PUTNAM
PREFERRED
INCOME
FUND
[Artwork]
ANNUAL REPORT
November 30, 1995
[Putnam Logo]
Boston * London * Tokyo
<PAGE>
<PAGE>
FUND HIGHLIGHTS
"Perpetual preferred stocks have responded extremely well to 1995's combination
of moderate economic growth, subdued inflation, and declining interest rates.
Their performance was the primary force behind Putnam Preferred Income Fund's
success in fiscal 1995."
-- Jeanne L. Mockard, Manager, Putnam Preferred Income Fund
"The most noteworthy feature of the current, long-running business upturn may
well be the persistence of low inflation..It's not surprising, therefore, that
interest rates are still well below the average levels of the past two decades."
-- The Value Line Investment Survey, November 24, 1995
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
19 Financial statements
<PAGE>
FROM THE CHAIRMAN [Photograph of George Putnam]
* (C) Karsh, Ottawa
DEAR SHAREHOLDER:
PUTNAM PREFERRED INCOME FUND CLOSED THE BOOKS ON AN EVENTFUL 12 MONTHS THAT BE-
GAN AT THE END OF ONE OF THE SHARPEST BOND MARKET DECLINES ON RECORD AND ENDED
IN THE MIDST OF ONE OF THE MARKET'S STRONGEST RALLIES. AS FUND MANAGER JEANNE
MOCKARD RELATES IN THE REPORT THAT FOLLOWS, RESULTS FOR THE FISCAL YEAR THAT
ENDED ON NOVEMBER 30, 1995, WERE GRATIFYING, ESPECIALLY IN CONTRAST TO LAST
YEAR'S CHALLENGES.
JEANNE'S DECISION TO INCREASE THE PORTFOLIO'S WEIGHTING IN PERPETUAL PREFERRED
STOCKS WAS TIMELY AS LONG-TERM INTEREST RATES CONTINUED TO FALL, A CONDITION
THAT IS ESPECIALLY BENEFICIAL TO SUCH SECURITIES. CONTINUED BENIGN INFLATION
PROVIDED EVEN MORE IMPETUS TO THE MARKET'S RISE.
HARDLY ANYONE EXPECTS THE BOND MARKET TO BE AS EXUBERANT IN THE YEAR AHEAD AS IT
WAS IN THE YEAR JUST ENDED. NEVERTHELESS, A CONTINUATION OF THE FAVORABLE ECONO-
MIC AND BOND-MARKET ENVIRONMENT SHOULD EXTEND WELL INTO THE MONTHS AHEAD, A CON-
DITION WE BELIEVE BODES WELL FOR YOUR FUND IN FISCAL 1996.
RESPECTFULLY YOURS,
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JANUARY 17, 1996
* (C) Copyright.
<PAGE>
REPORT FROM THE FUND MANAGER
JEANNE L. MOCKARD
Fixed-income markets staged one of their best performances ever during Putnam
Preferred Income Fund's 1995 fiscal year, which ended on November 30. Bond-mar-
ket strength likewise buoyed the performance of preferred stocks, which, althou-
gh classified as equities on corporate balance sheets, function more like bonds
in the marketplace. The Merrill Lynch Perpetual Preferred Index -- which is a
principal performance benchmark for your fund -- advanced by nearly 21% for the
year, a remarkable recovery from fiscal 1994's -6.3% drubbing.
Although your fund's 17.05% total return for class A shares at net asset value
trailed this benchmark, we managed to capture a substantial portion of the mar-
ket's rally while remaining true to the fund's primary objective: generating a
high level of current income while keeping principal fluctuations to a minimum.
Moreover, given that a significant portion of your fund's portfolio was invested
in adjustable-rate and sinking-fund preferreds -- which do not respond as stron-
gly as perpetual preferreds to declining interest rates -- it is understandable
that the fund would trail an index composed exclusively of perpetual preferreds.
PERPETUAL PREFERREDS BENEFIT FROM FALLING INTEREST RATES, BENIGN INFLATION
Perhaps the biggest change in your fund's portfolio over the fiscal year was a
sizable increase in fixed-rate, perpetual preferred stocks and a corresponding
decrease in adjustable-rate preferreds (ARPs). Given that perpetual preferreds
respond to interest-rate movements like long-term bonds with no maturity dates,
they performed extremely well in this year's falling-rate environment. Fiscal
1995's strong results also reflect the availability of high real yields (that
is, yields minus the prevailing inflation rate; high real yields indicated rela-
tively tame inflation, which increased the appeal of fixed-income securities).
<PAGE>
Consequently, our somewhat more aggressive approach enabled your fund to benefit
as long-term rates declined.
As the chart below indicates, we increased the fund's perpetual preferred weigh-
ting from approximately 35% of the portfolio at the beginning of the fiscal year
to nearly 62% at the end. We began adding to this allocation in December 1994,
in the wake of substantial tax-loss selling that depressed the prices of many
securities, especially those in the public utility sector. Market weakness en-
abled us to purchase the perpetual preferreds of several financially stable uti-
lities at deeply discounted prices. The fund's position in Baltimore Gas & Elec-
tric -- one third of which was purchased for approximately $86 per share and
which was trading near $106 per share at the end of the fiscal year -- is one
outstanding example of the excellent bargains that were available early in fis-
cal 1995. Moreover, we continued to add perpetual preferreds throughout the fis-
cal year, not only in the utility sector, but also in the banking and financial
sectors.
[Bar Chart - Page 5]
PORTFOLIO COMPOSITION *
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11/30/94 11/30/95
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Perpetual preferreds 35.4 61.8
Adjustable-rate preferreds 31.1 14.2
Sinking-fund preferreds 16.3 11.7
Common stocks 11.6 9.2
Convertible securities 2.8 1.1
Cash and short-term securities 1.4 1.4
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* Based on percentage of net assets. Composition will vary over time.
<PAGE>
BANKING AND FINANCIAL SECURITIES PROVIDE MAJOR PERFORMANCE BOOST
We have been particularly pleased with the performance of the fund's banking and
financial investments over the fiscal year. Favorable interest-rate trends, im-
proving operating results, and an active merger-and-acquisition calendar prope-
lled the sector into a leadership role -- not only in the preferred market but
in the broader equity market as well. Nevertheless, given our value-oriented
approach, we began taking profits on some of the fund's banking positions late
in the fiscal year, redeploying the assets into utilities, which have underper-
formed the broader market.
COLLARS INCREASE ARPS' ATTRACTIVENESS WHEN RATES ARE FALLING
Although we reduced the fund's ARP weighting to approximately 14% of the portfo-
lio by the end of the fiscal year, we drew a clear distinction between those
ARPs we chose to sell and those we opted to retain. Because ARPs carry coupons
that reset with movements in short-term interest rates, they are essential de-
fensive holdings when rates are rising. However, when rates are falling, as was
the case throughout fiscal 1995, ARPs are typically less desirable -- that is,
unless they have reached their coupon collars. All ARPs carry specific coupon
collars which mark off the high and low limits above or below which their cou-
pons cannot reset. Once an ARP has reached its lower coupon collar, its coupon
income is locked in at that level, providing the holder with income protection
in a falling-rate environment.
For example, the SunAmerica $7.00 preferred -- the fund's largest holding at the
end of the period -- is an ARP that cannot reset at a coupon below 7% or above
13%. Consequently, in the current environment of flat-to-declining rates, this
ARP's income stream can never fall below 7%. Conversely, if rates begin to move
back up, its coupon will likewise move up, preserving the stock's value (unless
rates rise above 13%).
<PAGE>
TOP 10 HOLDINGS, 11/30/95 *
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SUNAMERICA, INC. Series C, $7.00 adjustable-rate preferred
Insurance and investment-management services
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TEXAS UTILITIES CO. Series B, $1.805 deposit-shares preferred
Electric utility
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MCDERMOTT, INC. Series B, $2.60 sinking-fund preferred
Petroleum services
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AON CORP. $2.00 preferred
Insurance
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BANK OF BOSTON CORP. Series E, $2.15 deposit-shares preferred
Multinational banking and financial services
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BOISE CASCADE CORP. Series F, $2.35 deposit-shares preferred
Forest products and paper manufacturing
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FORD HOLDINGS CORP. Series A, $2.00 deposit-shares preferred
Finance subsidiary of Ford Motor Co.
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GENERAL MOTORS CORP. Series B, $2.28125 deposit-shares preferred
Multinational automobile manufacturing
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(ABM) LASALLE NATIONAL CORP. Series K, $4.375 preferred
Banking and financial services
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BANKAMERICA CORP. Series B, $6.00 adjustable-rate preferred
Multinational banking and financial services
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* Top 10 holdings represent 28.3% of the fund's net assets. Portfolio holdings
will vary over time.
SLOW GROWTH, MONETARY EASING MAY PROVIDE STABLE MARKET BACKDROP
We believe slower economic growth and subdued inflation are likely to result in
a further relaxation of the monetary reins by the Federal Reserve Board as we
move into fiscal 1996. While there can be no assurances, we believe there is a
good chance that short-term bank lending rates could decline substantially from
their current 5.50% level. Given that the short-term part of the yield curve is
currently inverted - with three-month Treasury bills yielding more than three-
year notes at the time of this writing - such an outcome is clearly what the
bond market expects.
<PAGE>
During fiscal 1996, we do not expect the fixed-income markets to stage a repeat
performance of fiscal 1995's historic advance. Nevertheless, we believe the eco-
nomic environment may continue to provide support for the markets, resulting in
relatively neutral fixed-income performance. And while we cannot provide guaran-
tees, we believe such an environment would enable the fund to reap the benefits
of high yields with modest total-return potential from the high-quality securi-
ties it currently owns.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed fa-
vorably as of 11/30/95, there is no guarantee the fund will continue to hold
these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
PERFORMANCE SHOULD ALWAYS BE CONSIDERED IN LIGHT OF A FUND'S INVESTMENT STRATE-
GY. PUTNAM PREFERRED INCOME FUND SEEKS A HIGH LEVEL OF INCOME WHICH QUALIFIES
FOR THE 70% CORPORATE DIVIDENDS-RECEIVED DEDUCTION FOR FEDERAL INCOME-TAX PURPO-
SES. THE DIVIDENDS-RECEIVED DEDUCTION IS NOT AVAILABLE TO NONCORPORATE INVES-
TORS.
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, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions back into the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/95
CLASS A CLASS M
(1/4/84) (4/20/95)
NAV POP NAV POP
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1 year 17.05% 13.31% -- --
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5 years 68.60 63.10 -- --
Annual average 11.01 10.28 -- --
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10 years 114.75 107.81 -- --
Annual average 7.94 7.59 -- --
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Life of class 166.41 157.86 9.88% 7.63%
Annual average 8.58 8.28 -- --
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COMPARATIVE RETURNS FOR PERIODS ENDED 11/30/95
MERRILL LYNCH
PERPETUAL PREFERRED STANDARD & POOR'S CONSUMER
INDEX 500 INDEX PRICE INDEX
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1 year 20.96% 36.95% 2.61%
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5 years 72.72 117.34 14.80
Annual average 11.54 16.80 2.80
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10 years NA* 310.72 40.92
Annual average NA* 15.17 3.49
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Life of class A NA* 438.32 51.63
Annual average NA* 15.18 3.56
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Life of class M 10.09 19.10 1.12
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Performance data represent past results, do not reflect future performance,
and will differ for each share class. They do not take into account any ad-
justment 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% for class M shares.
* The Merrill Lynch Perpetual Preferred Index was introduced on 2/28/89.
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[Line Chart - Page 10]
GROWTH OFA $10,000 INVESTMENT
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CUMULATIVE TOTAL RETURN OF A $10,000 INVESTMENT SINCE 11/30/85
S&P 500 FUND'S CLASS A CONSUMER
INDEX SHARES AT POP PRICE INDEX
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11/30/85 $10,000 $10,000 $10,000
11/30/86 12,770 12,327 10,128
11/30/87 12,160 11,391 10,587
11/30/88 14,978 13,538 11,037
11/30/89 19,596 17,114 11,550
11/30/90 18,897 15,938 12,275
11/30/91 22,756 18,560 12,642
11/30/92 26,956 21,336 13,028
11/30/93 29,671 22,842 13,376
11/30/94 29,989 22,441 13,734
11/30/95 $41,072 $20,781 $14,092
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Past performance is no assurance of future results. A $10,000 investment in the
fund's class M shares at inception on 4/20/95 would have been valued at $10,988
at net asset value on 11/30/95 $10,763 at a public offering price. The Merrill
Lynch Perpetual Preferred Index is not shown in the above chart because it has
been in existence for less than 10 years.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/95
DISTRIBUTIONS CLASS A CLASS M
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(NUMBER): 12 8
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Income $0.589910 $0.331914
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Total $0.589910 $0.331914
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SHARE VALUE: NAV POP NAV POP
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11/30/94 $7.88 $8.14 -- --
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4/20/95
(inception of class
M shares -- -- $8.12 $8.29
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11/30/95 8.59 8.88 8.58 8.76
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CURRENT RETURN:
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End of period
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Current dividend rate (1) 6.52% 6.31% 6.27% 6.15%
Taxable equivalent (2) 8.97 8.68 8.64 8.46
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Current 30-day SEC yield (3) 6.59 6.37 6.34 6.21
Taxable equivalent (2) 9.07 8.77 8.73 8.55
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(1) Income portion of most recent distribution, annualized and divided by NAV or
POP at end of period.
(2) The taxable equivalent examples in this table show the return that a corpo-
ration 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.
(3) Based only on investment income, calculated using SEC guidelines.
<PAGE>
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
CLASS A CLASS M
(1/4/84) (4/20/95)
NAV POP NAV POP
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1 year 17.36% 13.57% -- --
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5 years 68.00 62.61 -- --
Annual average 10.93 10.21 -- --
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10 years 113.34 106.37 -- --
Annual average 7.87 7.51 -- --
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Life of class 167.56 158.78 10.11% 7.85%
Annual average 8.55 8.25 -- --
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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.
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge but carry no
12b-1 fee.
CLASS M SHARES have a lower initial sales charge than class A shares and carry
a 12b-1 fee.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any liabili-
ties, divided by the number of outstanding shares, not including any initial sa-
les charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maxi-
mum 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% for class
M shares.
MERRILL LYNCH PERPETUAL PREFERRED INDEX is an unmanaged list of perpetual prefe-
rred 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 fre-
quently used as a general measure of stock-market performance.
Indexes assume reinvestment of all distributions, and do not take into account
brokerage commissions or other costs. The securities in the fund's portfolio do
not match those in the indexes.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
<PAGE>
RELATIVE RISK/REWARD POTENTIAL OF PUTNAM FUNDS
These illustrations provide a simplified guide to the risk/reward potential for
funds within each category of the Putnam Family of Funds and are not intended as
investment advice. Your investment advisor can help you evaluate your risk tole-
rance.
These rankings are relative only to Putnam funds and should not be compared to
other investments. There is no guarantee that one Putnam fund will be less vola-
tile than another, since each fund has its own investment risks. That's why it
is essential to read the fund's prospectus before investing.
PUTNAM GROWTH FUNDS
OTC
EMERGING
EUROPE GROWTH(2)
GROWTH(1) .
VOYAGER . . Higher Risk
NATURAL . . . . Higher Reward
RESOURCES . . . . Potential
GLOBAL . . . .
GROWTH(1) . . . . ASIA PACIFIC
INVESTORS . . . . GROWTH(1)
. . . . . NEW .
. . . . OPPORTUNITIES(2)
. . . . OVERSEAS
Lower Risk . . . GROWTH(1)
Lower Reward . . . HEALTH
Potential . . SCIENCES
. VISTA
DIVERSIFIED
EQUITY(1)
PUTNAM GROWTH AND INCOME FUNDS
.FUND FOR GROWTH
.AND INCOME Higher Risk
.CONVERTIBLE . . Higher Reward
.UTILILITIES .INCOME- . . . Potential
.GROWTH AND .GROWTH . . .
.INCOME . . . . .DIVIDEND
. . . . . .GROWTH
. . . . .
. . . . .PUTNAM
Lower Risk . . . .EQUITY .GROWTH AND
Lower Reward . . .INCOME .INCOME FUND II
Potential . .GEORGE
.MANAGED .PUTNAM
.INCOME
(1) Foreign investments are subject to certain risks, such as currency fluctua-
tions and political developments, that are not present with domestic invest-
ments.
(2) This fund invests all or a portion of its assets in small to medium-sized
companies, which increases the risk of price fluctuations.
(3) While U.S. government backing of individual securities does not insure your
principal, which will fluctuate, it does guarantee that the fund's govern-
ment-backed holdings will make timely payments of interest and principal.
<PAGE>
PUTNAM INCOME FUNDS
HIGH YIELD
GLOBAL ADVANTAGE(5)
GOV'T(1,5) .
INCOME . . Higher Risk
FEDERAL . . .. Higher Reward
INCOME(3) . . . . Potential
U.S. GOV'T . . . .
ADJUSTABLE INCOME(3) . . . HIGH YIELD(5)
RATE U.S. . . . . .
GOV'T(3) . . . PREFERRED
. . . . . INCOME
. . . .
Lower Risk . . . . DIVERSIFIED
Lower Reward . . . . INCOME(1,3,5)
Potential . . AMERICAN
. . GOV'T.
MONEY BALANCED INCOME(3)
MARKET(4) U.S. GOV'T(3)
PUTNAM TAX-FREE FUNDS(6)
SINGLE-STATE TAX-FREE
TAX-FREE FUNDS* HIGH YIELD(5)
. . Higher Risk
TAX-FREE . . Higher Reward
INSURED(7) . . . Potential
. . .
TAX EXEMPT . . . .
MONEY . . MUNICIPAL
MARKET(4) . . INCOME
Lower Risk . . TAX EXEMPT
Lower Reward . . INCOME
Potential . .
INTERMEDIATE
TAX EXEMPT
* State tax-free funds available for Arizona, California, Florida, Massachu-
setts, Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania. Not
available in all states.
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments. The three
portfolios are:
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
Please call your financial advisor -- or Putnam at 1-800-225-1581 -- to obtain
a prospectus for any Putnam fund. The prospectus contains more complete informa-
tion, including risk considerations, charges, and expenses. Read it carefully
before you invest or send money.
(4) The fund is managed to maintain a steady price of $1.00 per share, although
there is no assurance this price can be maintained in the future.
(5) The lower credit ratings of high-yield corporate and municipal bonds reflect
a greater possibility that adverse changes in the economy or their issuers
may affect their ability to pay principal and interest on the bonds.
(6) Income may be subject to state and local taxes. Capital gains, if any, are
taxable for federal and, in most cases, state purposes.
(7) Bond insurance does not guarantee principal or protect against changes in
market price.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended November 30, 1995
To the Trustees and Shareholders of
Putnam Preferred Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments owned, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all ma-
terial respects, the financial position of Putnam Preferred Income Fund (former-
ly called Putnam Corporate Asset Trust) at November 30, 1995, and the results of
its operations, the changes in its net assets, and the financial highlights for
the periods indicated, in conformity with generally accepted accounting princi-
ples. These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial state-
ments, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of investments owned at No-
vember 30, 1995 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 15, 1996
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1995
PREFERRED STOCKS (87.7%)*
NUMBER OF SHARES VALUE
AUTOMOBILES (4.3%)
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35,500 Ford Motor Co. Ser. B, $2.0625, dep. shs. preferred
(pfd). $ 962,938
115,000 General Motors Corp. Ser. B, $2.28125 dep. shs. pfd. 3,119,370
40,000 General Motors Corp. Ser. G, $2.28, pfd. 1,130,000
--------------
5,212,308
BANKS (19.6%)
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135,000 Bank of Boston Corp. Ser. E, $2.15, dep. shs. pfd. 3,442,500
32,000 BankAmerica Corp. Ser. B, $6.00, Adjustable Rate
Preferred (ARP) 2,888,000
51,200 BankAmerica Corp. Ser. F, $2.40625, pfd. 1,299,200
10,500 BankAmerica Corp. Ser. K, $2.09375, pfd. 266,438
37,000 Bankers Trust New York Corp. Ser. P, $1.875, pfd. 906,500
70,000 Bankers Trust New York Corp. Ser. Q, $1.4705, ARP 1,505,000
50,000 Chase Manhattan Corp. Ser. H, $2.44, pfd. 1,418,750
11,000 Chase Manhattan Corp. Ser. J, $2.27, pfd. 290,125
8,850 Chase Manhattan Corp. Ser. M, $2.10, pfd. 233,419
24,000 Chemical Bank Ser. H, $2.09375, pfd. 624,000
17,400 Citicorp Ser. 3, $7.00, ARP 1,705,200
22,510 Citicorp Ser. 18, $1.449, ARP 495,220
92,655 First Interstate Bancorp Ser. F, $2.46875, dep. shs. pfd. 2,443,776
70,000 First Interstate Ser. G $2.25, dep. shs. pfd. 1,855,000
15,000 Indosuez Holdings 144A, ADS, $2.59375, pfd. (Mexico) 405,000
60,000 ABM Lasalle National Corp. Ser. K, $4.375, pfd. 2,947,500
40,000 Union Bank Ser. A, $2.09375, dep. shs. pfd. 1,020,000
--------------
23,745,628
COMBINED UTILITIES (14.2%)
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10,000 Baltimore Gas & Electric $6.99, pfd. 1,060,000
19,900 Baltimore Gas & Electric Co. Ser. 93, $7.125, pfd. 2,106,913
20,000 Cincinnati Gas & Electric Co. Sinking Fund, $7.375, pfd. 2,020,000
57,000 Delmarva Power & Light Co. $1.9375, pfd. 1,510,500
9,000 Jersey Central Power & Light Co. Ser. E, $7.88, pfd. 909,000
80,000 Long Island Lighting Co. Sinking Fund, Ser. NN, $1.95,
pfd. 1,590,000
116,000 New York State Electric & Gas Corp. Ser. B, $1.36, ARP 2,581,000
20,000 Pacific Gas & Electric Co. Ser. U, $1.76, pfd. 535,000
11,750 Public Service Electric & Gas Co. $6.92, pfd. 1,192,625
13,000 Public Service Electric & Gas Co. $7.52, pfd. 1,300,000
23,200 Western Resources, Inc. Sinking Fund, $7.58, pfd. 2,412,800
--------------
17,217,838
ELECTRIC UTILITIES (18.6%)
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4,865 Appalachian Power $7.40, pfd. 482,851
50,000 Arizona Public Service Co. Ser. W, $1.8125, pfd. 1,250,000
20,000 Central Maine Power Co. Ser. A, $7.999, pfd. 2,010,000
10,000 Cleveland Electric Illuminating Co. Sinking Fund, Ser. R,
$8.80, pfd. 917,500
7,070 Commonwealth Edison Co. Ser. A, $8.40, pfd. 710,535
5,500 Detroit Edison Co. $7.45, pfd. 551,375
17,522 Gulf States Utilities Co. $8.52, pfd. 1,673,351
<PAGE>
PREFERRED STOCKS
NUMBER OF SHARES VALUE
ELECTRIC UTILITIES
- -------------------------------------------------------------------------------
50,000 Niagara Mohawk Power Corp. $2.375, pfd. $ 1,181,250
39,800 Niagara Mohawk Power Corp. Ser. A, $1.625, ARP 676,600
40,000 Niagara Mohawk Power Corp. Ser. C, $1.80, ARP 770,000
7,500 Northern States Power Co. Ser. B, $5.50, ARP 720,000
18,000 PSI Energy, Inc. $1.86, pfd. 452,250
13,000 Pacificorp Sinking Fund, $7.12, pfd. 1,300,000
31,200 Pacificorp Ser. 92, $1.98, pfd. 799,500
15,000 Peco Energy $7.48, pfd. 1,560,000
10,000 Pennsylvania Power & Light Co. Sinking Fund, $6.125, pfd. 1,026,250
10,000 Pennsylvania Power & Light Co. Sinking Fund, $6.33, pfd. 1,042,500
60,000 Texas Utilities Co. Ser. A, $1.875, dep. shs. pfd. 1,552,500
150,000 Texas Utilities Co. Ser. B, $1.805, dep. shs. pfd. 3,843,750
--------------
22,520,212
FINANCE (9.9%)
- -------------------------------------------------------------------------------
10,000 Bear Stearns & Co. Ser. A, $2.75, ARP 443,750
28,300 Bear Stearns & Co. Ser. B, $1.97, dep. shs. pfd. 721,650
126,000 Ford Holdings Corp. Ser. A, $2.00, dep. shs. pfd. 3,150,000
95,000 Heller Financial Inc. Ser. A, $2.03125, cum. sr. pfd. 2,458,125
13,300 Merrill Lynch & Co., Inc. Ser. A, $2.25, dep. shs. pfd. 380,713
24,000 Morgan Stanley $1.84375, dep. shs. pfd. 600,000
42,710 SunAmerica Inc. Ser. C, $7.00, ARP 4,249,645
--------------
12,003,883
FOOD CHAINS (0.3%)
- -------------------------------------------------------------------------------
15,000 McDonalds Corp. Ser. E $1.93 dep. shs. pfd. 390,000
FOREST PRODUCTS (2.6%)
- -------------------------------------------------------------------------------
120,000 Boise Cascade Corp. Ser. F, $2.35, dep. shs. pfd. 3,180,000
GAS PIPELINES (1.0%)
- -------------------------------------------------------------------------------
13,000 ENSERCH Corp. Ser. E, $7.00, ARP 1,261,000
GAS UTILITIES (0.4%)
- -------------------------------------------------------------------------------
18,700 Washington Natural Gas Co. Ser. III, $2.125, pfd. 474,513
INSURANCE (6.6%)
- -------------------------------------------------------------------------------
143,500 AON Corp. $2.00, pfd. 3,677,188
74,000 Berkley (W.R.) Corp. Ser. A, $1.84375, pfd. 1,831,500
16,000 Provident Life & Accident Insurance Co. $2.025,
dep. shs. pfd. 412,000
81,000 Travelers Corp. Ser. D, $2.3125, dep. shs. pfd. 2,116,125
--------------
8,036,813
NATURAL GAS (0.6%)
- -------------------------------------------------------------------------------
28,000 Phillips Gas Co. Ser. A, $2.33, pfd. 738,500
OIL SERVICES (4.3%)
- -------------------------------------------------------------------------------
57,500 LASMO PLC ADS Ser. A, $2.50, pfd. (United Kingdom) 1,394,375
129,051 McDermott Inc. Sinking Fund, Ser. B, $2.60, pfd. 3,839,267
--------------
5,233,642
PAPER (1.3%)
- -------------------------------------------------------------------------------
60,000 Bowater, Inc. Ser. C, $2.10, dep. shs. pfd. 1,620,000
<PAGE>
PREFERRED STOCKS
NUMBER OF SHARES VALUE
PUBLISHING (1.0%)
- -------------------------------------------------------------------------------
49,500 Newscorp Overseas Corp. Ser. A, $2.15625, pfd. $ 1,243,688
TELEPHONE UTILITIES (0.5%)
- -------------------------------------------------------------------------------
5,490 GTE Florida, Inc. $8.16, pfd. 557,235
TOBACCO (1.4%)
- -------------------------------------------------------------------------------
67,300 RJR Nabisco Holding Ser. B, $2.3125, dep. shs. pfd. 1,674,088
WATER UTILITIES (1.1%)
- -------------------------------------------------------------------------------
13,500 United Water Resources, Inc. Ser. B, $7.625, pfd. 1,336,500
--------------
TOTAL PREFERRED STOCKS (cost $105,940,239) $106,445,848
COMMON STOCKS (9.2%)*
NUMBER OF SHARES VALUE
COMBINED UTILITIES (1.4%)
- -------------------------------------------------------------------------------
30,000 Pacific Gas & Electric Co. $ 1,825,000
39,000 Rochester Gas & Electric Corp. 916,500
--------------
1,741,500
ELECTRIC UTILITIES (3.8%)
- -------------------------------------------------------------------------------
35,000 Entergy Corp. 975,625
35,000 Northeast Utilities Co. 835,625
41,000 Potomac Electric Power Co. 1,004,500
29,000 Public Service Enterprise Group, Inc. 859,125
24,000 Texas Utilities Co. 924,000
--------------
4,598,875
INSURANCE (0.9%)
- -------------------------------------------------------------------------------
15,000 Aetna Life & Casualty Co. 1,100,625
METALS AND MINING (0.6%)
- -------------------------------------------------------------------------------
4,750 Freeport McMoran, Inc. 185,844
19,999 Freeport-McMoRan Copper & Gold Co., Inc. Class B 542,473
--------------
728,317
NATURAL GAS (0.3%)
- -------------------------------------------------------------------------------
15,000 UGI Corp. (New) 311,250
REIT's (1.7%)
- -------------------------------------------------------------------------------
37,000 Cali Realty Corp. 730,750
32,000 CenterPoint Properties Corp. 712,000
27,000 Smith (Charles E.) Residential Realty, Inc. 621,000
--------------
2,063,750
RETAIL (0.5%)
- -------------------------------------------------------------------------------
84,000 K mart Corp. 651,000
TOTAL COMMON STOCKS (cost $10,565,513) $ 11,195,317
<PAGE>
CONVERTIBLE PREFERRED STOCKS (1.1%) * (cost $1,250,000)
NUMBER OF SHARES VALUE
25,000 Unocal Corp. 144A $3.50, cv. pfd. $ 1,293,750
SHORT-TERM INVESTMENTS (1.4%)* (cost $1,713,279)
PRINCIPAL AMOUNT VALUE
$ 1,713,000 Interest in $798,484,000 joint repurchase agreement
dated November 30, 1995 with Morgan (J.P.) & Co., Inc.
due December 1, 1995 with respect to various U.S.
Treasury obligations - maturity value of $1,713,279
for an effective yield of 5.86% $ 1,713,279
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $119,469,031)*** $120,648,194
- -------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $121,320,894.
*** The aggregate identified cost for federal income tax purposes is
$119,489,918, resulting in gross unrealized appreciation and depreciation of
$5,194,210 and $4,035,934, respectively, or net unrealized appreciation of
$1,158,276.
ADS after the name of a holding stands for American Depository Shares, re-
presenting ownership of foreign securities on deposit with a domestic custo-
dian bank.
144A after the name of a security represents those exempt from registration
under Rule 144A of the Securities Act of 1933. These securities may be re-
sold in transactions exempt from registration, normally to qualified insti-
tutional buyers.
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $119,469,031) (Note 1) $120,648,194
- -------------------------------------------------------------------------------
Cash 623
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 743,370
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,822
- -------------------------------------------------------------------------------
Receivable for securities sold 541,501
- -------------------------------------------------------------------------------
TOTAL ASSETS 121,935,510
LIABILITIES
- -------------------------------------------------------------------------------
Distributions payable to shareholders 232,399
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 104,752
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 202,709
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,398
- -------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 124
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 30,051
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 261
- -------------------------------------------------------------------------------
Other accrued expenses 42,922
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 614,616
- -------------------------------------------------------------------------------
NET ASSETS $121,320,894
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $182,342,351
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 52,552
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (62,253,172)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,179,163
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
- -------------------------------------------------------------------------------
CAPITAL SHARES OUTSTANDING $121,320,894
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($120,591,427 divided by 14,035,166 shares) $8.59
- -------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $8.59)* $8.88
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($729,467 divided by 84,982 shares) $8.58
- -------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $8.58)* $8.76
- -------------------------------------------------------------------------------
* 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.
<PAGE>
STATEMENT OF OPERATIONS
Year ended November 30, 1995
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $21,200) $9,286,232
- -------------------------------------------------------------------------------
Interest 225,197
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 9,511,429
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 800,635
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 190,687
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,152
- -------------------------------------------------------------------------------
Reports to shareholders 29,676
- -------------------------------------------------------------------------------
Auditing 43,414
- -------------------------------------------------------------------------------
Legal 13,896
- -------------------------------------------------------------------------------
Postage 2,434
- -------------------------------------------------------------------------------
Registration fees 10,410
- -------------------------------------------------------------------------------
Administrative services (Note 2) 8,302
- -------------------------------------------------------------------------------
Distribution fees -- Class M shares (Note 2) 795
- -------------------------------------------------------------------------------
Other 1,090
- -------------------------------------------------------------------------------
TOTAL EXPENSES 1,112,491
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (112,324)
- -------------------------------------------------------------------------------
NET EXPENSES 1,000,167
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,511,262
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,533,139)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 12,384,240
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 10,851,101
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,362,363
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended November 30
1995 1994
INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
Net investment income $ 8,511,262 $ 8,811,131
- -------------------------------------------------------------------------------
Net realized loss on investment transactions (1,533,139) (235,917)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 12,384,240 (14,305,527)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 19,362,363 (5,730,313)
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (8,727,588) (8,815,414)
Class M (19,583) --
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (9,116,711) (9,816,937)
- -------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,498,481 (24,362,664)
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of year 119,822,413 144,185,077
- -------------------------------------------------------------------------------
END OF YEAR (including undistributed net
investment income of
$52,552 and $282,518, respectively) $121,320,894 $119,822,413
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS *
(For a share outstanding throughout the period)
APRIL 20, 1995
(COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED NOVEMBER 30
NOVEMBER 30
1995 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS M CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $8.12 $7.88 $8.81 $8.34 $8.00 $7.42
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .33 .57 .56 .60 .68 .70
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .46 .73 (.93) .47 .34 .57
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS .79 1.30 (.37) 1.07 1.02 1.27
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (.33) (.59) (.56) (.60) (.68) (.69)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.33) (.59) (.56) (.60) (.68) (.69)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.58 $8.59 $7.88 $8.81 $8.34 $8.00
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) 9.88(b) 17.05 (4.41) 13.07 13.08 17.86
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $729 $120,591 $119,822 $144,185 $142,378 $129,688
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (c) .67(b) .90 .81 .83 .83 .93
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.73(b) 6.91 6.64 6.83 8.23 8.98
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.76 34.76 32.84 114.53 188.68 157.11
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
* 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.
(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 includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts. (See Note 2).
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1995
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
Putnam Preferred Income Fund ("the fund"), formerly named "Putnam Corporate
Asset Trust" 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. The fund commenced its operations of
class M shares on April 20, 1995. Class A shares are sold with a maximum front-
end sales charge of 3.25% and do not pay an on-going distribution fee. Class M
shares are sold with a maximum front-end sales charge of 2.00% and pay an on-
going distribution fee.
Expenses of the fund are borne pro-rata by the holders of both classes of sha-
res, 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 re-
ceive their pro-rata share of the net assets of the fund, if the fund were li-
quidated. In addition, the Trustees declare separate dividends on each class of
shares.
The following is a summary of significant accounting policies consistently fo-
llowed by the fund in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
A) SECURITY VALUATION Investments for which market quotations are readily avail-
able 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 compara-
ble securities and various relationships between securities that are generally
recognized by institutional traders. Short-term investments having remaining ma-
turities of 60 days or less are stated at amortized cost, which approximates
market value. All other investments are stated at their 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 compa-
nies managed by Putnam Investment Management, Inc. ("Putnam Management"), the
fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., and cer-
tain 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
<PAGE>
underlying securities, the market value of which at the time of purchase is re-
quired to be in an amount at least equal to 102% of the resale price, including
accrued interest. Putnam Management is responsible for determining that the va-
lue 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). In-
terest income is recorded on the accrual basis and 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 impo-
sition of any excise tax subject to 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. This amount includes approximately $43,821,000 of capital loss ca-
rryovers 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 capital loss carryover that can be used to offset realized ca-
pital gains by the fund in any one year may be limited by the Internal Revenue
Code and Regulations. To the extent that capital loss carryovers are used to
offset realized capital gains, it is unlikely that gains so offset would be dis-
tributed to shareholders since any such distribution might be taxable as ordina-
ry income.
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 The fund declares a distribution each day based
upon projected net investment income and short-term gains calculated as if earn-
ed pro-rata throughout the period, on a daily basis. Such distributions are re-
corded daily and paid monthly. Long-term 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. The-
se differences include treatment of capital loss carryover. 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 regu-
lations.
For the year ended November 30, 1995, the fund reclassified $5,943 to increase
undistributed net investment income, $6,637,511 to decrease accumulated net rea-
lized loss on investments and $6,643,454 to decrease paid-in-capital. The calcu-
lation of net investment income per share in the financial highlights table ex-
cludes these adjustments.
<PAGE>
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, the fund's Manager, for management and in-
vestment advisory services is paid quarterly based on the average net assets of
the fund for the quarter. 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 any amount over $1.5 billion, sub-
ject, under current law, to reduction in any year to the extent that expenses
(exclusive of brokerage, interest, taxes and credits allowed by PFTC) of the
fund exceed 2.5% of the first $30 million of average net assets, 2.0% of the
next $70 million and 1.5% of any amount over $100 million 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 ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $750 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
During the year ended November 30, 1995, 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 re-
main in the fund and are invested in the fund or in other Putnam funds until
distribution in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam Fiduciary Fund
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 year ended November 30, 1995, fund expenses were reduced by $112,324 un-
der expense offset arrangements with PFTC. Investor servicing and custodian fees
reported in the Statement of operations exclude these credits. The fund could
have invested the assets utilized in connection with the expense offset arrange-
ments 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 incu-
rred by it in distributing class M shares of the fund. The class M plan provides
for payments by the fund to Putnam Mutual Funds Corp. at an annual rate of 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 year ended November 30, 1995, Putnam Mutual Funds Corp., acting as un-
derwriter received net commissions of $22,513 and $1,070 from the sale of class
A and class M shares, respectively. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares. For the year ended November
30, 1995, Putnam Mutual Funds Corp., acting as underwriter received $6,192 on
class A redemptions.
<PAGE>
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended November 30, 1995, purchases and sales of investment secu-
rities other than short-term investments aggregated $40,809,128 and $49,094,550,
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
The fund declared a 5-for-1 stock split to shareholders of record November 29,
1994. The financial highlights and capital share balances have been restated to
reflect the stock split. At November 30, 1995, there was an unlimited number of
shares of beneficial interest authorized. Transactions in capital shares were as
follows:
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)
- -------------------------------------------------------------------------------
YEAR ENDED
NOVEMBER 30, 1994
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 2,163,891 $18,804,139
- -------------------------------------------------------------------------------
Shares issued in connection
with reinvestment of distributions 703,150 5,424,810
- -------------------------------------------------------------------------------
2,867,041 24,228,949
- -------------------------------------------------------------------------------
Shares repurchased (4,030,872) (34,045,886)
- -------------------------------------------------------------------------------
NET DECREASE (1,163,831) ($9,816,937)
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of the distributions from net investment income as
qualifying for the dividends received deduction for corporations
<PAGE>
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill 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 Charles E. Porter
President Executive Vice President
Patricia C. Flaherty John D. Hughes
Senior Vice President Senior Vice President and Treasurer
Lawrence J. Lasser Gordon H. Silver
Vice President Vice President
Peter Carman Brett C. Browchuk
Vice President Vice President
Thomas V. Reilly Jeanne L. Mockard
Vice President Vice President and Fund Manager
William N. Shiebler John R. Verani
Vice President Vice President
Paul M. O'Neil Beverly Marcus
Vice President 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 objec-
tives, and operating policies of the fund, and the most recent copy of Putnam's
Quarterly Performance Summary. For more information, or to request a prospec-
tus, call toll free: 1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, ANY FINANCIAL INSTITUTION; ARE NOT INSURED BY THE FEDERAL DEPOSIT IN-
SURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY; AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
<PAGE>
---------------
PUTNAM INVESTMENTS Bulk Rate
U.S. Postage
THE PUTNAM FUNDS PAID
One Post Office Square Putnam
Boston, Massachusetts 02109 Investments
---------------
22187-029/867 1/96
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The registered mark symbol has been replaced by (R).
(8) The dagger symbol has been replaced by +
(9) The double dagger symbol has been replaced by ++
(10) The triple dagger symbol has been replaced by +++
(11) The section symbol has been replaced by ^
(12) The double section symbol has been replaced by ^^
(13) The trile section symbol has been replaced by ^^^
