for performance in shorter
duration preferreds. We also anticipate continued strength in the
economy in the near term. In this environment, we believe the fund is
strategically positioned to reward shareholders in the months ahead.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Preferred Income Fund seeks a high level of income
which qualifies for the 70% corporate dividends-received deduction for
federal income-tax purposes. The dividends-received deduction is not
available to noncorporate investors.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 5/31/96
Class A Class M
(inception date) (1/4/84) (4/20/95)
NAV POP NAV POP
- -----------------------------------------------------------------------
6 months 1.46% -1.85% 1.21% -0.87%
- -----------------------------------------------------------------------
1 year 7.87 4.37 7.48 5.33
- -----------------------------------------------------------------------
5 years 53.66 48.69 -- --
Annual average 8.97 8.26 -- --
- -----------------------------------------------------------------------
10 years 99.60 93.09 -- --
Annual average 7.16 6.80 -- --
- -----------------------------------------------------------------------
Life of class M -- -- 11.21 8.93
Annual average -- -- 9.95 7.94
- -----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/96
Merrill Lynch
Perpetual Preferred Standard & Poor's Consumer
Index 500 Index Price Index
- -----------------------------------------------------------------------
6 months 2.07% 11.76% 1.95%
- -----------------------------------------------------------------------
1 year 8.31 28.45 2.89
- -----------------------------------------------------------------------
5 years 57.07 97.43 15.49
Annual average 9.45 14.57 2.92
- -----------------------------------------------------------------------
10 years* -- 268.47 43.80
Annual average* -- 13.93 3.70
- -----------------------------------------------------------------------
Life of class M 10.87 33.11 3.09
Annual average 9.96 29.09 2.76
- -----------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and net asset value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 3.25% maximum sales charge for class A shares
and 2.00% for class M shares.
*The Merrill Lynch Perpetual Preferred Index was introduced on 2/28/89.
TOTAL RETURN FOR PERIODS ENDED 6/30/96
(most recent calendar quarter)
Class A Class M
(inception date) (1/4/84) (4/20/95)
NAV POP NAV POP
- -----------------------------------------------------------------------
6 months 1.72% -1.61% 1.60% -0.39%
- -----------------------------------------------------------------------
1 year 7.30 3.84 6.91 4.78
- -----------------------------------------------------------------------
5 years 55.97 50.80 -- --
Annual average 9.30 8.56 -- --
- -----------------------------------------------------------------------
10 years 100.22 93.76 -- --
Annual average 7.19 6.84 -- --
- -----------------------------------------------------------------------
Life of class M -- -- 11.87 9.58
Annual average -- -- 9.80 7.92
- -----------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and net asset value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/96
Class A Class M
- -----------------------------------------------------------------------
Distributions (number) 6 6
- -----------------------------------------------------------------------
Income $0.3037 $0.2921
- -----------------------------------------------------------------------
Capital gains -- --
- -----------------------------------------------------------------------
Total $0.3037 $0.2921
- -----------------------------------------------------------------------
Share value: NAV POP NAV POP
- -----------------------------------------------------------------------
11/30/95 $8.59 $8.88 $8.58 $8.76
- -----------------------------------------------------------------------
5/31/96 8.41 8.69 8.39 8.56
- -----------------------------------------------------------------------
Current return end of period
- -----------------------------------------------------------------------
Current dividend rate1 6.66% 6.44% 6.43% 6.30%
- -----------------------------------------------------------------------
Taxable equivalent3 9.17 8.87 8.85 8.67
- -----------------------------------------------------------------------
Current 30-day SEC yield2 6.70 6.48 6.45 6.32
- -----------------------------------------------------------------------
Taxable equivalent3 9.23 8.92 8.88 8.70
- -----------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
3The taxable equivalent examples in this table show the return that a
corporation taxed at the 35% federal corporate tax rate would have to
earn from a non tax-advantaged investment to produce an after-tax return
equal to that of the fund's, assuming 100% of distributions qualify for
the dividends-received deduction.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 3.25% sales charge for class A
shares and 2.00% for class M shares.
COMPARATIVE BENCHMARKS*
Merrill Lynch Perpetual Preferred Index is an unmanaged list of
perpetual preferred stocks that is commonly used as a general measure of
performance for the preferred-stock market.
Standard & Poor's 500 Index is an unmanaged list of common stocks that
is frequently used as a general measure of stock-market performance.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the
relationship between an investment's potential rewards and its
accompanying risks. Given the cautionary nature of such
instructions, it may take most investors a while to realize that risk
has a positive side.
Every risk signals a potential reward. Selecting only those investments
that offer the greatest degree of security generally leads to only
modest rewards. Furthermore, even insured or guaranteed investments may
be subject to changes in their rates of return or, in some cases, in
their principal values. Experienced investors know that no investment is
truly risk free and are therefore willing to take on some measure of
risk in order to increase their potential gains.
The greater the risk, the greater the potential reward. Accepting an
appropriate level of investment risk can give you a better chance of
outpacing inflation over time and seeking to maximize your investment's
return. How much risk? Your financial advisor's feedback and your time
horizon can make all the difference in determining how much risk is
compatible with your investment goals and your peace of mind.
* FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that
can apply to different types of investments, and to look at your own
portfolio with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select funds with differing levels of risk and
reward potential to customize your portfolio.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's
prospectus.
* A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds,
this is a measure of how sensitive a fund's holdings are to changes in
general market conditions. Remember, though, that securities that lose
value quickly in market declines may also show the strongest gains in
more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this
type of risk is a particular concern for fixed-income inves-
tors. However, interest-rate increases can also have a substantial
negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk
over the long term.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the
security's issuer will not be able to meet its payment, while prepayment
risk involves the premature payoff of a loan, with a resulting loss of
interest income. Professional management and in-depth research are
invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share
prices.
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31,1996 (Unaudited)
PREFERRED STOCKS (91.6%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Automobiles (4.7%)
- --------------------------------------------------------------------------------------------------
35,500 Ford Motor Co. Ser. B, $2.063, dep. shs. preferred (pfd.) $954,063
115,000 General Motors Corp. Ser. B, $2.281, dep. shs. pfd. 3,119,375
54,000 General Motors Corp. Ser. G, $2.28, pfd. 1,498,500
------------
5,571,938
Banks (20.6%)
- --------------------------------------------------------------------------------------------------
135,000 Bank of Boston Corp. Ser. E, $2.15, dep. shs. pfd. 3,459,371
30,000 BankAmerica Corp. Ser. A $3.25, Adjustable Rate Preferred (ARP) 1,376,250
32,000 BankAmerica Corp. Ser. B, $6.00, ARP 2,672,000
10,500 BankAmerica Corp. Ser. K, $2.094, pfd. 266,438
25,000 BankAmerica Corp. Ser. M, $1.968, pfd. 631,250
37,000 Bankers Trust New York Corp. Ser. P, $1.875, pfd. 901,875
70,000 Bankers Trust New York Corp. Ser. Q, $1.301, ARP 1,557,500
24,000 Chase Manhattan Corp. Ser. B $2.44, pfd. 621,000
50,000 Chase Manhattan Corp. Ser. H $2.094, pfd. 1,412,500
8,850 Chase Manhattan Corp. Ser. M $2.10, pfd. 230,100
22,510 Citicorp Ser. 18, $1.281, ARP 514,916
17,400 Citicorp Ser. 3, $7.00, ARP 1,648,650
10,000 Fleet Financial Group Ser. D, $2.325, pfd. 265,000
49,000 Fleet Financial Group Ser. E, $2.338, pfd. 1,335,250
15,000 Indosuez Holdings ADS 144A $2.594, pfd. (Luxembourg) 386,250
60,000 Lasalle National Corp. Ser. K, $4.375, pfd. 2,940,000
40,000 Unionbancal Corp. Ser A, $2.094, pfd. 1,025,000
92,655 Wells Fargo & Co. Ser F, $2.469, pfd. 2,420,612
27,000 Wells Fargo & Co. Ser G, $2.25, pfd. 708,750
------------
24,372,712
Combined Utilities (15.1%)
- --------------------------------------------------------------------------------------------------
15,000 Baltimore Gas & Electric Co. $6.99, pfd. 1,485,000
28,000 Baltimore Gas & Electric Co. Ser. 93, $7.125, pfd. 2,786,000
20,000 Cincinnati Gas & Electric Co. Sinking Fund, $7.375, pfd. 1,975,000
57,000 Delmarva Power & Light Co. $1.938, pfd. 1,482,000
9,000 Jersey Central Power & Light Co. Ser. E, $7.88, pfd. 900,000
80,000 Long Island Lighting Co. Sinking Fund, Ser. NN, $1.95, pfd. 1,470,000
116,000 New York State Electric & Gas Corp. Ser. B, $1.36, ARP 2,508,500
20,000 Pacific Gas & Electric Co. Ser. U, $1.76, pfd. 490,000
13,000 Public Service Electric & Gas Co. $7.52, pfd. 1,313,000
11,750 Public Service Electric & Gas Co. $6.92, pfd. 1,173,531
23,200 Western Resources, Inc. Sinking Fund, $7.58, pfd. 2,325,800
------------
17,908,831
Electric Utilities (19.1%)
- --------------------------------------------------------------------------------------------------
4,865 Appalachian Power $7.40, pfd. 484,068
50,000 Arizona Public Service Co. Ser. W, $1.813, pfd. 1,218,750
20,000 Central Maine Power Co. Ser. A, $7.999, pfd. 1,930,000
10,000 Cleveland Electric Illuminating Co. Sinking Fund, Ser. R, $8.80, pfd. 900,000
7,070 Commonwealth Edison Co. Ser. A, $8.40, pfd. 705,233
17,522 Entergy Gulf States Utilities $8.52, pfd. 1,612,024
15,000 Florida Power & Light Co. Ser. S, $6.98, pfd. 1,477,500
50,000 Niagara Mohawk Power Corp. $2.375, pfd. 1,050,000
39,800 Niagara Mohawk Power Corp. Ser. A, $1.625, ARP 606,950
40,000 Niagara Mohawk Power Corp. Ser. C, $1.80, ARP 695,000
7,500 Northern States Power Co. $6.139, ARP 697,500
18,000 PSI Energy, Inc. $1.86, pfd. 454,500
13,000 Pacificorp Sinking Fund, $7.12, pfd. 1,293,500
31,200 Pacificorp Ser. 92, $1.98, pfd. 783,900
15,000 Peco Energy $7.48, pfd. 1,473,750
10,000 Pennsylvania Power & Light Co. Sinking Fund, $6.33, pfd. 990,000
10,000 Pennsylvania Power & Light Co. Sinking Fund, $6.125, pfd. 985,000
60,000 Texas Utilities Electric Co. Ser. A, $1.875, dep. shs. pfd. 1,530,000
150,000 Texas Utilities Electric Co. Ser. B, $1.805, dep. shs. pfd. 3,750,000
------------
22,637,675
Finance (9.5%)
- --------------------------------------------------------------------------------------------------
10,000 Bear Stearns & Co. Ser. A, $2.75, ARP 430,000
28,300 Bear Stearns & Co. Ser. B, $1.97, dep. shs. pfd. 711,038
95,000 Heller Financial Inc. Ser. A, $2.031, pfd. 2,434,375
59,750 Household International Inc. Ser. 91-A, $0.95, dep. shs. pfd. 612,438
38,350 Household International Inc. Ser. 92-A, $2.063, dep. shs. pfd. 1,025,863
13,300 Merrill Lynch & Co., Inc. Ser. A, $2.25, dep. shs. pfd. 379,050
20,000 Morgan (J.P.) & Co. Ser. H, $3.313, pfd. 940,000
24,000 Morgan Stanley $1.844, dep. shs. pfd. 594,000
42,710 SunAmerica Inc. Ser. C, $7.00, ARP 4,164,225
------------
11,290,989
Food Chains (0.7%)
- --------------------------------------------------------------------------------------------------
30,169 McDonalds Corp. Ser. E, $1.93, dep. shs. pfd. 765,538
Forest Products (4.0%)
- --------------------------------------------------------------------------------------------------
120,000 Boise Cascade Corp. Ser. F, $2.35, dep. shs. pfd. 3,165,000
60,000 Bowater, Inc. Ser. C, $2.10, dep. shs. pfd. 1,560,000
------------
4,725,000
Gas Pipelines (1.0%)
- --------------------------------------------------------------------------------------------------
13,000 Enserch Corp. Ser. E, $7.00, ARP 1,218,750
Gas Utilities (0.4%)
- --------------------------------------------------------------------------------------------------
18,700 Washington Natural Gas Co. Ser. III, $2.125, pfd. 476,850
Insurance (7.3%)
- --------------------------------------------------------------------------------------------------
143,500 Aon Corp. $2.00, pfd. 3,659,250
74,000 Berkley (W.R.) Corp. Ser. A, $1.844, pfd. 1,831,500
16,000 Provident Cos. $2.025, pfd. 408,000
107,500 Travelers Corp. Ser. D, $2.313, dep. shs. pfd. 2,781,563
------------
8,680,313
Natural Gas (0.6%)
- --------------------------------------------------------------------------------------------------
28,000 Phillips Gas Co. Ser. A, $2.33, pfd. 731,500
Oil Services (4.5%)
- --------------------------------------------------------------------------------------------------
57,500 LASMO PLC ADS Ser. A, $2.50, pfd. (United Kingdom) 1,451,875
129,051 McDermott Inc. Sinking Fund, Ser. B, $2.60, pfd. 3,823,136
------------
5,275,011
Publishing (1.1%)
- --------------------------------------------------------------------------------------------------
49,500 Newscorp Overseas Corp. Ser. A, $2.156, pfd. 1,256,063
Telephone Utilities (0.5%)
- --------------------------------------------------------------------------------------------------
5,490 GTE Florida, Inc. $8.16, pfd. 551,745
Tobacco (1.4%)
- --------------------------------------------------------------------------------------------------
67,300 RJR Nabisco Holding Ser. B, $2.313, dep. shs. pfd. 1,648,850
Water Utilities (1.1%)
- --------------------------------------------------------------------------------------------------
13,500 United Water Resources, Inc. Ser. B, $7.625, pfd. 1,343,250
------------
Total Preferred Stocks (cost $109,891,605) $108,455,015
COMMON STOCKS (2.3%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------
35,000 Northeast Utilities Co. $507,500
30,000 Pacific Gas & Electric Co. 697,500
13,400 Potomac Electric Power Co. 341,700
29,000 Public Service Enterprise Group, Inc. 768,500
15,000 UGI Corp. 346,875
------------
Total Common Stocks (cost $3,162,645) $2,662,075
CONVERTIBLE PREFERRED STOCKS (1.2%) * (cost $1,250,000)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------
25,000 Unocal Corp. 144A $3.50, cv. pfd. $1,400,000
SHORT-TERM INVESTMENTS (5.0%) * (cost $ 5,907,873)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------
$5,907,000 Interest in $846,949,000 joint repurchase agreement dated May
31, 1996 with Morgan (J.P.) & Co. Inc. due June 3, 1996 with
respect to various U.S. Treasury obligations-maturity value
$5,909,619 for an effective yield of 5.32% $5,907,873
- --------------------------------------------------------------------------------------------------
Total Investments (cost $120,212,123)*** $118,424,963
- --------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $118,314,884.
*** The aggregate identified cost on a tax basis is $120,212,123, resulting in gross unrealized appreciation
and depreciation of $2,837,937, and $4,625,097, respectively, or net unrealized depreciation of $1,787,160.
144A after the name of a security represents those securities exempt from registration under Rule 144A of
the Securities Act of 1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADS after the name of a foreign holding stands for American
Depository Shares, representing foreign securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1996 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $120,212,123) (Note 1) $118,424,963
- -----------------------------------------------------------------------------------------------------------------------
Cash 54
- -----------------------------------------------------------------------------------------------------------------------
Dividends receivable 566,669
- -----------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,149
- -----------------------------------------------------------------------------------------------------------------------
Total assets 118,994,835
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders $238,173
- -----------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 196,921
- -----------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 192,567
- -----------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 22,300
- -----------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 218
- -----------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,957
- -----------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,102
- -----------------------------------------------------------------------------------------------------------------------
Other accrued expenses 26,713
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 679,951
- -----------------------------------------------------------------------------------------------------------------------
Net assets $118,314,884
Represented by
- -----------------------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $181,913,283
- -----------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (124,839)
- -----------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (61,686,400)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,787,160)
- -----------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding. $ 118,314,884
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of Class A shares ($115,319,140 divided by 13,714,619 shares) $8.41
- -----------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $8.41)* $8.69
- -----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares ($2,995,744 divided by 356,864 shares) $8.39
- -----------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $8.39)* $8.56
- -----------------------------------------------------------------------------------------------------------------------
*On single retail sales of less than $100,000. On sales of $100,000
or more and on group sales the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31,1996 (Unaudited)
<S> <C>
Investment Income:
- -------------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $10,781) $4,454,970
- -------------------------------------------------------------------------------------------------------------
Interest 57,877
- -------------------------------------------------------------------------------------------------------------
Total investment income 4,512,847
Expenses:
- -------------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 383,835
- -------------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 82,772
- -------------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,820
- -------------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,489
- -------------------------------------------------------------------------------------------------------------
Distribution fees -- Class M shares (Note 2) 2,662
- -------------------------------------------------------------------------------------------------------------
Reports to shareholders 15,024
- -------------------------------------------------------------------------------------------------------------
Registration fees 175
- -------------------------------------------------------------------------------------------------------------
Auditing 14,081
- -------------------------------------------------------------------------------------------------------------
Postage 1,761
- -------------------------------------------------------------------------------------------------------------
Other 664
- -------------------------------------------------------------------------------------------------------------
Total expenses 511,283
- -------------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (40,412)
- -------------------------------------------------------------------------------------------------------------
Net expenses 470,871
- -------------------------------------------------------------------------------------------------------------
Net investment income 4,041,976
- -------------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 566,772
- -------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (2,966,323)
- -------------------------------------------------------------------------------------------------------------
Net loss on investments (2,399,551)
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,642,425
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1996* 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ------------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income $4,041,976 $8,511,262
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 566,772 (1,533,139)
- ------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (2,966,323) 12,384,240
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,642,425 19,362,363
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (4,148,359) (8,727,588)
Class M (71,008) (19,583)
- ------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (429,068) (9,116,711)
- ------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (3,006,010) 1,498,481
- ------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------
Beginning of period 121,320,894 119,822,413
- ------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net investment income
of $124,839 and undistributed net investment income of $52,552, respectively) $118,314,884 $121,320,894
- ------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights *
(For a share outstanding throughout the period)
April 20, 1995
Six months (commencement Six months
ended of operations) ended Year ended
May 31 to November 30 May 31 November 30
---------------------------------------------------------
1996 **+ 1995 1996 ** 1995
---------------------------------------------------------
Class M Class A
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $8.58 $8.12 $8.59 $7.88
- -----------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------
Net investment income .27 .33 .29 .57
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.17) .46 (.17) .73
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .10 .79 .12 1.30
- -----------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------
From net investment income (.29) (.33) (.30) (.59)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.29) (.33) (.30) (.59)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.39 $8.58 $8.41 $8.59
- -----------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 1.21 (b) 9.88 (b) 1.46 (b) 17.05
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,996 $729 $115,319 $120,591
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .55 (b) .67 (b) .43 (b) .90
- -----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.19 (b) 3.73 (b) 3.43 (b) 6.91
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.39 (b) 34.76 9.39 (b) 34.76
- -----------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) .0566 .0566
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights * (Continued)
(For a share outstanding throughout the period)
Year ended November 30
---------------------------------------------------------
1994 1993 1992 1991
---------------------------------------------------------
Class A
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $8.81 $8.34 $8.00 $7.42
- -----------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------
Net investment income .56 .60 .68 .70
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.93) .47 .34 .57
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations (.37) 1.07 1.02 1.27
- -----------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------
From net investment income (.56) (.60) (.68) (.69)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.56) (.60) (.68) (.69)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.88 $8.81 $8.34 $8.00
- -----------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) (4.41) 13.07 13.08 17.86
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $119,822 $144,185 $142,378 $129,688
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .81 .83 .83 .93
- -----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 6.64 6.83 8.23 8.98
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 32.84 114.53 188.68 157.11
- -----------------------------------------------------------------------------------------------------------------
Average commission rate paid (d)
* The table has been restated to reflect a 5-for-1 share split declared
by the fund to shareholders of record on November 29, 1994.
** Unaudited
+ Per share net investment income for the period ended May 31, 1996 for class M shares has been
determined on the basis of the weighted average number of shares outstanding during the period.
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) Not annualized.
(c) The ratio of expenses to average net assets for the period ended
November 30, 1995 and thereafter, includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts. (Note 2)
(d) Average commission rate paid is presented for fiscal periods beginning on or after
September 1, 1995 in conformance with requirements issued by the SEC.
</TABLE>
Notes to financial statements
May 31, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
fund seeks high after-tax income for corporate shareholders and current
income for all investors with minimum fluctuations in principal.
The fund offers class A and class M shares. Class A shares are sold with
a maximum front-end sales charge of 3.25%. Class M shares are sold with
a maximum front-end sales charge of 2.00% and pay an ongoing
distribution fee.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value. Certain preferred stocks,
for which reliable market quotations are not considered to be readily
available, are stated at fair value on the basis of valuations furnished
by pricing services approved by the Trustees, which determine valuations
for normal, institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
various relationships between securities that are generally recognized
by institutional traders. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value. All other investments are stated at fair
value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other accounts. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date.
E) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At November 30, 1995, the fund had a capital loss carryover of
approximately $106,053,000 available to offset future capital gains, if
any. This amount includes approximately $43,821,000 of capital loss
carryovers acquired in connection with the fund's acquisition of the net
assets of Putnam Corporate Cash Fund Adjustable Rate Preferred Portfolio
in 1990. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- --------------------
$54,723,000 November 30, 1996
29,523,000 November 30, 1997
14,805,000 November 30, 1998
5,261,000 November 30, 1999
208,000 November 30, 2002
1,533,000 November 30, 2003
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain distributions if any,
are recorded on the ex-dividend date and paid annually. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, and 0.45% of the any amount
over $1.5 billion subject, under current law, to reduction in any year
and by the amount of certain brokerage commissions and fees (less
expenses) received by affiliates of Putnam Management on the fund's
portfolio transactions.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $740 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain invested in
certain Putnam funds until distribution in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended May 31, 1996, fund expenses were reduced by
$40,412 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
The fund has adopted a distribution plan (the "Plan") with respect to
its class M shares pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The purpose of the Plan is to compensate Putnam Mutual
Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for
services provided and expenses incurred by it in distributing shares of
the fund. The Plan provides for payments by the fund to Putnam Mutual
Funds Corp. at an annual rate up to 1.00% of the average net assets
attributable to class M shares. The Trustees have approved payment by
the fund at an annual rate of 0.25% of the average net assets
attributable to class M shares.
For the six months ended May 31, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $13,271 and $2,902 from the
sale of class A and M shares, respectively. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the
six months ended May 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$10,760,972 and $14,722,241, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At May 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
May 31, 1996
- ----------------------------------------
Class A Shares Amount
- ----------------------------------------
Shares sold 1,321,860 $11,216,006
- ----------------------------------------
Shares issued in
connection with
reinvestment of
distributions 312,406 2,650,792
- ----------------------------------------
1,634,266 13,866,798
Shares
repurchased (1,954,813) (16,608,136)
- ----------------------------------------
Net decrease (320,547) ($ 2,741,338)
- ----------------------------------------
Year ended
November 30, 1995
- ----------------------------------------
Class A Shares Amount
- ----------------------------------------
Shares sold 1,621,569 $13,489,056
- ----------------------------------------
Shares issued in
connection with
reinvestment of
distributions 685,918 5,663,875
- ----------------------------------------
2,307,487 19,152,931
Shares
repurchased (3,471,975) (28,978,399)
- ----------------------------------------
Net decrease (1,164,488) ($ 9,825,468)
- ----------------------------------------
Six months ended
May 31, 1996
- ----------------------------------------
Class M Shares Amount
- ----------------------------------------
Shares sold 318,874 $2,706,611
- ----------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,393 62,465
- ----------------------------------------
326,267 2,769,076
Shares
repurchased (54,385) (456,806)
- ----------------------------------------
Net increase 271,882 $2,312,270
- ----------------------------------------
For the period
April 20, 1995
(commencement of
operations) to
November 30, 1995
- ----------------------------------------
Class M Shares Amount
- ----------------------------------------
Shares sold 120,298 $1,005,298
- ----------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,003 16,963
- ----------------------------------------
122,301 1,022,261
Shares
repurchased (37,319) (313,504)
- ----------------------------------------
Net increase 84,982 $ 708,757
- ----------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.*
* SWITCH FUNDS EASILY
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
* Regular investing of course, does not guarantee a profit or protect
against a loss in a declining market.
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
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Thomas V. Reilly
Vice President
Jeanne L. Mockard
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Preferred
Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information, or to request a prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------
25851- 029/867 7/96
