Putnam
Preferred
Income
Fund
ANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Exceptional returns from bank perpetual preferreds, continuing
developments in the electric utility industry, and a favorable interest-
rate environment over the final quarter of the year were the principal
factors behind the fund's solid performance in fiscal 1996."
-- Jeanne L. Mockard, manager
Putnam Preferred Income Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
17 Financial statements
27 Results of shareholder meeting
From the Chairman
[GRAPHIC OMITTED:PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The confluence of three positive events in the closing weeks of fiscal
1996 -- a supportive market environment, significant further
deregulation of electric utilities, and the favorable impact of a new
type of security on the perpetual preferred market -- provided a strong
finish to an otherwise lackluster period for Putnam Preferred Income
Fund.
The market grew much more hospitable during the second half of the
period than it was when we reported to shareholders at the fiscal year's
midpoint. Regulatory easing is prompting many electric utilities to
expand into other areas and to seek mergers and acquisitions. The trend
is having a favorable effect on their preferred stocks and other
securities. Finally, developments relating to a new type of preferred
stock provided a boost to the fund's bank preferred holdings.
Fund Manager Jeanne Mockard sought maximum advantage from all three
circumstances during the period. She provides further details in the
following report on the fund's performance and prospects.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Jeanne L. Mockard
Noteworthy developments in the preferred stock market helped provide a
year-end boost to Putnam Preferred Income Fund's performance, enabling
it to complete its 1996 fiscal year on November 30 by posting market-
beating performance at net asset value (NAV). Your fund's total returns
of 8.61% and 8.22% at NAV for class A and class M shares, respectively,
surpassed the 7.34% return measured by the Merrill Lynch Perpetual
Preferred Index, one of the fund's key performance benchmarks and a
commonly used yardstick for the preferred stock market. The fund's
returns at public offering price were 5.06% and 5.99% for class A and
class M shares, respectively.
We attribute the fund's success to the impact of a new type of preferred
stock on one segment of the market where your fund had sizable exposure,
and to a favorable environment for fixed-income securities over the last
three months of the year. Please refer to the tables on pages 8 through
10 for complete performance and dividend information.
* ISSUANCE OF TRUST-PREFERRED STOCK BOOSTS BANK PERPETUAL PREFERREDS
The principal developments that boosted the fund's performance were
late-year phenomena. Most significant among them was the issuance of a
new type of preferred stock -- trust-preferred stock -- by banks and
insurance companies. Issued through trust company subsidiaries, which
accounts for its name, trust-preferred stock is classified differently
by the Federal Reserve and by the Internal Revenue Service, which can
result in lower after-tax costs for the issuer.
In October, the Fed passed regulatory changes indicating that the
capital from these stocks should be classified as equity on banks'
balance sheets. This is consistent with the Fed's treatment of other
types of preferred stock. The IRS, meanwhile, effectively treats trust-
preferred stock as debt, allowing issuers to account for the dividends
paid on the securities as a tax-deductible cost. Other types of
preferred stock are viewed as equity by the IRS, which prevents
dividends paid from being treated as tax-deductible interest. As a
result, the after-tax cost to an issuer of trust-preferred stock can be
significantly lower than the cost of issuing other types of preferred
stock.
Thus, after the new regulations were announced, banks seized on this tax
advantage and rushed to issue these new securities. In addition, the
expectation that the 1997 federal budget may include a measure outlawing
the tax deductibility of trust-preferred stock provided further impetus
to banks to capitalize on this window of opportunity. Bank issuance of
trust-preferred stock, in turn, bolstered the prices of other types of
preferreds, giving them a degree of scarcity value in the face of no new
issuance by banks.
Your fund benefited from these developments because of its substantial
exposure to bank preferreds. At the end of the period, nearly 20% of the
fund's net assets were committed to bank preferreds.
[GRAPHIC HORIZONTAL BAR CHART OMITTED:COMPARATIVE PORTFOLIO COMPOSITION]
COMPARATIVE PORTFOLIO COMPOSITION*
11/30/95 (COLOR BLACK ON CHART)
11/30/96 (COLOR GRAY ON CHART)
Perpetual 61.8%
preferreds 66.2%
Adjustable-rate 14.2%
preferreds 21.1%
Sinking-fund 11.7%
preferreds 8.1%
Common stocks 9.2%
1.8%
Convertible 1.1%
securities 0.0%
Cash and 1.4%
short-term securities 4.1%
Footnote reads:
*Based on net assets as of 11/30/95 and 11/30/96. Composition will vary
over time.
* SUPPORTIVE MARKET ENVIRONMENT ALLOWS MODEST SHIFT INTO ARPS
Following an extended period of rising interest rates and turbulence in
the fixed-income markets, your fund enjoyed a supportive market
environment during the last three months of the fiscal year. Long-term
interest rates declined considerably, boosting the values of all
securities with fixed income streams, including preferred stocks.
Because they behave like long-term bonds with no maturity dates,
perpetual preferreds benefit greatly when interest rates fall. These
benefits notwithstanding, declining rates also inevitably lead issuers
to call in or retire preferreds that carry dividend rates above
prevailing interest rates. In order to avoid a forced redemption of a
number of perpetual preferred holdings all at once, we attempted to
manage the impact of calls on the portfolio by trading securities in a
staggered fashion as they approached their first call dates.
In keeping with our orientation toward finding value, some of this
trading activity resulted in a modest increase in the fund's adjustable-
rate preferred (ARP) holdings. ARPs carry coupons that reset with
movements in short-term interest rates. They typically underperform
perpetual preferreds when long-term rates are declining and, as such,
frequently contain greater relative value once perpetual preferreds have
appreciated substantially.
* UTILITY DEREGULATION PROMPTS INCREASED MERGERS AND ACQUISITIONS ACTIVITY
One of the more notable developments in the preferred market over the
fiscal year was the increase in mergers and acquisitions among electric
utilities and natural gas providers. Deregulation in the electric
utility industry is causing major operators to attempt to consolidate
their control over exploration, generation, and distribution of electric
power. Various electric utilities have merged with natural gas
providers, believing they will compete more effectively as combined
rather than as separate entities.
* PORTFOLIO TURNOVER HISTORICALLY LOW AS FUND ATTEMPTS TO RETAIN HIGHER-
YIELDING PREFERREDS
We believe the Federal Reserve Board's attempts to control inflation by
adjusting monetary policy have, thus far, been successful. Indeed, with
the economy continuing to grow at a moderate rate and strong economic
releases frequently being offset by weaker ones, it is possible that Fed
policy may remain stable in the months ahead.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS*
McDermott, Inc. Series B, $2.60 sinking-fund preferred
Oil services
Texas Utilities Co. Series B, $1.805 preferred
Electric utility
Merrill Lynch Series A, $2.25 preferred
Securities brokerage and investment management services
Bank of Boston Series E, $2.15 preferred
Multinational banking and financial services
General Motors Corp. Series B, $2.281 preferred
World leader in automobile manufacturing
Boise Cascade Corp. Series F, $2.35 preferred
Forest products and paper manufacturing
Lasalle National Corp. Series K, $4.375 preferred
Banking and financial services
Baltimore Gas and Electric Series 93, $7.125 preferred
Gas and electric utilities
BankAmerica Corp. Series B, $6.00 preferred
Banking and financial services
Travelers Corp. Series D, $2.313 preferred
Insurance and financial services
Footnote reads:
*Top 10 holdings represented 26.8% of the fund's net assets as of
11/30/96. Portfolio holdings will vary over time.
Now that the election season has passed, Washington is again likely to
float the possibility of lowering the dividends-received deduction to
50% from the current 70%. Although the probability of such a reduction
is uncertain, it has caused a slowdown in the overall issuance of
preferreds. We believe, therefore, that it is perhaps more valuable than
ever before to maintain a portfolio of high-coupon securities and to
hold these securities for as long as possible. Consequently, portfolio
turnover has been quite low relative to the fund's history and we expect
this to continue to be the case for at least the next several months.
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 11/30/96, 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 that
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 11/30/96
Class A Class M
(inception date) (1/4/84) (4/20/95)
NAV POP NAV POP
- ------------------------------------------------------------------------
1 year 8.61% 5.06% 8.22% 5.99%
- ------------------------------------------------------------------------
5 years 55.37 50.37 -- --
Annual average 9.21 8.50 -- --
- ------------------------------------------------------------------------
10 years 103.08 96.55 -- --
Annual average 7.34 6.99 -- --
- ------------------------------------------------------------------------
Life of class -- -- 18.91 16.47
Annual average -- -- 11.28 9.87
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Merrill Lynch
Perpetual Standard & Poor's Consumer
Preferred Index 500 Index Price Index
- ------------------------------------------------------------------------
1 year 7.34% 27.85% 3.26%
- ------------------------------------------------------------------------
5 years 52.13 130.70 15.09
Annual average 8.75 18.19 2.85
- ------------------------------------------------------------------------
10 years* -- 311.57 43.66
Annual average* -- 15.20 3.69
- ------------------------------------------------------------------------
Life of class M 16.59 52.72 4.41
Annual average 10.15 30.56 2.70
- ------------------------------------------------------------------------
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 principal 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.
[GRAPHIC OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
(plot points for 10-year total return mountain chart)
Fund S&P 500 Consumer
Date/year at POP Index Price Index
- ---------- ------- -------- -----------
11/30/86 9,678 10,000 10,000
11/30/87 9,087 9,523 10,453
11/30/88 9,722 11,737 10,897
11/30/89 10,791 15,363 11,404
11/30/90 10,734 14,825 12,120
11/30/91 12,651 17,840 12,482
11/30/92 14,307 21,132 12,862
11/30/93 16,176 23,267 13,207
11/30/94 15,462 23,510 13,560
11/30/95 18,098 32,192 13,913
11/30/96 19,655 41,157 14,366
Footnote reads:
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 $11,891 at net asset value on 11/30/96 ($11,647 at public
offering price). The Merrill Lynch Perpetual Preferred Index is not
shown because it has been in existence for less than 10 years.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class M
(inception date) (1/4/84) (4/20/95)
NAV POP NAV POP
- ------------------------------------------------------------------------
1 year 8.47% 4.90% 8.21% 6.10%
- ------------------------------------------------------------------------
5 years 49.82 44.87 -- --
Annual average 8.42 7.70 -- --
- ------------------------------------------------------------------------
10 years 104.79 98.08 -- --
Annual average 7.43 7.07 -- --
- ------------------------------------------------------------------------
Life of class -- -- 19.15 16.71
Annual average -- -- 10.86 9.51
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and principal 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
12 months ended 11/30/96
Class A Class M
- ------------------------------------------------------------------------
Distributions (number) 12 12
- ------------------------------------------------------------------------
Income $0.584 $0.562
- ------------------------------------------------------------------------
Total $0.584 $0.562
- ------------------------------------------------------------------------
Share value: NAV POP NAV POP
- ------------------------------------------------------------------------
11/30/95 $8.59 $8.88 $8.58 $8.76
- ------------------------------------------------------------------------
11/30/96 $8.71 $9.00 $8.69 $8.87
- ------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------
Current dividend rate1 6.43% 6.22% 6.19% 6.06%
- ------------------------------------------------------------------------
Taxable equivalent3 8.85 8.56 8.52 8.34
- ------------------------------------------------------------------------
Current 30-day SEC yield2 6.27 6.06 6.05 5.93
- ------------------------------------------------------------------------
Taxable equivalent3 8.63 8.34 8.33 8.17
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
3 The 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 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
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred 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% 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.
Footnote reads:
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take into 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.
Report of independent accountants
For the fiscal year ended November 30, 1996
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 material respects, the financial position of
Putnam Preferred Income Fund (the "fund") at November 30, 1996, 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 principles. 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
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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 November
30, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 10, 1997
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996
<S> <C> <C> <C>
PREFERRED STOCKS (95.4%) *
NUMBER OF SHARES VALUE
Automobiles (5.4%)
- ------------------------------------------------------------------------------------------------------------------
72,079 Ford Motor Co. Ser. B, $2.063, dep. shs. preferred (pfd). $ 2,018,210
115,000 General Motors Corp. Ser. B, $2.281, dep. shs. pfd. 3,148,125
54,000 General Motors Corp. Ser. G, $2.28, pfd. 1,512,000
------------
6,678,335
Banks (19.8%)
- ------------------------------------------------------------------------------------------------------------------
25,000 Bank of Boston Corp. Ser. C, $5.50, Adjustable Rate Preferred (ARP) 2,050,000
135,000 Bank of Boston Corp. Ser. E, $2.15, dep. shs. pfd. 3,459,375
30,000 BankAmerica Corp. Ser. A, $3.25, ARP 1,492,500
32,000 BankAmerica Corp. Ser. B, $6.00, ARP 2,992,000
25,000 BankAmerica Corp. Ser. M, $1.969, dep. shs. pfd. 634,375
37,000 Bankers Trust New York Corp. Ser. P, $1.875, pfd. 929,625
70,000 Bankers Trust New York Corp. Ser. Q, $1.437, ARP 1,583,750
50,000 Chase Manhattan Corp. Ser. B, $2.44, pfd. 1,431,250
8,850 Chase Manhattan Corp. Ser. M, $2.10, pfd. 235,631
22,510 Citicorp Ser. 18, $1.439, ARP 523,358
17,400 Citicorp Ser. 3, $7.00, ARP 1,713,900
10,000 Fleet Financial Group, Inc., Ser. D, $2.325, dep. shs. pfd. 261,250
66,766 Fleet Financial Group, Inc. Ser. E, $2.338, dep. shs. pfd. 1,861,102
15,000 Indosuez Holdings 144A, ADS, $2.594, pfd. (Mexico) 412,500
60,000 Lasalle National Corp. Ser. K, $4.375, pfd. 3,060,000
40,000 Unionbancal Corp. Ser. A, $2.094, pfd. 1,025,000
24,000 US Bancorp Ser. A, $2.031, pfd. 612,000
------------
24,277,616
Combined Utilities (12.5%)
- ------------------------------------------------------------------------------------------------------------------
15,000 Baltimore Gas & Electric Co. $6.99, pfd. 1,623,750
15,000 Baltimore Gas & Electric Co. Ser. 87, $6.75, pfd. 1,533,750
28,000 Baltimore Gas & Electric Co. Ser. 93, $7.125, pfd. 3,052,000
9,000 Jersey Central Power & Light Co. Ser. E, $7.88, pfd. 923,625
80,000 Long Island Lighting Co. Sinking Fund Ser. NN, $1.95, pfd. 1,610,000
116,000 New York State Electric & Gas Corp. Ser. B, $1.47, ARP 2,523,000
20,000 Pacific Gas & Electric Co. Ser. U, $1.76, pfd. 520,000
11,750 Public Service Electric & Gas Co. $6.92, pfd. 1,210,250
23,200 Western Resources, Inc. Sinking Fund, $7.58, pfd. 2,343,200
------------
15,339,575
Computer Software (0.5%)
- ------------------------------------------------------------------------------------------------------------------
24,033 IBM Corp. Ser. A, $1.875, dep. shs. pfd. 645,887
Electric Utilities (22.5%)
- ------------------------------------------------------------------------------------------------------------------
100,000 Alabama Power Co. Ser. 93-A, $1.205, ARP 2,262,500
50,000 Arizona Public Service Co. Ser. W, $1.813, pfd. 1,250,000
20,000 Central Maine Power Co. Ser. A, $7.999, pfd. 1,960,000
7,070 Commonwealth Edison Co. Ser. A, $8.40, pfd. 717,605
17,522 Entergy Gulf States Utilities $8.52, pfd. 1,695,254
15,000 Florida Power & Light Co. Ser. S, $6.98, pfd. 1,605,000
100,000 Georgia Power Co. Ser. 1993, $1.538, ARP 2,450,000
80,941 Georgia Power Co. Ser. 93-2, $1.418, ARP 1,932,466
39,800 Niagara Mohawk Power Corp. Ser. A, $1.625, ARP 676,600
40,000 Niagara Mohawk Power Corp. Ser. C, $1.913, ARP 760,000
50,000 Niagara Mohawk Power Corp. $2.375, pfd. 1,200,000
8,120 Northern States Power Co. $5.50, ARP 732,830
1,038 Pacificorp Sinking Fund, $ 7.12, pfd. 105,357
31,200 Pacificorp Ser. 92, $1.98, pfd. 795,600
15,000 Peco Energy $7.48, pfd. 1,556,250
10,000 Pennsylvania Power & Light Co. Sinking Fund, $6.33, pfd. 1,035,000
10,000 Pennsylvania Power & Light Co. Sinking Fund, $6.125, pfd. 990,000
18,000 PSI Energy, Inc. $1.86, pfd. 456,750
60,000 Texas Utilities Electric Co. Ser. A, $1.875, dep. shs. pfd. 1,590,000
150,000 Texas Utilities Electric Co. Ser. B, $1.805, dep. shs. pfd. 3,881,250
------------
27,652,462
Finance (8.5%)
- ------------------------------------------------------------------------------------------------------------------
10,000 Bear Stearns & Co. Ser. A, $2.75, ARP 442,500
28,300 Bear Stearns & Co. Ser. B, $1.97, dep. shs. pfd. 732,263
95,000 Heller Financial Inc. Ser. A, $2.031, pfd. 2,541,250
40,000 MBNA Corp. Ser. B, $1.708, ARP 1,030,000
116,324 Merrill Lynch & Co., Inc. Ser. A, $2.25, dep. shs. pfd. 3,489,720
30,000 Morgan Stanley $3.875, dep. shs. pfd. 1,612,500
24,000 Morgan Stanley $1.844, dep. shs. pfd. 609,000
------------
10,457,233
Financial Services (1.7%)
- ------------------------------------------------------------------------------------------------------------------
38,350 Household International, Inc. Ser. 92-A, $2.063, dep. shs. pfd. 1,073,800
20,000 J.P. Morgan & Co. Inc. Ser. H, $3.313, dep. shs. pfd. 1,042,500
------------
2,116,300
Food Chains (2.1%)
- ------------------------------------------------------------------------------------------------------------------
102,569 McDonalds Corp. Ser. E, $1.93, dep. shs. pfd. 2,628,331
Forest Products (2.6%)
- ------------------------------------------------------------------------------------------------------------------
120,000 Boise Cascade Corp. Ser. F, $2.35, dep. shs. pfd. 3,135,000
Gas Pipelines (2.2%)
- ------------------------------------------------------------------------------------------------------------------
28,000 Enserch Corp. Ser. E, $7.00, ARP 2,758,000
Gas Utilities (0.4%)
- ------------------------------------------------------------------------------------------------------------------
18,700 Washington Natural Gas Co. Ser. III, $2.125, pfd. 483,863
Insurance (6.1%)
- ------------------------------------------------------------------------------------------------------------------
79,500 AON Corp. $2.00, pfd. 2,047,125
74,000 Berkley (W.R.) Corp. Ser. A, $1.844, pfd. 1,896,250
27,735 Provident Cos., Inc., $2.025, trust pfd. 714,176
107,500 Travelers Corp. Ser. D, $2.313, dep. shs. pfd. 2,768,125
------------
7,425,676
Natural Gas (1.4%)
- ------------------------------------------------------------------------------------------------------------------
66,000 Phillips Gas Co. Ser. A, $2.23, pfd. 1,740,750
Oil Services (4.4%)
- ------------------------------------------------------------------------------------------------------------------
57,500 LASMO PLC ADS Ser. A, $2.50, pfd. (United Kingdom) 1,495,000
129,051 McDermott Inc. Sinking Fund Ser. B, $2.60, pfd. 3,968,318
------------
5,463,318
Paper (1.3%)
- ------------------------------------------------------------------------------------------------------------------
60,000 Bowater, Inc. Ser. C, $2.10, dep. shs. pfd. 1,560,000
Publishing (1.0%)
- ------------------------------------------------------------------------------------------------------------------
49,500 Newscorp Overseas Corp. Ser. A, $2.156, pfd. 1,231,313
Telephone Utilities (0.5%)
- ------------------------------------------------------------------------------------------------------------------
5,490 GTE Florida Inc. $8.16, pfd. 579,195
Tobacco (1.4%)
- ------------------------------------------------------------------------------------------------------------------
67,300 RJR Nabisco Holding Ser. B, $2.313, dep. shs. pfd. 1,724,563
Water Utilities (1.1%)
- ------------------------------------------------------------------------------------------------------------------
13,500 United Water Resources, Inc. Ser. B, $7.625, pfd. 1,323,000
------------
Total Preferred Stocks (cost $114,978,806) $ 117,220,417
COMMON STOCKS (1.8%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
30,000 Pacific Gas & Electric Co. $ 723,750
13,400 Potomac Electric Power Co. 348,400
29,000 Public Service Enterprise Group, Inc. 830,125
15,000 UGI Corp. 328,125
------------
Total Common Stocks (cost $2,193,208) $ 2,230,400
SHORT-TERM INVESTMENTS (4.1%) * (cost $5,012,566)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
$5,011,000 Interest in $519,226,000 joint repurchase agreement dated
November 29, 1996 with UBS Securities due December 2, 1996
with respect to various U.S. Treasury obligations -- maturity
value of $5,013,349 for an effective yield of 5.625% $ 5,012,566
- ------------------------------------------------------------------------------------------------------------------
Total Investments (cost $122,184,580) *** $ 124,463,383
- ------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $122,835,216.
*** The aggregate identified cost on a tax basis is
$122,193,279, resulting in gross unrealized appreciation and
depreciation of $4,625,375 and $2,355,271, respectively,
or net unrealized appreciation of $2,270,104.
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 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 ownership of
foreign securities on deposit with a custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $122,184,580) (Note 1) $124,463,383
- -----------------------------------------------------------------------------------------------
Cash 409
- -----------------------------------------------------------------------------------------------
Dividends receivable 775,012
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 224,105
- -----------------------------------------------------------------------------------------------
Total assets 125,462,909
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 245,029
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,111,154
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 194,329
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 16,969
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,259
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,211
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,868
- -----------------------------------------------------------------------------------------------
Other accrued expenses 51,874
- -----------------------------------------------------------------------------------------------
Total liabilities 2,627,693
- -----------------------------------------------------------------------------------------------
Net Assets $122,835,216
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $153,119,594
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (60,096)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (32,503,085)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,278,803
- -----------------------------------------------------------------------------------------------
Total - Representing net assets applicable to capital shares outstanding $122,835,216
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($117,502,168 divided by 13,484,691 shares) $8.71
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/96.75 of $8.71)* $9.00
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($5,333,048 divided by 613,439 shares) $8.69
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/98.00 of $8.69)* $8.87
- -----------------------------------------------------------------------------------------------
Footnote reads:
*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
Year ended November 30, 1996
<S> <C>
Investment income:
- ----------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $21,563) $8,942,235
- ----------------------------------------------------------------------------------------------------
Interest 222,381
- ----------------------------------------------------------------------------------------------------
Total investment income 9,164,616
- ----------------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 770,549
- ----------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 165,378
- ----------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,658
- ----------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,442
- ----------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 7,322
- ----------------------------------------------------------------------------------------------------
Reports to shareholders 37,527
- ----------------------------------------------------------------------------------------------------
Registration fees 425
- ----------------------------------------------------------------------------------------------------
Auditing 29,005
- ----------------------------------------------------------------------------------------------------
Legal 4,385
- ----------------------------------------------------------------------------------------------------
Postage 15,937
- ----------------------------------------------------------------------------------------------------
Other 5,388
- ----------------------------------------------------------------------------------------------------
Total expenses 1,060,016
- ----------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (65,253)
- ----------------------------------------------------------------------------------------------------
Net expenses 994,763
- ----------------------------------------------------------------------------------------------------
Net investment income 8,169,853
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 613,554
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 1,099,640
- ----------------------------------------------------------------------------------------------------
Net gain on investments 1,713,194
- ----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $9,883,047
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
--------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -------------------------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income $8,169,853 $8,511,262
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 613,554 (1,533,139)
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,099,640 12,384,240
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 9,883,047 19,362,363
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (7,929,910) (8,727,588)
- -------------------------------------------------------------------------------------------------------------------------
Class M (187,209) (19,583)
- -------------------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (58,710) --
- -------------------------------------------------------------------------------------------------------------------------
Class M (1,386) --
- -------------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (191,510) (9,116,711)
- -------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,514,322 1,498,481
- -------------------------------------------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------------------------------------------
Beginning of year 121,320,894 119,822,413
- -------------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net investment income and
undistributed net investment income of $60,096 and $52,552, respectively) $122,835,216 $121,320,894
- -------------------------------------------------------------------------------------------------------------------------
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
(commencement
Year ended of operations)
November 30 to November 30
-----------------------------------------------------
1996 1995 1996
-----------------------------------------------------
Class M Class A
-----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.58 $8.12 $8.59
- --------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------
Net investment income .56 .33 .58
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .11 .46 .12
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .67 .79 .70
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net investment income (.56) (.33) (.58)
- --------------------------------------------------------------------------------------------------------------
In excess of net investment income --(d) -- --(d)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.56) (.33) (.58)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.69 $8.58 $8.71
- --------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 8.22 9.88* 8.61
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $5,333 $729 $117,502
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.14 .67* .89
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 6.41 3.73* 6.90
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.51 34.76 29.51
- --------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $.0564 $.0564
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended November 30
------------------------------------------------
1995 1994 1993
------------------------------------------------
Class A
------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $7.88 $8.81 $8.34
- ------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------
Net investment income .57 .56 .60
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .73 (.93) .47
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.30 (.37) 1.07
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net investment income (.59) (.56) (.60)
- ------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.59) (.56) (.60)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.59 $7.88 $8.81
- ------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 17.05 (4.41) 13.07
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $120,591 $119,822 $144,185
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .90 .81 .83
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 6.91 6.64 6.83
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.76 32.84 114.53
- ------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended November 30
----------------------------
1992
- ---------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $8.00
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income .68
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .34
- ---------------------------------------------------------------------------------
Total from investment operations 1.02
- ---------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------
From net investment income (.68)
- ---------------------------------------------------------------------------------
In excess of net investment income --
- ---------------------------------------------------------------------------------
Total distributions (.68)
- ---------------------------------------------------------------------------------
Net asset value, end of period $8.34
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 13.08
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $142,378
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .83
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 8.23
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 188.68
- ---------------------------------------------------------------------------------
Average commission rate paid (c)
- ---------------------------------------------------------------------------------
* Not annualized.
** 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) 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)
(c) Average commission rate paid on security trades is required for fiscal
periods beginning on or after September 1, 1995.
(d) Distributions in excess of net investment income amounted to less than $0.01
per share for each class.
</TABLE>
Notes to financial statements
November 30, 1996
Note 1
Significant accounting policies
Putnam Preferred Income Fund (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 both classes
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, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price. Certain preferred stocks, for which reliable market quotations
are not 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, and 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 and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. 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 nor for excise tax on income and capital
gains.
At November 30, 1996, the fund had a capital loss carryover of
approximately $51,330,000. This amount includes approximately
$18,836,000 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 capital
loss carryover that can be used to offset realized capital 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 distributed to shareholders since any such distribution might be
taxable as ordinary income.
Loss Carryover Expiration
- ------------------------------------------
$29,523,000 November 30, 1997
14,805,000 November 30, 1998
5,261,000 November 30, 1999
208,000 November 30, 2000
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. These differences include treatment of
losses on wash sale transactions and expiration of a 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 regulations. For the year
ended November 30, 1996, the fund reclassified $105,286 to increase
distributions in excess of net investment income and $29,031,247 to
decrease paid-in-capital, with a decrease to accumulated net realized
loss on investments of $29,136,533. The calculation of net investment
income per share in the financial highlights table excludes these
adjustments.
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, 0.55% of the next $500 million, 0.50% of the next
$500 million, 0.45% of any amount over $1.5 billion.
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.
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 year ended November 30, 1996, fund expenses were reduced by
$65,253 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.
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 in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The Fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the Fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted a distribution plan (the "Plan") with respect to
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 class M
shares of the fund. The class M Plan provides for payment 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 .25% of the average
net assets attributable to class M shares.
For the year ended November 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $24,449 and $4,501 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, 1996, Putnam Mutual Funds Corp., acting
as underwriter received no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$33,664,183 and $34,861,476 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 November 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 2,600,524 $22,095,872
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 606,063 5,145,980
- ----------------------------------------------------
3,206,587 27,241,852
Shares
repurchased (3,757,062) (31,934,220)
- ----------------------------------------------------
Net decrease (550,475) $(4,692,368)
- ----------------------------------------------------
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, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 659,164 $5,596,724
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 19,994 169,452
- ----------------------------------------------------
679,158 5,766,176
Shares
repurchased (150,701) (1,265,318)
- ----------------------------------------------------
Net increase 528,457 $4,500,858
- ----------------------------------------------------
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
The fund has designated 100% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
Results of October 31, 1996 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 31,
1996. At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes Votes
for withheld
------- ----------
Jameson Adkins Baxter 8,306,405 194,350
Hans H. Estin 8,244,564 256,191
John A. Hill 8,310,173 190,586
Ronald J. Jackson 8,267,206 233,550
Elizabeth T. Kennan 8,302,574 198,182
Lawrence J. Lasser 8,310,173 190,583
Robert E. Patterson 8,310,173 190,583
Donald S. Perkins 8,248,123 252,632
William F. Pounds 8,248,123 252,632
George Putnam 8,248,123 252,632
George Putnam, III 8,309,964 190,791
Eli Shapiro 8,202,578 298,177
A.J.C. Smith 8,302,783 197,973
W. Nicholas Thorndike 8,310,173 190,583
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows: 8,334,231 votes for, and 32,185
votes against, with 134,338 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
6,161,178 votes for, and 508,514 votes against, with 1,831,064
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 6,090,055 votes for, and 454,468 votes against, with
1,956,233 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
6,101,740 votes for, and 436,394 votes against, with 1,962,621
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows: 6,169,520
votes for, and 386,164 votes against, with 1,945,072 abstentions and
broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
6,306,191 votes for, and 355,291 votes against, with 1,839,274
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 6,015,268 votes for, and 626,374 votes against,
with 1,859,114 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in senior securities was approved as follows:
6,233,634 votes for, and 421,312 votes against, with 1,845,809
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 6,082,216 votes for, and 439,732 votes against,
with 355,996 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 5,996,846
votes for, and 633,736 votes against, with 1,870,174 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 6,009,943 votes
for, and 534,041 votes against, with 1,902,676 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 6,064,038 votes for, and 534,041 votes against, with 1,902,676
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 6,085,891 votes for, and 493,710 votes against, with 1,921,154
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas an mineral interests was
approved as follows: 60,83,025 votes for, and 555,149 votes against,
with 1,862,582 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to invest to gain control of a company's management was
approved as follows: 6,161,645 votes for, and 479,379 votes against,
with 1,859,732 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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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
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
Brett C. Browchuk
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.
You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
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
- ---------------------
29931-029/867 1/97
