Putnam
Global
Governmental
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "In Europe, high unemployment and slowing economic growth are providing
pressure for central banks to lower interest rates, which should lead to
continued strength in the region's bond markets.
-- D. William Kohli, manager
Putnam Global Governmental Income Trust
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
21 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Few portfolios containing the securities of emerging nations were prepared
for the swiftness and severity of the decline in these investments over
the past year. While Putnam Global Governmental Income Trust was no
exception, matters could have been worse had it not been for the fund's
sizable allocation to U.S. and European securities. In addition to
benefiting from the generally strong U.S. bond market, the fund's U.S.
holdings also played a significant role in moderating the impact of the
wide fluctuations in currency exchange rates that occurred during the
period.
I am pleased to announce the addition of Jennifer E. Leichter and Jeffrey
A. Kaufman to your fund's management team. Jennifer has been with Putnam
since 1987 and is currently chief investment officer of the Core Fixed
Income Group's credit team. She has 15 years of investment experience.
Before joining Putnam earlier this year, Jeffrey was with MFS Investment
Management and Salomon Brothers. He has 8 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 16, 1998
Report from the Fund Managers
D. William Kohli
Jeffrey A. Kaufman
Jennifer E. Leichter
After three consecutive years of positive performance, Putnam Global
Governmental Income Trust suffered a modest setback during the fiscal year
ended October 31, 1998. The fund's class A shares returned -1.14% at net
asset value and -5.86% at public offering price. For more information
about the fund's performance, including returns for other share classes,
please see pages 9 and 10.
* EMERGING MARKETS STUMBLE IN THIRD QUARTER
The fund's losses were concentrated in the third quarter of calendar 1998,
when the bond markets of emerging economies experienced steep setbacks. In
the past, exposure to emerging-markets bonds has provided a measure of
diversification for the fund as well as the opportunity to earn
double-digit yields. This year, for example, B-rated Turkish bonds
provided yields as high as 84%. While yields of that magnitude are rare,
emerging-markets bonds typically carry higher yields than bonds from
developed markets in order to compensate investors for the fact that
developing countries are more likely to default on payments of interest
and principal because of their lower levels of political and economic
stability.
By early 1998, Asian market turmoil appeared to have subsided. With its
aid packages to Indonesia, Malaysia, and Korea, the International Monetary
Fund (IMF) had signaled its intention to bail out the emerging economies
that declared a commitment to free-market reform. In addition, we believed
the expected damage to the world economy from slowing Asian economies had
been exaggerated. We increased the fund's emerging-markets allocation
throughout the spring and summer to take advantage of opportunities in
select markets, eventually reaching 19% of the portfolio by July 31.
High-yielding markets such as Ecuador and Russia were offset with more
conservative holdings in countries like Bulgaria, Panama, and Poland. The
fund's yield benefited greatly during this time.
In August, a new wrinkle developed in the emerging markets. Russia
professed itself unable to make interest payments on its widely held
government bonds, and the IMF declined to help as it had elsewhere.
Russia's resulting three-month moratorium on debt repayment was compounded
by a political crisis that saw President Yeltsin's authority undermined by
a reactionary Communist Party. The events in Russia set off a financial
chain reaction around the world in which investors flocked to the
perceived safety of developed bond markets and U.S. Treasuries in
particular.
As the prices of Russian bonds plunged nearly 80%, hedge funds and other
large money managers sold investments where they could, pushing prices
lower across a number of emerging markets. Given the indiscriminate nature
of the selloff, we quickly cut back the fund's emerging-markets exposure,
reducing the fund's total allocation to less than 8% at the end of
October. We were not quick enough, however, to prevent a loss to the fund.
Because U.S. tax regulations require gains and losses on foreign
currencies to be treated as ordinary income for tax purposes, the loss
offsets the fund's income for the year. As a result, although the fund's
distributions this year were fully earned, roughly 50% of the fiscal
year's distribution is being reclassified as a return of capital and will
not be taxable to shareholders.
[GRAPHIC OMITTED: horizontal bar chart SAMPLE BOND MARKET RETURNS]
SAMPLE BOND MARKET RETURNS
(12 months through 10/31/98 in U.S. dollars)
United Kingdom 17.20%
France 16.63%
Germany 14.98%
United States 11.66%
Argentina 6.66%
Korea -0.97%
Brazil -6.64%
Ecuador -14.48%
Venezuela -18.26%
Russia -79.03%
Footnote reads:
Source:Salomon Smith Barney and J.P. Morgan Securities, Inc. The fund's
investments in these markets produced returns that may not match those
shown.
* EUROPE PREPARES FOR MONETARY UNION
In stark contrast to the emerging markets, many of Europe's developed bond
markets enjoyed healthy rallies during the year. In preparation for 1999's
monetary and economic union, participating countries have ratcheted down
short-term interest rates to match the 3.3% interest rate now shared by
Germany, France, Belgium, and the Netherlands. With economic growth waning
and more than 20 million people out of work in Europe, the markets also
have begun to factor in a German rate cut ahead of Europe's Economic and
Monetary Union (EMU), which would likely prompt additional rate cuts from
member countries. During the year, the fund benefited from increased
exposure to the core European markets, including Germany, France, Denmark,
and the Netherlands.
However, the biggest boost for fund performance during the year and the
region's best bond market return came from the United Kingdom, which will
not participate in the first round of EMU. Britain opted out of the
European Union and its restrictive monetary policies in 1992 in order to
provide liquidity for the U.K. economy at a time when other European
countries were maintaining higher interest rates. Britain's rate cuts in
the early 1990s successfully stimulated its economy and eventually
necessitated rate increases to prevent price and wage inflation. At the
start of the year, short-term interest rates in Britain were more than
three percentage points above those of its European neighbors and appeared
likely to fall. We increased the fund's U.K. holdings, which reached 23%
of the portfolio by midyear, and took advantage of the region's strongest
rally as Britain's economy began to show signs of weakness. The Bank of
England finally reduced rates in early October, and we later took profits
on a portion of the position once we were convinced that the market had
factored in additional cuts.
[GRAPHIC OMITTED: horizontal bar chart GEOGRAPHIC BREAKDOWN (10/31/98)]
GEOGRAPHIC BREAKDOWN (10/31/98)*
United States 44.6%
United Kingdom 11.5%
Germany 9.1%
New Zealand 6.8%
Netherlands 6.0%
Canada 5.5%
France 5.4%
Denmark 4.9%
Other 16.6%
Footnote reads:
*Based on net assets. Country allocations will vary over time.
* TREASURIES LEAD U.S. BOND MARKET
Turbulence in the emerging markets and persistent worries over Japan's
inability to stabilize its banking crisis sparked a steady demand for
dollar-denominated assets during the year, and U.S. Treasury bonds were
the primary beneficiaries. Also bolstering the sector were investor
concerns over a slowing U.S. economy. Consumer spending, manufacturing
output, and a host of other indicators pointed toward a slowing economy in
the final months of the period, prompting the Federal Reserve Board to
lower short-term interest rates on two separate occasions in October (and
a third time shortly after the close of the fund's reporting period).
Demand for Treasury bonds was so strong that by October the yield on the
30-year Treasury bond, which moves in the opposite direction from its
price, dropped below 5% for the first time in history. For the year,
long-term Treasury bonds returned 16.30%, as measured by the Lehman
Brothers Treasury Bond (Long) Index. Our weighting in U.S. Treasury bonds
helped boost fund performance at a time when other segments of the bond
market were experiencing difficulty.
The fund's U.S. corporate and mortgage-backed holdings performed
exceptionally well during the first half of the year but ultimately failed
to keep pace with Treasury bonds. These sectors typically offer higher
yields than comparable U.S. Treasury bonds to compensate for the
additional risks associated with corporate and mortgage-backed securities.
In the mortgage sector, for example, homeowners often seek to pay off
their loans ahead of schedule in order to refinance at lower rates. These
prepayments are returned to mortgage investors, disrupting income streams
and forcing investors to reinvest the proceeds at lower prevailing rates.
As the year progressed, fears of increased mortgage prepayments and
heightened credit risk in the corporate sector restrained the returns of
these bonds, prompting us to reduce the fund's position.
* MORE CONSERVATIVE STRATEGY GOING FORWARD
With the reduction in emerging-markets, corporate, and mortgage-related
bonds, the fund is now more conservatively positioned than usual. Assets
are concentrated in the developed markets of Europe, where we seek to take
advantage of an environment of slowing economic growth and potential
reductions in short-term interest rates, and in the United States, where
the Fed appears to be concerned more with averting a recession than
snuffing out inflation. The fund's focus on short-term European debt has
also lessened the portfolio's overall sensitivity to changing interest
rates, which may prove beneficial if the world's bond markets remain
volatile in the months to come.
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 10/31/98, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations and economic and
political instability, not present with domestic investments. While U.S.
government backing of individual securities does not insure principal,
which will fluctuate, it does guarantee that the fund's government-backed
holdings will make timely payments of interest and principal. This fund
included investments in mortgage-backed securities, which are subject to
prepayment risk.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Global Governmental Income Trust is designed for investors seeking high
current income by investing principally in debt securities of foreign and
U.S. government entities, including supranational issuers. Preservation of
capital and long-term total return are secondary objectives.
TOTAL RETURN FOR PERIODS ENDED 10/31/98
Class A Class B Class M
(inception date) (6/1/87) (2/1/94) (3/17/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year -1.14 -5.86 -1.87 -6.47 -1.28 -4.51
- ------------------------------------------------------------------------------
5 years 18.26 12.65 13.95 12.27 16.74 12.97
Annual average 3.41 2.41 2.65 2.34 3.14 2.47
- ------------------------------------------------------------------------------
10 years 100.47 90.95 85.41 85.41 94.77 88.38
Annual average 7.20 6.68 6.37 6.37 6.89 6.54
- ------------------------------------------------------------------------------
Life of fund* 163.65 151.20 140.38 140.38 154.35 146.03
Annual average* 8.86 8.40 7.98 7.98 8.52 8.20
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/98
Salomon Bros.
World Govt. Consumer
Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 12.55% 1.36%
- ------------------------------------------------------------------------------
5 years 45.25 12.42
Annual average 7.75 2.37
- ------------------------------------------------------------------------------
10 years 135.79 36.27
Annual average 8.96 3.14
- ------------------------------------------------------------------------------
Life of fund* 170.52 44.83
Annual average* 9.11 3.30
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. Returns for class A
and class M shares reflect the current maximum initial sales charges of
4.75% and 3.25% respectively. Class B share returns for the 1-, 5-, and
10-year (where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost. *Since 6/1/87.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment
since 10/31/88
Salomon Bros
Fund's class A World Govt Consumer Price
Date shares at POP Bond Index Index
10/31/88 9,524 10,000 10,000
10/31/89 9,798 10,265 10,449
10/31/90 11,718 11,436 11,106
10/31/91 13,170 12,728 11,431
10/31/92 14,610 14,496 11,797
10/31/93 16,145 16,233 12,121
10/31/94 15,188 16,820 12,438
10/31/95 16,612 19,377 12,787
10/31/96 18,682 20,419 13,170
10/31/97 19,314 20,950 13,444
10/31/98 $19,095 $23,579 $13,627
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $18,541 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $19,477 ($18,838 at public offering price). See first page of
performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/98
Class A Class B Class M
- -----------------------------------------------------------------------
Distributions (number) 11 11 11
- -----------------------------------------------------------------------
Income $0.470 $0.418 $0.461
- -----------------------------------------------------------------------
Capital gains -- -- --
- -----------------------------------------------------------------------
Return of capital1 $0.475 $0.421 $0.465
- -----------------------------------------------------------------------
Total $0.945 $0.839 $0.926
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------
10/31/97 $13.94 $14.64 $13.90 $13.89 $14.36
- -----------------------------------------------------------------------
10/31/98 12.82 13.46 12.79 12.77 13.20
- -----------------------------------------------------------------------
Current return
(end of period)
- -----------------------------------------------------------------------
Current dividend rate2 2.94% 2.80% 2.62% 2.75% 2.66%
- -----------------------------------------------------------------------
Current 30-day SEC yield3 6.28 5.98 5.54 6.02 5.82
- -----------------------------------------------------------------------
1 See page 33.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (6/1/87) (2/1/94) (3/17/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year -4.58% -9.13% -5.30% -9.76% -4.71% -7.83%
- ------------------------------------------------------------------------------
5 years 14.94 9.48 10.74 9.11 13.39 9.73
Annual average 2.82 1.83 2.06 1.76 2.55 1.87
- ------------------------------------------------------------------------------
10 years 102.83 93.20 87.51 87.51 97.06 90.61
Annual average 7.33 6.81 6.49 6.49 7.02 6.66
- ------------------------------------------------------------------------------
Life of fund 154.83 142.80 132.46 132.46 145.86 137.83
Annual average 8.61 8.14 7.73 7.73 8.26 7.95
- ------------------------------------------------------------------------------
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. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
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.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
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 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Salomon Brothers World Government Bond Index is a market-capitalization
weighted benchmark that tracks the performance of government-bond markets
in 14 countries. The index assumes reinvestment of all distributions and
interest payments and does not take into account brokerage fees or taxes.
Securities in the fund do not match those in the index and performance of
the fund will differ. It is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
For the fiscal year ended October 31, 1998
To the Trustees and Shareholders of
Putnam Global Governmental Income Trust
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
Global Governmental Income Trust (the "fund") at October 31, 1998, 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 October 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1998
FOREIGN GOVERNMENT BONDS AND NOTES (51.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUD 8,075,000 Australia (Government of) bonds Ser. 909,
7 1/2s, 2009 $ 6,074,273
CAD 16,975,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 12,648,687
USD 9,115,000 Canada (Government of) bonds
5 1/4s, 2008 9,115,000
DKK 141,160,000 Denmark (Government of) bonds 6s, 2009 24,701,766
FRF 49,178,000 France (Government of) deb. 6s, 2025 9,845,352
FRF 85,000,000 France (Government of) bonds 5 1/2s, 2007 16,764,017
DEM 32,790,000 Germany (Federal Republic of) bonds
7 1/8s, 2003 22,436,097
DEM 8,010,000 Germany (Federal Republic of) bonds
Ser. 98, 5 5/8s, 2028 5,158,761
ITL 12,600,000,000 Italy (Government of) bonds 10 1/2s, 2005 10,502,823
ITL 11,285,000,000 Italy (Government of) bonds 5 3/4s, 2002 7,353,902
NLG 32,205,000 Netherlands (Government of) bonds
Ser. 1 & 2, 9s, 2000 18,669,440
NLG 15,090,000 Netherlands (Government of) bonds
7 1/2s, 2023 10,693,064
NZD 42,565,000 New Zealand (Government of) bonds 8s, 2004 25,331,496
NZD 16,900,000 New Zealand (Government of) bonds
Ser. 200, 6 1/2s, 2000 9,083,142
SEK 74,900,000 Sweden (Government of) bonds, Ser. 1041,
6 3/4s, 2014 11,478,894
SEK 74,300,000 Sweden (Government of) bonds, Ser. 1035,
6s, 2005 10,348,554
GBP 13,240,000 United Kingdom Treasury bonds Ser. 85,
9 3/4s, 2002 25,599,143
GBP 9,230,000 United Kingdom Treasury bonds 8s, 2015 20,627,112
RUB 41,205,000 U.S. Dollar GKO Pass Through Structured Note
(Issued by Deutsche Bank) The principle at
redemption is linked to the bid price for the
Russian Treasury Bill at maturity, and the change
in the spot rate of the Russian Ruble from issue
date to maturity date zero %, 1998 (in default)(NON) 371,257
USD 3,903,000 Venezuela (Government of) bonds 13 5/8s, 2018 2,810,160
--------------
Total Foreign Government Bonds and Notes
(cost $257,341,771) $ 259,612,940
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (24.6%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (12.8%)
- --------------------------------------------------------------------------------------------------------------------------
$63,940,000 Federal National Mortgage Association 6s, Dwarf, TBA,
with due dates from November 15, 2013 to
December 15, 2013 $ 64,199,596
U.S. Treasury Obligations (11.8%)
- --------------------------------------------------------------------------------------------------------------------------
$29,275,000 U.S. Treasury Bonds 6 3/8s, August 15, 2027 $ 33,734,754
23,140,000 U.S. Treasury Notes 6 1/8s, August 15, 2007 25,547,948
--------------
59,282,702
--------------
Total U.S. Government and Agency Obligations
(cost $121,365,269) $ 123,482,298
CORPORATE BONDS AND NOTES (14.1%) (a)
PRINCIPAL AMOUNT VALUE
Airlines (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,000,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) $ 780,000
Automotive (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Exide Holding Europe 144A bonds 9 1/8s, 2004 (France) 604,449
750,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 733,125
--------------
1,337,574
Banks (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,280,000 Fuji JGB Inv. LLC 144A FLIRB 9.87s, 2049 (Japan) 1,871,863
1,000,000 GS Escrow Corp. 144A sr. notes 7 1/8s, 2005 976,540
DEM 28,950,000 Kreditanstalt Fuer Wiederauf bonds 5s, 2009 (Germany) 18,247,389
--------------
21,095,792
Basic Industrial Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Geberit International AG sr. sub. notes 10 1/8s, 2007
(Switzerland) 979,207
750,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 779,813
--------------
1,759,020
Broadcasting (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,450,000 Central European Media Enterprises Ltd. sr. notes
Ser. RG, 8 1/8s, 2004 (United Kingdom) 639,809
750,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 727,500
750,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 721,875
1,900,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) (STP) 1,484,375
1,000,000 Viacom International, Inc. sub. deb. 8s, 2006 1,030,000
--------------
4,603,559
Business Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 802,500
Cable Television (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 1,051,540
750,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 724,590
2,500,000 Diamond Cable Communications Co. company guaranty
10s, 2008 (United Kingdom) 3,850,200
--------------
5,626,330
Cellular Communications (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (10 1/8s, 1/15/99), 2004 (STP) 706,875
1,500,000 Clearnet Communications, Inc. sr. disc. notes
stepped-coupon zero % (11 3/4s, 8/13/02), 2007
(Canada) (STP) 488,764
1,500,000 MetroNet Communications Corp. sr. disc. notes zero %
(9.95s, 6/15/03), 2008 (Canada) (STP) 810,000
970,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 567,450
1,250,000 Orange PLC sr. notes 8 5/8s, 2008 (United Kingdom) 2,040,188
100,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 99,000
--------------
4,712,277
Chemicals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 930,000
Computer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Unisys Corp. sr. notes 7 7/8s, 2008 757,500
Electric Utilities (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 CalEnergy, Inc. sr. notes 9 1/2s, 2006 834,188
750,000 Calpine Corp. sr. notes 7 7/8s, 2008 727,500
1,000,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 1,228,720
1,500,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 1,572,615
--------------
4,363,023
Electronics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 1,340,625
785,000 Reliance Industries Ltd. 144A bonds 8 3/4s, 2007 (India) 1,005,962
--------------
2,346,587
Food Chains (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Southland Corp. sr. sub. deb. 5s, 2003 622,500
Gaming (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 532,500
Health Care (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Fresenius Medical Capital Trust II company guaranty
7 3/8s, 2008 (Germany) 843,206
80,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 81,200
920,000 Tenet Healthcare Corp. 144A sr. notes 7 5/8s, 2008 929,200
--------------
1,853,606
Lodging (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 727,500
750,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 765,000
--------------
1,492,500
Metals and Mining (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 P & L Coal Holdings Corp. 144A sr. sub. notes 9 5/8s, 2008 742,500
Oil and Gas (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005
(Canada) 1,268,750
3,150,000 Transamerican Energy sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/99), 2002 (STP) 1,008,000
--------------
2,276,750
Paper and Forest Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 693,750
Pharmaceuticals (--%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 168,725
Retail (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Fred Meyer, Inc. company guaranty 7.45s, 2008 782,475
Satellite Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) (STP) 737,500
Telecommunications (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon
zero % (12 1/2s, 11/15/02), 2007 (Israel) (STP) 450,000
2,090,000 Colt Telecommunications Group PLC
sr. notes 8 7/8s, 2007 (United Kingdom) 1,326,463
1,000,000 Esprit Telecom Group PLC sr. notes 11s, 2008
(United Kingdom) 495,648
1,000,000 Hermes Europe Railtel 144A sr. notes
11 1/2s, 2007 (Netherlands) 1,050,000
1,250,000 Microcell Telecommunications Inc. sr. disc. notes
Ser. B, stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (Canada) (STP) 380,999
GBP 1,250,000 NTL Inc. sr. unsub. 9 1/2s, 2008 (United Kingdom) 1,694,925
1,000,000 Qwest Communications International, Inc.
sr. disc. notes stepped-coupon zero %
(9.47s, 10/15/02), 2007 (STP) 740,000
750,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 750,000
950,000 Versatel Teleco 144A sr. notes 13 1/4s, 2008 878,750
--------------
7,766,785
Telephone Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,372,500
1,000,000 RSL Communications PLC bonds stepped-coupon
zero % (10s, 3/15/03), 2008 (STP) 287,113
3,000,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12.4s, 4/15/03), 2008 (STP) 906,673
--------------
2,566,286
Utilities (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 CMS Energy Corp. pass through certificates 7s, 2005 747,315
750,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 759,090
--------------
1,506,405
--------------
Total Corporate Bonds and Notes
(cost $72,813,896) $ 70,856,444
BRADY BONDS (5.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 4,267,000 Argentina (Republic of) bonds Ser. L-GP, stepped-coupon,
5 3/4s, (6s, 3/31/99), 2023 (STP) $ 2,954,898
3,859,200 Brazil (Government of) deb. Ser. EI-L, FRB 6.625s, 2006 2,489,184
7,590,000 Brazil (Republic of) disc. bonds FRB 6.625s, 2024 4,487,967
1,640,000 Bulgaria (Government of) Ser. A, FRB, 2 1/2s, 2012 902,000
7,865,000 Bulgaria (Government of) Ser. A, FRB, 6.688s, 2024 5,505,500
3,260,000 Poland (Government of) bonds Ser. PDI, 5s, 2014 2,954,538
9,060,000 United Mexican States bonds sec. Ser. B, 6 1/4s, 2019 6,761,560
--------------
Total Brady Bonds (cost $27,012,261) $ 26,055,647
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%) (a) (cost $ 2,838,860)
PRINCIPAL AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
$11,631,692 FannieMae Strip Ser. 290 Class 2 Interest Only 6 1/2s, 2024 $ 2,253,640
PURCHASED OPTIONS OUTSTANDING (0.4%) (a) (cost $ 1,751,159)
CONTRACT EXPIRATION DATE/
AMOUNT STRIKE PRICE VALUE
- --------------------------------------------------------------------------------------------------------------------------
$2,200,000 U.S. Dollars in exchange for Japanese Yen (Call) Nov. 98/
127 JPY $ 2,115,640
COMMON STOCKS (--%) (a) (cost $403,384)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
11,327 PSF Holdings LLC Class A
(acquired 3/15/96, cost $403,384) (NON) (RES) $ 198,449
WARRANTS (--%) (a) (cost $19,000)(NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
950 Versatel Teleco 144A 5/15/08 $ 9,500
SHORT-TERM INVESTMENTS (14.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$10,000,000 A.I. Credit Corp. effective yield of 5.02%, December 21, 1998 $ 9,930,277
30,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.36%,
November 12, 1998 29,957,467
7,236,000 Interest in $750,000,000 joint repurchase agreement dated
October 30,1998 with Goldman Sachs & Co. due
November 2, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $7,239,244 for an effective
yield of 5.38% 7,238,193
24,535,000 Interest in $274,098,000 joint repurchase agreement dated
October 30, 1998 with Credit Siusse First Boston due
November 2, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $24,545,979 for an effective
yield of 5.37% 24,542,320
--------------
Total Short-Term Investments (cost $71,668,257) $ 71,668,257
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $555,213,857) (b) $ 556,252,815
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $503,495,951.
(b) The aggregate identified cost on a tax basis is $558,635,127, resulting in gross unrealized appreciation and
depreciation of $13,391,575 and $15,773,887, respectively, or net unrealized depreciation of $2,382,312.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to
be paid and the date the fund will begin receiving interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at October 31, 1998 was $198,449 or less than 0.1% of net assets.
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.
TBA after the name of a security represents to be announced securities (Note 1).
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) are the current interest rates shown at October 31, 1998, which
are subject to change based on the terms of the security.
Diversification by Country
Distribution of investments by country of issue at October 31, 1998:
(as percentage of Market Value)
United States 40.4%
United Kingdom 10.4
Germany 8.2
New Zealand 6.2
Netherlands 5.5
Canada 5.0
France 4.9
Denmark 4.4
Sweden 3.9
Italy 3.2
Brazil 1.3
Bulgaria 1.2
Mexico 1.2
Australia 1.1
Other 3.1
------
Total 100.0%
======
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at October 31, 1998
(aggregate face value $689,297,367)
Aggregate Face Delivery Unrealized
Market Value Value Date Appreciation
- -------------------------------------------------------------------------------
Australian Dollars $ 10,446,013 $ 9,889,073 12/16/98 $ 556,940
Canadian Dollar 283,627 282,476 12/16/98 1,151
Deutschemarks 356,211,228 342,408,096 12/16/98 13,803,132
French Franc 10,161,140 9,981,915 12/16/98 179,225
Italian Lira 15,721,375 15,093,390 12/16/98 627,985
Japanese Yen 336,652,035 292,837,873 12/16/98 43,814,162
Spanish Peseta 19,807,750 18,804,544 12/16/98 1,003,206
- -------------------------------------------------------------------------------
$59,985,801
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at October 31, 1998
(aggregate face value $652,859,587)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
British Pounds $ 35,732,378 $ 35,960,134 12/16/98 $ 227,756
Canadian Dollar 954,979 973,168 12/16/98 18,189
Danish Krone 12,966,723 12,253,699 12/16/98 (713,024)
Deutschemarks 343,322,422 331,674,820 12/16/98 (11,647,602)
Dutch Guilder 30,505,300 29,970,539 12/16/98 (534,761)
Japanese Yen 236,342,651 205,248,360 12/16/98 (31,094,291)
New Zealand Dollar 24,043,877 23,382,074 12/16/98 (661,803)
Swedish Krona 13,122,858 13,396,793 12/16/98 273,935
- -------------------------------------------------------------------------------
$(44,131,601)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $555,213,857) (Note 1) $556,252,815
- -----------------------------------------------------------------------------------------------
Cash 218,295
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $366,441) 422,565
- -----------------------------------------------------------------------------------------------
Interest and other receivables 9,503,857
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 663,947
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 32,271,596
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 61,128,372
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 991,864
- -----------------------------------------------------------------------------------------------
Total assets 661,453,311
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 104,502,357
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,437,845
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,020,871
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 79,958
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 16,563
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 619
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 176,561
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 45,274,172
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 3,878,968
- -----------------------------------------------------------------------------------------------
Other accrued expenses 569,446
- -----------------------------------------------------------------------------------------------
Total liabilities 157,957,360
- -----------------------------------------------------------------------------------------------
Net assets $503,495,951
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $535,588,521
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (15,550,349)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (33,682,767)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 17,140,546
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $503,495,951
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($253,611,181 divided by 19,781,896 shares) $12.82
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.82)* $13.46
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($36,016,613 divided by 2,816,862 shares)** $12.79
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($213,868,157 divided by 16,753,750 shares) $12.77
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.77)* $13.20
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest (net of foreign tax $66,294) 38,193,362
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,223,569
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 937,644
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 22,250
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,889
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 685,794
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 376,370
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,129,190
- -----------------------------------------------------------------------------------------------
Reports to shareholders 40,647
- -----------------------------------------------------------------------------------------------
Registration fees 50,433
- -----------------------------------------------------------------------------------------------
Auditing 64,625
- -----------------------------------------------------------------------------------------------
Legal 7,804
- -----------------------------------------------------------------------------------------------
Postage 56,815
- -----------------------------------------------------------------------------------------------
Other 29,436
- -----------------------------------------------------------------------------------------------
Total expenses 7,634,466
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (149,225)
- -----------------------------------------------------------------------------------------------
Net expenses 7,485,241
- -----------------------------------------------------------------------------------------------
Net investment income 30,708,121
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (23,419,816)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 185,301
- -----------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 1,027,266
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (28,593,490)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 12,913,915
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 354,129
- -----------------------------------------------------------------------------------------------
Net loss on investments (37,532,695)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(6,824,574)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 30,708,121 $ 18,130,714
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (50,800,739) 464,718
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and net assets and liabilities in foreign currencies 13,268,044 (6,794,962)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (6,824,574) 11,800,470
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (9,890,406) (13,468,566)
- ---------------------------------------------------------------------------------------------------------------
Class B (1,207,442) (1,549,654)
- ---------------------------------------------------------------------------------------------------------------
Class M (8,427,540) (90,042)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (10,002,099)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (1,150,812)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (66,867)
- ---------------------------------------------------------------------------------------------------------------
From return of capital
Class A (9,983,386) --
- ---------------------------------------------------------------------------------------------------------------
Class B (1,218,794) --
- ---------------------------------------------------------------------------------------------------------------
Class M (8,506,768) --
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 188,890,353 (10,931,491)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 142,831,443 (25,459,061)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 360,664,508 386,123,569
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $15,550,349 and
$2,167,433, respectively) $503,495,951 $360,664,508
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.94 $14.49 $13.62 $13.33 $15.25
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .77(c) .71(c) .83(c) 1.00 .97
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.95) (.24) .82 .19 (1.84)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.18) .47 1.65 1.19 (.87)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.59) (.78) (.62) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.43) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.47) -- -- (.28) (.80)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.94) (1.02) (.78) (.90) (1.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.82 $13.94 $14.49 $13.62 $13.33
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.14) 3.38 12.46 9.38 (5.93)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $253,611 $316,837 $343,125 $366,476 $461,506
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.26 1.29 1.32 1.34 1.27
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.90 4.90 5.93 7.19 6.57
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 561.48 638.66 429.38 300.66 359.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended October 31, 1995, and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 1, 1994+
operating performance Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.90 $14.45 $13.60 $13.31 $15.38
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .67(c) .59(c) .72(c) .77 .64
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.94) (.23) .81 .33 (2.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.27) .36 1.53 1.10 (1.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.52) (.68) (.55) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.39) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.42) -- -- (.26) (.47)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.84) (.91) (.68) (.81) (.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.79 $13.90 $14.45 $13.60 $13.31
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.87) 2.62 11.57 8.63 (9.52)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $36,017 $41,322 $41,106 $30,910 $22,387
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.01 2.04 2.07 2.09 1.49*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.17 4.22 5.13 6.59 4.76*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 561.48 638.66 429.38 300.66 359.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended October 31, 1995, and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Mar. 17, 1995+
operating performance Year ended October 31 to Oct. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $13.89 $14.44 $13.59 $12.81
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .76(c) .66(c) .77(c) .49
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.95) (.23) .83 .88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.19) .43 1.60 1.37
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.46) (.56) (.75) (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.42) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.47) -- -- (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.93) (.98) (.75) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.77 $13.89 $14.44 $13.59
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.28) 3.15 12.14 10.87*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $213,868 $2,506 $1,892 $509
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.51 1.54 1.58 .96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.55 4.74 5.52 4.78*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 561.48 638.66 429.38 300.66
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended October 31, 1995, and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
October 31, 1998
Note 1
Significant accounting policies
Putnam Global Governmental Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a non-diversified,
open-end management investment company. The fund seeks high current income
by investing principally in debt securities of foreign or U.S.
governmental entities, including supranational issuers. The fund's
secondary objectives are preservation of capital and long-term total
return, consistent with high current income.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.25% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, 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.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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.
Discounts on zero coupon bonds, original issue discount bonds,
stepped-coupon bonds and payment in kind bonds are accreted according to
the yield-to-maturity method. Any premium resulting from the purchase of
zero coupon bonds, original issue discount bonds, stepped-coupon bonds and
payment in kind bonds are amortized on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
I) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
October 31, 1998, the fund had no borrowings against the line of credit.
J) 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, as amended. 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 October 31, 1998, the fund had a capital loss carryover of
approximately $30,261,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
--------------- -----------------
$5,448,000 October 31, 2003
24,813,000 October 31, 2006
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least 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 temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, unrealized gains and
losses on certain futures contracts, market discount and paydown gains and
losses on mortgage-backed securities. 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 October 31, 1998 the fund reclassified
$24,565,649 to increase distributions in excess of net investment income
and $130,395 to decrease paid-in-capital, with an decrease to accumulated
net realized losses of $24,696,044. 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: 0.80% of the first $500
million of average net assets, 0.70% of the next $500 million, 0.65% of
the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5
billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion and
0.53% thereafter.
The fund reimburses Putnam Management an allocated amount 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). Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended October 31, 1998 fund expenses were reduced by $149,225
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.
Each Trustee of the fund receives an annual Trustee fee, of which $940 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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 Deferral 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 distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the fund to an annual
rate of 0.25%, 1.00% and 0.50% of the average net assets attributable to
class A, class B and class M shares, respectively.
For the year ended October 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $19,171 and $917,138 from the sale
of class A and class M shares, respectively and $119,756 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended October 31, 1998 Putnam Mutual Funds Corp.,
acting as underwriter received $2,242 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended October 31, 1998, purchases and sales of investment
securities other than U.S. government obligations and short-term
investments aggregated $2,434,412,256 and $2,124,935,397, respectively.
Purchases and sales of U.S. government obligations aggregated $649,067,000
and $779,988,406, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- -----------------------------------------------------------------------------
Written options
outstanding
at beginning
of year $ 14,995,000 $ 186,688
- -----------------------------------------------------------------------------
Options
opened 139,300,000 840,578
- -----------------------------------------------------------------------------
Options
expired (154,295,000) (1,027,266)
- -----------------------------------------------------------------------------
Options
closed -- --
- -----------------------------------------------------------------------------
Written options
outstanding
at end of year $ -- $ --
- -----------------------------------------------------------------------------
Note 4
Capital shares
At October 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
October 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,478,314 $ 45,389,551
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,232,502 16,052,340
- -----------------------------------------------------------------------------
4,710,816 61,441,891
Shares
repurchased (7,653,407) (100,251,624)
- -----------------------------------------------------------------------------
Net decrease (2,942,591) $ (38,809,733)
- -----------------------------------------------------------------------------
Year ended
October 31, 1997
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,148,613 $ 72,510,042
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,316,265 18,393,725
- -----------------------------------------------------------------------------
6,464,878 90,903,767
Shares
repurchased (7,412,644) (104,404,420)
- -----------------------------------------------------------------------------
Net decrease (947,766) $ (13,500,653)
- -----------------------------------------------------------------------------
Year ended
October 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,505,220 $ 19,607,542
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 153,614 1,994,786
- -----------------------------------------------------------------------------
1,658,834 21,602,328
Shares
repurchased (1,814,622) (23,589,537)
- -----------------------------------------------------------------------------
Net decrease (155,788) $ (1,987,209)
- -----------------------------------------------------------------------------
Year ended
October 31, 1997
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,542,262 $ 21,647,617
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 153,475 2,140,026
- -----------------------------------------------------------------------------
1,695,737 23,787,643
Shares
repurchased (1,567,095) (21,917,232)
- -----------------------------------------------------------------------------
Net increase 128,642 $ 1,870,411
- -----------------------------------------------------------------------------
Year ended
October 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 25,255,616 $ 338,237,961
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,841 140,813
- -----------------------------------------------------------------------------
25,266,457 338,378,774
Shares
repurchased (8,693,157) (108,691,479)
- -----------------------------------------------------------------------------
Net increase 16,573,300 $ 229,687,295
- -----------------------------------------------------------------------------
Year ended
October 31, 1997
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 111,086 $1,556,478
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,204 141,924
- -----------------------------------------------------------------------------
121,290 1,698,402
Shares
repurchased (71,842) (999,651)
- -----------------------------------------------------------------------------
Net increase 49,448 $ 698,751
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
For the year ended October 31, 1998, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund +
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
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:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
*Formerly Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
**An investment in a money market fund is neither insured nor guaranteed
by the U.S. government. These funds are managed to maintain a price of
$1.00 per share, although there is no assurance that this price will
be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
D. William Kohli
Vice President and Fund Manager
Jeffrey A. Kaufman
Vice President and Fund Manager
Jennifer E. Leichter
Vice President and Fund Manager
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Global
Governmental Income Trust. 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 the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
AN031 47853-041/220/906/ 12/98
