-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mIi/vkYWTBqzk4zi2riAfznV0ML2n6LC6EkRRapS7gMUG5I/DEYdbKZGbePmudct kLXNAmBU8glHifNKylffzQ== 0000950135-95-000003.txt : 19950508 0000950135-95-000003.hdr.sgml : 19950508 ACCESSION NUMBER: 0000950135-95-000003 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950105 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM GLOBAL GOVERNMENTAL INCOME TRUST CENTRAL INDEX KEY: 0000794614 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046549525 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04524 FILM NUMBER: 95500311 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 MAIL ADDRESS: ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM GOVERNMENT INCOME GLOBAL TRUST DATE OF NAME CHANGE: 19870225 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM GLOBAL GOVERNMENT INCOME TRUST DATE OF NAME CHANGE: 19870115 N-30D 1 PUTNAM GLOBAL GOVERMENTAL INCOME TRUST 1 PUTNAM GLOBAL GOVERNMENTAL INCOME TRUST ANNUAL REPORT October 31, 1994 [PUTNAM LOGO] BOSTON-LONDON-TOKYO 2 PERFORMANCE HIGHLIGHTS - For the five years ended October 31, 1994, the fund's 55.01% cumulative total return for class A shares at net asset value beat the average 50.85% total return of the 26 general world income funds tracked over the period, according to Lipper Analytical Services.* - Performance should always be considered in light of a fund's investment strategy. Putnam Global Governmental Income Trust is designed for investors seeking high current income by investing principally in debt securities of foreign or U.S. governmental entities, including supranational issuers. Preservation of capital and long-term total return are secondary objectives.
- ------------------------------------------------------------------------- FISCAL 1994 RESULTS AT A GLANCE - ------------------------------------------------------------------------- Class A Class B Total return: NAV POP NAV CDSC - ------------------------------------------------------------------------- 12 months ended 10/31/94 -5.93% -10.39% -- -- - ------------------------------------------------------------------------- (change in value during period plus reinvested distributions) Life of class B (2/1/94) -- -- -9.52 -13.84 - ------------------------------------------------------------------------- Share value: NAV POP NAV - ------------------------------------------------------------------------- 10/31/93 $15.25 $16.01 -- - ------------------------------------------------------------------------- 1/31/94 (Inception of class B) $15.38 - ------------------------------------------------------------------------- 10/31/94 13.33 13.99 13.31 - -------------------------------------------------------------------------
Capital gains Long- Short- Tax Return Distributions: No. Income term term of Capital+ Total - ------------------------------------------------------------------------- Class A 12 $0.102 -- $0.149 $0.798 $1.049 - ------------------------------------------------------------------------- Class B 9 0.147 -- -- 0.467 0.614
Performance data represent past results and will differ for each share class. For performance over longer periods, see pages 10 and 11. POP assumes 4.75% maximum sales charge. CDSC assumes 5% maximum contingent deferred sales charge. (1) Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. (2) Based only on investment income, calculated using SEC guidelines. * Lipper Analytical Services is an industry research firm whose rankings vary over time and do not include the effects of sales charges. For periods ended 10/31/94, the Fund's class A shares ranked as follows: for 1 year, 71 out of 94, and for 5 years, 10 out of 26 general world income funds, respectively. Past performance is not indicative of future results. + See discussion on page 8 for details. 2 3 FROM THE CHAIRMAN DEAR SHAREHOLDER: PUTNAM GLOBAL GOVERNMENTAL INCOME TRUST'S 1994 FISCAL YEAR HAD SCARCELY BEGUN WHEN SIGNS APPEARED THAT THE SUSTAINED RISE IN THE WORLD'S BOND MARKETS WAS ABOUT TO END. YOUR FUND'S MANAGEMENT TEAM IMMEDIATELY BEGAN TAKING DEFENSIVE ACTION. HAD THEY NOT DONE SO, THE TOLL ON THE FUND'S RESULTS WOULD LIKELY HAVE BEEN GREATER. A MAJOR SELL-OFF BY AGGRESSIVELY MANAGED HEDGE FUNDS CREATED A BRIEF WORLDWIDE LIQUIDITY CRUNCH. AT VIRTUALLY THE SAME TIME, THE fEDERAL RESERVE BOARD INITIATED A SERIES OF INCREASES IN U.S. SHORT-TERM INTEREST RATES, WHICH SENT THE ALREADY NERVOUS GLOBAL FIXED-INCOME MARKETS INTO A TAILSPIN. MEANWHILE, JAPANESE INVESTORS CONTINUED TO DRAW CAPITAL BACK HOME, FURTHER DISRUPTING THESE MARKETS. THE AFTERSHOCKS OF THIS SUCCESSION OF EVENTS ARE LIKELY TO BE FELT FOR SOME TIME TO COME. YOUR FUND'S MANAGERS HAVE POSITIONED THE PORTFOLIO WITH THIS PROSPECT IN MIND. IN THE REPORT THAT FOLLOWS, THEY DISCUSS THE FUND'S FISCAL '94 PERFORMANCE AND THE OUTLOOK FOR FISCAL '95 IN THE CONTEXT OF THIS INVESTMENT CLIMATE. RESPECTFULLY YOURS, /S/ GEORGE PUTNAM - ------------------------ GEORGE PUTNAM CHAIRMAN OF THE TRUSTEES DECEMBER 14, 1994 3 4 REPORT FROM THE FUND MANAGERS F. MARK TURNER D. WILLIAM KOHLI JONATHAN FRANCIS MARK SIEGEL The degree of correlation exhibited by global fixed-income markets this year can only be described as unusual. Historically, global investing carried with it the explicit advantage of diversification across markets that were responding to different stages of the economic cycle. One could reasonably expect that certain markets would "zig" while others "zagged." However, for most of Putnam Global Governmental Income Trust's fiscal year ended October 31, 1994, historical norms and precedents did not apply. The fund's negative total return at year's end serves as a clear testimony to this unfortunate fact. While the behavior of global markets in 1994 may, to a large extent, defy easy explanation, two significant factors emerge. Early in the year, massive waves of selling by aggressively managed private partnerships known as "hedge funds" and other leveraged investors, created a short-term global liquidity crisis. Large blocks of bonds were dumped on the markets as these players scrambled to cover mounting losses in heavily margined positions (that is, investments made with significant amounts of borrowed funds). The shift to a more restrictive monetary policy by the U.S. Federal Reserve Board, and the concurrent increase in U.S. interest rates, spelled the end of what had been a highly profitable run for the leverage gambit. A second factor contributing to this year's market debacle was the continued repatriation of capital by Japanese investors. Given the weakness of the U.S. dollar relative to the yen, and the uncertainty that surrounded U.S.-Japan trade negotiations, Japanese investors routinely sold non-yen-denominated assets in favor of domestic securities. The persistent weakness of the dollar deterred the Japanese from deploying capital outside 4 5 their borders because conversion into the stronger yen would have diminished investment returns. Performance across virtually all world bond markets was negative in local currency terms for the calendar year through October 31, 1994. More recent performance has been better as certain markets recouped some of their earlier losses. Your fund's performance likewise benefited from the recent improvement in several markets, posting positive total returns for October; class A and class B shares were up 0.64% and 0.58%, respectively, at net asset value for the month. - - MARKET HIGHLIGHTS: TAKING OUR CUE FROM THE LOCALS An investment theme that has helped the fund's performance since May is our focus on markets where there is significant participation by local investors. Great Britain, Italy, and Sweden are notable examples. Of these three, Great Britain has been the recent standout, outperforming all other European markets since the middle of the year. Economic data from Britain has been generally strong of late, causing investors concern over the possibility of inflation. We believe, however, that the inflationary psychology in Britain has changed significantly from the 1980s and that the effect of this [CHART SHOWING PORTFOLIO COMPOSITION INFORMATION] ++ Yankee bonds are dollar-denominated bonds issued in the U.S. by foreign banks and corporations. 5 6 change on consumer sentiment has been profound. This explains why, in the midst of strong industrial production and growing exports, British retail sales and consumer confidence have leveled off and are beginning to head downward. We think, therefore, that the environment for bonds and the pound sterling is quite favorable. The fund ended the fiscal year with Britain being the largest single market exposure at nearly 17% of assets. The Canadian market was another bright spot throughout much of the fiscal year's second half. The narrow margin of victory registered by the separatist Parti Quebecois in September's provincial election in Quebec relieved investors and provided support for both Canada's bond market and the currency. Bond yields fell and Canadian dollars jumped to a six- month high against the U.S. dollar as the threat of outright secession by Quebec seemed less likely. In addition, the Canadian government continues to implement meaningful structural changes as it works to reduce the country's budget deficit. - - AUSTRALIAN BONDS PROVE DISAPPOINTING; U.S. LARGELY AVOIDED A market that has delivered disappointing results this year is Australia, where we had approximately 6.5% of the fund's assets committed at the end of the fiscal year. Although the Reserve Bank of Australia (RBA) has moved twice during calendar 1994 to raise interest rates in fairly dramatic fashion, investors as a whole remain unimpressed. Prime Minister Paul Keating broke ranks with the RBA, the Treasury, and senior government ministers in his resistance to cut the budget deficit more rapidly. Government bond yields were approaching 10.5% at the end of October, while current inflation is in the 2.5% to 3% range. We view the market as being extremely attractive at these levels; however, a turnaround will require greater interest from domestic investors, which has yet to occur. 6 7 We have largely avoided the U.S. market this year, although the fund did participate in the midsummer rally through a modest position in Treasury securities. The continuing stream of strong economic reports reinforces our conviction that the Federal Reserve Board has been much too restrained in its efforts to moderate growth. As a result, we anticipate further near-term pressure on the market and think that the best relative value remains outside the United States. - - MARKET SENTIMENT WEIGHS ON DOLLAR The main determinant of the fund's underperformance this year has been lack of exposure to foreign currencies, since most of our foreign currency holdings have been hedged back into U.S. dollars. The original intent behind our dollar hedging policy was to protect the fund from adverse foreign currency movements. However, the dollar's unexpectedly protracted weakness this year against major foreign currencies effectively negated the benefits of such protection. Early in the fiscal year, we thought that the shift in relative monetary policy between the United States and Germany would be supportive of the dollar. Since the Fed was raising short-term interest rates to respond to an accelerating U.S economy, while the Bundesbank continued to lower rates, the fundamental case for a stronger dollar seemed clear. Such a supportive scenario, however, never materialized, and we attribute the dollar's difficulties to two principal sources: negative market sentiment toward the pace of Fed monetary action, and the Clinton administration's approach to the dollar as a tool for producing open markets. - - TRIMMING THE HEDGES AS INTERNATIONAL FOCUS CONTINUES Looking ahead, we expect the dollar to remain weak until the credibility of the Fed is established in the eyes of global investors. Consequently, we have moderately increased the fund's foreign currency exposure. At the end of October, the fund was about 50% unhedged against European currencies. We have also added some exposure to the Japanese yen and to Australian and New Zealand dollars. 7 8 Our emphasis on the European markets and Canada is likely to continue. We are closely monitoring U.S. developments and anticipate that, as Fed tightening has its intended effect during 1995, U.S. bonds will regain some appeal. In relative terms, however, the best opportunities may continue to be found overseas, and we will position the fund to take advantage of them. - - A FINAL NOTE Coincident with the year-end financial review of the portfolio, it was determined that 76% of the fiscal year's distribution must be classified as a return of capital and is therefore not taxable to shareholders. Your form 1099, which will be mailed in January 1995, will indicate the exact amount of the distribution not subject to tax. In addition, you will need to adjust the cost basis of your shares when you eventually redeem or exchange them. This will increase any resulting capital gain or decrease any capital loss you incur at that time. The return of capital is the result of a provision in federal tax law which requires that certain capital gains and losses on foreign currency transactions be reclassified as ordinary income or deductions from ordinary income for tax purposes. As a result, losses on these transactions reduce the amount of net investment income available for distribution. As we discussed earlier, our use of currency hedging transactions is designed to protect the fund's net asset value from adverse exchange rate movements between the U.S. dollar and various foreign currencies. Without such hedging activity, the fund would be subject to an increased level of risk beyond general market risk. Our goal is to manage the fund's currency and market risks prudently, while continuing to strive for a highly competitive yield and long-term total return. The views expressed in this report are exclusively those of Putnam Management, and are not meant as investment advice. Although the described holdings were viewed favorably as of October 31, 1994, there is no guarantee the fund will continue to hold these securities in the future. 8 9 - - INFORMATION ABOUT THE MANAGERS D. William Kohli, senior vice president of Putnam Management, F. Mark Turner, managing director of Putnam Management, Jonathan H. Francis, vice president of Putnam Management, and Mark J. Siegel, vice president of Putnam Management, each of whom is a vice president of the fund, are primarily responsible for the day-to-day management of the Fund's portfolio. Mr. Kohli has had this responsibility since October, 1994. Prior to his employment by Putnam Management in 1994, Mr. Kohli was executive vice president and co-director of global bond management from 1993 to 1994, and from 1988 to 1993 he was senior portfolio manager, at Franklin Advisors/Templeton Investment Counsel. Messrs. Turner and Francis have had this responsibility since April, 1994. Prior to Mr. Turner's employment by Putnam Management in 1992, he was managing director at Scudder, Stevens & Clark. From 1991 until his employment by Putnam Management in 1993, Mr. Francis was an independent consultant, and from 1988 to 1991 he was chief economist, at RHO Management Company Incorporated. Mr. Siegel has had this responsibility since November, 1994. Prior to Mr. Siegel's employment by Putnam Management in 1993, he was vice president, investment banking at Salomon Brothers International Ltd. 9 10 PERFORMANCE SUMMARY This section provides, at a glance, information about your fund's performance. Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions back into the fund. We show total return in two ways: on a cumulative long-term basis and on average how the fund might have grown each year over varying periods. For comparative purposes, we show how the fund performed relative to appropriate indexes and benchmarks. TOTAL RETURN FOR PERIODS ENDED 10/31/94
Salomon Bros. Class A Class B World Govt. NAV POP NAV CDSC Bond Index CPI - --------------------------------------------------------------------- 1 year -5.93% -10.39% -- -- 3.62% 2.61% 5 years 55.01 47.63 -- -- 63.85 19.03 Annual average 9.16 8.10 -- -- 10.38 3.55 Life of class A 109.71 99.81 -- -- 92.96 32.18 Annual average 10.50 9.78 -- -- 9.27 3.83 Life of class B -- -- -9.52% -13.84% 2.66 2.26
TOTAL RETURN FOR PERIODS ENDED 9/30/94 (most recent calendar quarter)
Class A Class B NAV POP NAV CDSC - ----------------------------------------------------- 1 year -6.00% -10.47% -- -- 5 years 55.06 47.68 -- -- Annual average 9.17 8.11 -- -- Life of class A 108.38 98.54 -- -- Annual average 10.54 9.81 -- -- Life of class B -- -- -10.04% -14.36%
Fund performance data do not take into account any adjustment for taxes payable on reinvested distributions. The fund began operations on June 1, 1987, offering shares now known as class A. Effective February 1, 1994, the fund began offering class B shares. Performance data represent past results and will differ for each share class. Investment returns and principal value will fluctuate so an investor's shares, when sold, may be worth more or less than their original cost. TERMS AND DEFINITIONS CLASS A SHARES are generally subject to an initial sales charge. CLASS B SHARES may be subject to a sales charge upon redemption. 10 11 [CHART SHOWING GROWTH OF A $10,000 INVESTMENT] Past performance is no assurance of future results. A $10,000 investment in the fund's class B shares at inception on (2/1/94) would have been valued at $8,996 (or $8,564 with a redemption at the end the period). NET ASSET VALUE (NAV) is the value of all fund assets, minus liabilities, divided by the number of outstanding shares. It does not include any initial or contingent deferred sales charges. PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 4.75% sales charge. 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 an unmanaged list of bonds issued by 10 countries. It does not take into account brokerage commissions or other costs. Securities in the fund do not match those in the index and may pose different risks. CONSUMER PRICE INDEX is a commonly used measure of inflation. It does not represent an investment return. 11 12 REPORT OF INDEPENDENT ACCOUNTANTS For the fiscal year ended October 31, 1994 To the Trustees and Shareholders of Putnam Global Governmental Income Trust We have audited the accompanying statement of assets and liabilities of Putnam Global Governmental Income Trust, including the portfolio of investments owned, as of October 31, 1994, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the "Financial Highlights" for each of the periods indicated therein. These financial statements and "Financial Highlights" are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and "Financial Highlights" based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and "Financial Highlights" are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and "Financial Highlights" referred to above present fairly, in all material respects, the financial position of Putnam Global Governmental Income Trust as of October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the "Financial Highlights" for each of the periods indicated therein, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts December 15, 1994 12 13 PORTFOLIO OF INVESTMENTS OWNED October 31, 1994
FOREIGN BONDS AND NOTES (78.8%)(a)(b) PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------- ARA 1,500,000 Argentina (Republic of) Bocon Previs zero %, 2001 (c) $ 1,001,250 AUD 43,465,000 Australia (Government of) bonds 6 3/4s, 2006 23,797,088 AUD 10,665,000 Australia (Government of) bonds 9 1/2s, 2003 7,465,500 ARA 1,000,000 Banco Nacional bonds 7 1/4s, 2004 807,500 $US 4,500,000 Bgaria FRB Sink Fund, zero %, 2012 1,023,750 CAD 14,185,000 Canada (Government of) bonds 5 3/4s, 1999 9,468,488 CAD 53,820,000 Canada (Government of) bonds 6.5s, 2004 33,301,125 CAD 6,110,000 Canada (Government of) bonds 8s, 2023 3,918,038 CAD 16,000,000 Canada (Government of) deb. 9s, 2004 11,740,000 CAD 10,105,000 Canada (Government of) notes 7 1/2s, 1997 7,376,650 PHP 2,250,000 Central Bank of Philippines bonds 5 1/4s, 2017 1,386,563 PHP 1,000,000 Central Bank of Philipines Floating Rate Note (FRN)6s, 2005 872,500 DKK 77,500,000 Denmark (Government of) bonds 8s, 2003 12,400,000 $US 2,250,000 Essar Gujart Ltd. sub. deb. Floating Rate Bond 7.9625s, 1999 2,250,000 ECU 8,500,000 European Invest Bank bonds 10 1/2s, 1999 14,550,938 FIM 49,000,000 Finland (Republic of) notes 10 3/4s, 2002 11,086,250 FRF 3,900,000 France (Government of) OAT 6s, 2004 4,121,813 $US 2,000,000 Indonesia (Government of) bonds 9 3/4s, 2001 1,900,000 THB 55,000,000 International Finance Corp. (Thailand of) bonds 8s, 1996 2,200,000 ITL 50,730,000,000 Italy (Government of) bonds 8 1/2s, 2004 27,489,319 ITL 29,080,000,000 Italy (Government of) notes 8 1/2s, 1999 16,957,275 ECU 18,300,000 Italy (Government of) notes 9 1/4s, 2011 22,268,813 $US 3,000,000 Mexican Disc-B 12/31/19, zero %s 2,561,250 $US 4,500,000 Morocco (Government of) notes 4 1/2s, 1999 3,189,375 NGL 2,410,000 Netherlands (Government of) bonds 8 1/4s, 2007 1,480,644 NGL 8,595,000 Netherlands (Government of) debenture 7 1/2s, 2023 4,813,200 NZD 3,075,000 New Zealand (Government of) bonds 9s, 1996 1,898,813 NZD 19,255,000 New Zealand (Government of) notes 6 1/2s, 2000 10,638,388 CAD 16,580,000 Ontario (Province of) bonds 9 1/2s, 2022 11,885,788 AUD 10,000,000 Queensland Treasury bonds 8s, 1999 6,818,750 $US 2,000,000 Rogers Cablesystem 9.65s, 2014 1,262,500 SEK 47,000,000 Statens Bostadsfinansier deb. 11s, 1999 6,550,625 SEK 105,500,000 Sweden (Government of) bonds 14,308,438 SEK 67,000,000 Sweden (Government of) bonds 13s, 2001 10,343,125 GBP 29,525,000 United Kingdom Treasury bonds 50,506,203 GBP 5,230,000 United Kingdom Treasury bonds 6 3/4s, 2004 7,433,138 GBP 10,980,000 United Kingdom Treasury bonds 7 1/4s, 1998 17,293,500 GBP 3,910,000 United Kingdom Treasury bonds 9s, 2000 6,466,163 $US 1,500,000 Venezuela (Government of) bonds Ser. A, 6s, 2007 740,625 $US 1,500,000 Venezuela (Government of) bonds Ser. B, 6s, 2007 740,625 AUD 8,090,000 Victoria Treasury bonds 8 1/4s, 2003 5,157,375 ------------ TOTAL FOREIGN BONDS AND NOTES (cost $390,516,284) $381,471,385
13 14
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (4.3%)(a) (cost $20,995,000) PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- $26,000,000 U S Treasury Bonds 6 1/4s, 2023 $20,808,125 CORPORATE BONDS AND NOTES (3.2%)(a) CONSUMER SERVICES (0.8%) - ---------------------------------------------------------------------------------------------- 100,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s, 2004 100,500 1,000,000 Casino America Inc. 1st mtge. deb. 11 1/2s, 2001 850,000 450,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 472,500 250,000 General Media sr. secd. notes 10 5/8s, 2000 233,750 225,000 Louisiana Casino Cruises Corp. sr. sub. deb. 11 1/2s, 1998 157,500 500,000 NEXTEL Communications Inc. sr. disc. notes stepped-coupon zero % (11 1/2s, 9/1/98), 2003 (c)(h) 252,500 750,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 731,250 750,000 President Riverboat Casinos, Inc. sr. sub. notes 13s, 2001 675,000 250,000 SFX Broadcasting Inc. sr. sub. notes 11 3/8s, 2000 252,500 200,000 Summit Communications Group, Inc. sr. sub. deb. 10 1/2s, 2005 211,500 50,000 Trump Plaza Funding, Inc. 1st mtge. notes 10 7/8s, 2001 36,250 ----------- 3,973,250 CHEMICALS (0.4%) - ---------------------------------------------------------------------------------------------- 1,000,000 G-I Holdings Inc. sr. notes zero %, 1998 615,000 500,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 460,000 500,000 Premium Standard Farms sr. secd. notes 12s, 2000 (d) 537,500 500,000 UCC Investors Holding, Inc. sr. notes 10 1/2s, 2002 500,000 ----------- 2,112,500 HEALTH CARE (0.3%) - ---------------------------------------------------------------------------------------------- 250,000 Healthtrust, Inc. 10 1/4s, 2004 270,000 1,000,000 McGaW, Inc. sr. notes 10 3/8s, 1999 1,030,000 250,000 Ornda Healthcorp sr. sub. notes 12 1/4s, 2002 268,750 100,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s, 2003 95,250 ----------- 1,664,000 FOREST PRODUCTS (0.3%) - ---------------------------------------------------------------------------------------------- 500,000 Container Corp. of America sr. notes Ser. A, 11 1/4s, 2004 516,250 1,000,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-coupon zero % (12 3/4s, 5/15/96), 2005 (c)(h) 895,000 250,000 Stone Container Corp. deb. sr. sub. notes 11 1/2s, 1999 248,750 ----------- 1,660,000 INSURANCE AND FINANCE (0.2%) - ---------------------------------------------------------------------------------------------- 250,000 First Federal Financial Corp. notes 11 3/4s, 2004 249,375 600,000 Greate Bay Property Funding Corp. 1st. mtge. 10 7/8s, 2004 456,000 300,000 Penn Corp. Financial Group sr. sub. notes 9 1/4s, 2004 267,000 ----------- 972,375 ENTERTAINMENT (0.2%) - ---------------------------------------------------------------------------------------------- 1,000,000 Viacom International sub. deb. 8s, 2006 867,500
14 15
CORPORATE BONDS AND NOTES (3.2%)(a) PRINCIPAL AMOUNT VALUE OIL AND GAS (0.2%) - ---------------------------------------------------------------------------------------- $ 1,000,000 Triton Energy sr. sub. disc. notes stepped-coupon zero % (9 3/4s, 12/15/96), 2000 (h) $ 757,500 UTILITIES (0.1%) - ---------------------------------------------------------------------------------------- 710,009 Midland Cogeneration Ventures deb. 10.33, 2002 (d) 685,159 BUILDING AND CONSTRUCTION (0.1%) - ---------------------------------------------------------------------------------------- 700,000 Presley Co. sr. notes 12 1/2s, 2001 665,000 FOOD AND BEVERAGES (0.1%) - ---------------------------------------------------------------------------------------- 750,000 Fresh Del Monte Produce Corp. sr. notes, Ser. B, 10s, 2003 648,750 BASIC INDUSTRIAL PRODUCTS (0.1%) - ---------------------------------------------------------------------------------------- 500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 517,500 RETAIL (0.1%) - ---------------------------------------------------------------------------------------- 400,000 Loehmanns' Holdings, Inc. sr. sub. notes 13 3/4s, 1999 402,000 CONGLOMERATES (0.1%) - ---------------------------------------------------------------------------------------- 600,000 Jordan Industries, Inc. sr. sub. disc. deb. stepped- coupon zero %, (11 3/4s, 8/1/98) 2002 (h) 306,000 FINANCE (-%) - ---------------------------------------------------------------------------------------- 200,000 Delaware Management sr. notes Ser. B, 10 1/4s, 2004 (d) 193,000 SPECIALTY CONSUMER PRODUCTS (-%) - ---------------------------------------------------------------------------------------- 250,000 International Semi-Tech. Corp. sr. disc. notes stepped-coupon zero % (11 1/2s, 8/15/00), 2003 (h) 115,000 COMMUNICATIONS (-%) - ---------------------------------------------------------------------------------------- 250,000 NEXTEL Communications Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 2/15/99), 2004 (h) 111,250 INSURANCE (-%) - ---------------------------------------------------------------------------------------- 50,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 50,125 ----------- TOTAL CORPORATE BONDS AND NOTES (cost $16,283,898) $15,700,909 YANKEE BONDS AND NOTES (2.0%)(a)(e) - ---------------------------------------------------------------------------------------- 4,500,000 Argentina (Republic of) sr. sub. notes 8 3/8s, 2003 3,808,125 931,000 Brazil (Government of) bonds 8 3/4s, 2001 762,256 6,500,000 Petro Mexico bonds 8.625s, 2023 5,139,063 ----------- TOTAL YANKEE BONDS AND NOTES (cost $11,662,276) $ 9,709,444 EUROBONDS (1.9%)(a)(e) - ---------------------------------------------------------------------------------------- 5,000,000 Banco de Galicia Inc. global notes 9s, 2003 4,037,500 3,200,000 Petroleo Brasileiro S.A. FRN zero %, 1998 3,274,000 1,750,000 Telecomunication Brasilerias, S.A. unsubor. debenture 10s, 1994 1,750,000 ----------- TOTAL EUROBONDS (cost $10,185,800) $ 9,061,500
15 16 PUT OPTIONS ON FOREIGN BONDS (0.7%)(a)(b)
NUMBER OF EXPIRATION DATE/ CONTRACTS STRIKE PRICE VALUE - ----------------------------------------------------------------------------------------------- 632,500 French Treasury Bonds Nov 94/FF 112 $ 2,499,250 86,750 German Treasury Bonds Nov 94/DM 90 685,325 ------------- TOTAL PUT OPTIONS ON U.S. TREASURY BONDS (cost $2,721,194) $ 3,184,575
PUT OPTIONS ON FOREIGN CURRENCIES (0.3%)(a)(cost $932,340)
NUMBER OF IN EXCHANGE EXPIRATION DATE/ CONTRACTS FOR STRIKE PRICE - ----------------------------------------------------------------------------------------------- 37,900 U.S. Dollars Deutschmarks Dec 94/DM 1.55 $ 1,243,120
BRADY BONDS (0.7%)(a)(e)(cost $3,690,312)
PRINCIPAL AMOUNT - ----------------------------------------------------------------------------------------------- $4,750,000 Argentina (Republic of) notes 4.1885s, 2005 $ 3,431,875
PREFERRED STOCKS ( -- %)(cost $207,000)(a) NUMBER OF SHARES
BANKS (0.0%) - ----------------------------------------------------------------------------------------------- 2,000 First Nationwide Bank Fsb 11.50 pfd. $ 205,000
WARRANTS ( -- %)(a)(f)
NUMBER OF EXPIRATION WARRANTS DATE VALUE - ----------------------------------------------------------------------------------------------- 250 General Media Corp. (d) 12/31/00 $ 2,500 6,622 President Riverboat Casinos, Inc. 9/15/01 23,177 ------------ TOTAL WARRANTS (cost $25,946) 25,677
SHORT-TERM INVESTMENTS (8.0%)(a)
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- $ 250,000 Federal Home Loan Mortgage Corp. 4.73s to 4.94s, with various due dates to December 2, 1994 $ 246,767 10,000,000 Federal National Mortgage Assn. 4.77s to 4.81s, with various due dates to December 2, 1994 9,959,328 20,698,000 Interest in $497,257,000 joint repurchase agreement dated October 31, 1994 with Lehman Brothers, Inc. due November 1, 1994 with respect to various U.S. Treasury Obligation -- maturity value of $20,700,731 for an effective yield of 4.75% 20,700,731 MXP 54,500,000 Mexican Cetes zero %, April 27, 1995 1,498,750 $US 1,500,000 Mexican Tesobono bonds zero %, August 3, 1995 1,410,000 MXP 7,047,945 Nafinsa Pagare zero %, December 29, 1994 1,999,854 MXP 10,355,307 Nafinsa Pagare zero %, December 22, 1994 2,944,790 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $38,836,370) $ 38,760,220 ------------ TOTAL INVESTMENTS (cost $496,060,421)(g) $483,601,830 ============
16 17 NOTES (a) Percentages indicated are based on total net assets of $483,892,209 which corresponds to a net asset value for class A and class B shareholders of $13.33 and $13.31, respectively. (b) Foreign currency denominated. Market value is translated at current exchange rate. (c) Income may be received in cash or additional securities at the discretion of the investor. (d) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 1994, these securities were valued at $1,418,158 or 0.3% of net assets. (e) U.S. dollar denominated. (f) Non-income-producing security. (g) The aggregate identified cost for federal income tax purposes is $496,967,850, resulting in gross unrealized appreciation and depreciation of $495,919 and $13,861,939, respectively, or net unrealized depreciation of $13,366,020. (h) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin receiving interest at this rate.
FORWARD CURRENCY CONTRACTS OUTSTANDING AT OCTOBER 31, 1994 - ---------------------------------------------------------------------------------------- Unrealized Aggregate Delivery Appreciation/ Market Value Face Value Date (Depreciation) - ---------------------------------------------------------------------------------------- Australian Dollars (Sell) $19,815,116 $19,815,116 2/3/95 -- Australian Dollars (Sell) 16,302,000 16,268,120 12/5/94 $ (33,880) Deutschemarks (Sell) 17,303,000 17,222,763 2/1/95 (80,237) Deutschemarks (Sell) 25,422,100 25,208,698 2/1/95 (213,402) Deutschemarks (Sell) 36,469,400 36,464,052 2/1/95 (5,348) French Franc (Sell) 24,255,580 23,558,370 1/6/95 (697,210) Japanese Yen (Buy) 56,210,158 55,895,741 11/21/94 314,417 New Zealand (Buy) 4,550,889 4,550,889 12/02/94 -- New Zealand (Buy) 3,930,240 3,888,282 12/19/94 41,958 --------- $(673,702)
FORWARD CROSS CURRENCY CONTRACTS OUTSTANDING AT OCTOBER 31, 1994 (Aggregate Face Value $53,051,460) - -------------------------------------------------------------------------------------------------- Unrealized In Delivery Appreciation/ Contracts Market Value Exchange for Market Value Date (Depreciation) - -------------------------------------------------------------------------------------------------- Deutschmark (Sell) $16,675,530 Italian Lira $16,737,444 1/25/95 $ 61,914 Deutschmark (Sell) 12,619,370 Japanese Yen 12,718,555 1/20/95 99,185 Swiss Francs (Buy) 23,756,560 French Francs 24,014,257 12/21/94 (257,697) --------- $ (96,598)
The accompanying notes are an integral part of these financial statements. 17 18
U.S. TREASURY BONDS CALL OPTIONS OUTSTANDING AT OCTOBER 31, 1994 - ----------------------------------------------------------------------------------------------- Unrealized Aggregate Delivery Appreciation/ Market Value Face Value Date (Depreciation) - ----------------------------------------------------------------------------------------------- U.S. Treasury Call Options $156,785 $137,187 11/2/94 $(19,598) (Sell)
U.S. TREASURY BOND FUTURES CONTRACTS OUTSTANDING AT OCTOBER 31, 1994 (AGGREGATE FACE VALUE $9,938,750) - ----------------------------------------------------------------------------------------------- Expiration Date/ Unrealized Number of Contracts Strike Price Appreciation - ----------------------------------------------------------------------------------------------- 100 U.S. Treasury Bond Futures (Sell) Dec 94/98 11/32 $104,375
DIVERSIFICATION OF FOREIGN BONDS AND NOTES HELD AT OCTOBER 31, 1994 (AS A PERCENTAGE OF NET ASSETS): - ----------------------------------------------------------------------------------------------- United Kingdom 16.8% Canada 16.0 Australia 9.1 Italy 9.2 Multi-National 7.6 Sweden 6.4 Denmark 2.6 New Zealand 2.6 Finland 2.3 Netherland 1.3 France 0.9 Morocco 0.7 India 0.5 Mexico 0.5 Philippines 0.5 Thailand 0.5 Argentina 0.4 Indonesia 0.4 Venezuela 0.3 Bulgaria 0.2
The accompanying notes are an integral part of these financial statements. 18 19 STATEMENT OF ASSETS AND LIABILITIES October 31, 1994
ASSETS Investments at value (identified cost $496,060,421) (Note 1) $483,601,830 Foreign currency (cost $835,024) 827,913 Cash 1,050 Interest and other receivables 11,671,366 Receivable for shares of the fund sold 540,734 Receivable for securities sold 1,506,881 Receivable for open forward currency contracts (Note 1) 517,474 Receivable for closed forward currency contracts 242,741 Receivable for variation margin on open futures 8,680 ------------ TOTAL ASSETS $498,918,669 LIABILITIES Payable for securities purchased $ 3,833,727 Written options outstanding at value (premium received $137,187) 156,785 Payable for shares of the fund repurchased 1,807,256 Distributions payable to shareholders 11,569 Payable for compensation of manager (Note 2) 1,001,153 Payable for administrative services (Note 2) 5,135 Payable for investor servicing and custodian fees (Note 2) 135,646 Payable for distribution fees (Note 2) 117,612 Payable for open forward currency contracts (Note 1) 1,287,774 Payable for closed forward currency contracts 6,602,486 Other accrued expenses 67,317 TOTAL LIABILITIES 15,026,460 ------------ NET ASSETS $483,892,209 REPRESENTED BY Paid-in capital (Note 4) $527,166,074 Accumulated net realized loss on investment transactions (30,923,328) Undistributed net investment income 800,688 Net unrealized foreign currency translation loss (7,111) Net unrealized depreciation of investments, options, futures, and forward currency contracts (13,144,114) ------------ TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES OUTSTANDING $483,892,209 ------------ COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE Net asset value and redemption price of class A shares ($461,505,589 divided by 34,621,071 shares) $13.33 Offering price per share (100/95.25 of $13.33)* $13.99 Net asset value and offering price of class B shares $22,386,620 divided by 1,681,699 shares)** $13.31 * 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.
19 20 STATEMENT OF OPERATIONS Year ended October 31, 1994 INTEREST INCOME (net of foreign tax of $641,797) $ 42,203,086 EXPENSES: Compensation of Manager (Note 2) 4,261,246 Investor servicing fees and custodian fees (Note 2) 811,511 Compensation of Trustees (Note 2) 24,019 Reports to shareholders 109,065 Auditing 43,721 Legal 20,535 Postage 127,340 Administrative services (Note 2) 16,016 Distribution fees -- Class A (Note 2) 1,309,739 Distribution fees -- Class B (Note 2) 119,751 Registration fee 41,561 Other 16,373 ------------ TOTAL EXPENSES 6,900,877 ============ NET INVESTMENT INCOME 35,302,209 ============ Net realized loss on investments (Notes 1 and 3) (35,198,719) Net realized loss on options (Notes 1 and 3) (3,678,753) Net realized gain on futures contracts (Notes 1 and 3) 2,790,440 Net realized loss on forward currency contracts (Notes1 and 3) (25,801,996) Net realized loss on foreign currency (Note 1) (165,087) Net unrealized foreign currency translation gains (1,143,268) Net unrealized depreciation of investments, options, futures and forward currency contracts during the year (6,553,478) ------------ NET LOSS ON INVESTMENT TRANSACTIONS (69,750,861) ============ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(34,448,652) ============
The accompanying notes are an integral part of these financial statements. 20 21 STATEMENT OF CHANGES IN NET ASSETS
Year ended October 31 ------------------------------ 1994 1993 INCREASE (DECREASE) IN NET ASSETS ------------ ------------- Operations: Net investment income $ 35,302,209 $ 29,447,507 Net realized gain (loss) on investments (35,198,719) 7,990,015 Net realized gain (loss) on options (3,678,753) 5,274,427 Net realized gain (loss) on futures contracts 2,790,440 531,493 Net realized gain (loss) on forward currency contracts (25,801,996) 10,064,233 Net realized loss on foreign currency (165,087) (444,620) Net unrealized foreign currency translation gains(loss) (1,143,268) 1,195,164 Net unrealized depreciation of investments, options, futures, and forward currency contracts (6,553,478) (6,879,004) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (34,448,652) 47,179,215 Undistributed net investment income included in price of shares sold and repurchased, net -- 3,586 Distributions to shareholders from: Net investment income Class A (1,716,766) (29,451,093) Class B (141,353) -- In excess of net investment income -- class A -- (15,180,972) Return of capital Class A shares (31,434,912) -- Class B shares (611,290) -- Net realized gain on investments (Note 1) Class A (5,552,161) (20,633,000) INCREASE FROM CAPITAL SHARE TRANSACTIONS (NOTE 4) 2,834,450 136,039,487 ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (71,070,684) 117,957,223 NET ASSETS Beginning of year 554,962,893 437,005,670 END OF YEAR (including undistributed net investment income of $800,688 and distribution in excess of net investment income of $15,180,972) $483,892,209 $554,962,893 ============ ============
21 22 FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
For the period February 1, 1994 (commencement of operations) to October 31 Year Ended October 31 ---------------- ---------------------------------------- 1994 1994 1993 1992 ---------------- ---- ---- ---- Class B NET ASSET VALUE, BEGINNING OF PERIOD $ 15.38 $ 15.25 $ 15.98 $ 15.70 INVESTMENT OPERATIONS: Net investment income .64 0.97 1.07 1.07 Net realized and unrealized gain (loss) on investments (2.10) (1.84) .44 .56 TOTAL FROM INVESTMENT OPERATIONS (1.46) (0.87) 1.51 1.63 Distributions to shareholders from: Net investment income: (0.14) (0.10) (0.98) (1.17) In excess of net investment income -- (0.50) Return of capital (0.47) (0.80) -- -- Net realized gain on investments -- (0.15) (0.76) (.18) TOTAL DISTRIBUTIONS (0.61) (1.05) (2.24) (1.35) NET ASSET VALUE, END OF PERIOD $ 13.31 $ 13.33 $ 15.25 $ 15.98 ------- -------- -------- -------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) (b) (9.52)(c) (5.93) 10.44 10.93 NET ASSETS, END OF PERIOD (in thousands) $22,387 $461,506 $554,963 $437,006 Ratio of expenses to average net assets (%) 1.49(c) 1.27 1.27 1.46 (a)(e) Ratio of net investment income to average net assets (%) 4.76(c) 6.57 6.12 6.77 Portfolio turnover (%) 359.88 359.88 444.28 406.70
22 23
FOR THE PERIOD June 1, 1987 (commencement of operations) Year ended October 31 to October 31 --------------------------------------------------------- 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $15.95 $ 14.78 $ 16.22 $ 14.35 $ 14.12 INVESTMENT OPERATIONS: Net investment income 1.24 1.29 1.46 1.61 .59(a) Net realized and unrealized gain (loss) on investments .58 1.44 (1.02) 1.82 .16 TOTAL FROM INVESTMENT OPERATIONS 1.82 2.73 .44 3.43 .75 Distributions to shareholders from: Net investment income: (1.24) (1.35) (1.58) (1.54) (.52) In excess of net investment income Return of capital -- -- -- -- -- Net realized gain on investments (.83) (.21) (.30) (.02) -- TOTAL DISTRIBUTIONS (2.07) (1.56) (1.88) (1.56) (.52) NET ASSET VALUE, END OF PERIOD $15.70 $ 15.95 $ 14.78 $ 16.22 $ 14.35 -------- -------- -------- -------- ------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) (b) 12.39 19.59 2.87 24.78 5.42(c) NET ASSETS, END OF PERIOD (in thousands) $343,333 $180,941 $163,699 $115,554 $50,999 Ratio of expenses to average net assets (%) 1.48 1.58 1.62 1.66 .58(c) (a)(e) Ratio of net investment income to average net assets (%) 7.97 8.50 9.35 10.04 4.19(c) Portfolio turnover (%) 313.87 498.27 386.73 249.27 34.96(c) (a) Reflects an expense limitation applicable during the period. As a result of such limitation, expenses of the fund for the period ended October 31, 1987 reflect a reduction of $0.05 per share. See Note 2. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Not annualized.
23 24 NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES 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 a portfolio of governmental or supranational debt securities denominated in any currency, and to a lesser extent, in other debt and equity securities. The fund's secondary objectives are preservation of capital and long-term total return, consistent with high current income. The fund offers both class A and class B shares. The fund commenced its public offering of class B shares on February 1, 1994. Class A shares are sold with a maximum front-end sales charge of 4.75%. Class B shares do not pay a front-end sales charge, but pay a higher ongoing distribution fee than class A shares, and may be subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Expenses of the fund are borne pro-rata by the holders of both classes of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class) and 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 should 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 policies are in conformity with generally accepted accounting principles. 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, except that certain U.S. government obligations are stated at the mean between the bid and asked prices. 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. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Gains and losses that arise from changes in exchange rates are not segregated from gains and losses that arise from changes in market prices of investments. The effects on net investment income arising from changes in exchange rates are also not segregated. 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. The order permits the fund's cash balance to be deposited into a single joint account along with the cash of other registered investment companies managed by Putnam Investment Management, Inc. (Putnam Management), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. and certain other accounts. These 24 25 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. The fund's Manager 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. Foreign currency-denominated receivables and payables are "marked-to-market" using the current exchange rate. The fluctuation between the original exchange rate and the current exchange rate is recorded as unrealized translation gain or loss. Upon receipt or payment, the fund realizes a gain or loss on foreign currency amounting to the difference between the original value and the ending value of the receivable or payable. Foreign currency gains and losses related to interest receivable are reported as part of interest income. E) Option accounting principles When the fund writes a call or put option, an amount equal to the premium received by the fund is included in the fund's "Statement of assets and liabilities" as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of an option is the last sale price or, in the absence of a sale, the last offering price, except that certain options on U.S. government obligations are stated at fair value on the basis of valuations furnished by a pricing service approved by the Trustees. If an option expires on its stipulated expiration date, or if the fund enters into a closing purchase transaction, the fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written call option is exercised, the fund realizes a gain or loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. If a written put option is exercised, the amount of the premium originally received reduces the cost of the security which the fund purchases upon exercise of the option. The fund writes covered call options; that is, options for which it holds the underlying security or its equivalent. Accordingly, the risk in writing a call option is that the fund relinquishes the opportunity to profit if the market price of the underlying security increases and the option is exercised. In writing a put option, the fund assumes the risk of incurring a loss if the market price of the underlying security decreases and the option is exercised. The premium paid by the fund for the purchase of a call or put option is included in the fund's "Statement of assets and liabilities" as an investment and subsequently "marked-to-market" to reflect the current market value of the option. If an option the fund has purchased expires on the stipulated expiration date, the fund realizes a loss in the amount of the cost of the option. If the fund enters into a closing sale transaction, the fund realizes a gain or loss, depending on whether proceeds from the closing sale transaction are greater or less than the cost of the option. If the fund exercises a call option, the cost of the securities acquired by exercising the call is increased by the premium paid to buy 25 26 the call. If the fund exercises a put option, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are decreased by the premium originally paid. Options on Foreign Currencies The fund writes and purchases put and call options on foreign currencies. The accounting principles and risks involved are similar to those described above relating to options on securities. The amount of potential loss to the fund upon exercise of a written call option is the value (in U.S. dollars) of the currency sold, converted at the spot price, less the value of the U.S. dollars received in exchange. The amount of potential loss to the fund upon exercise of a written put option is the value (in U.S. dollars) of the currency received converted at the spot price, less the value of the U.S. dollars paid in exchange. Forward Currency Contracts A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. 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 by the fund 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 maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened. Futures A futures contract is an agreement between two parties to buy and sell a security at a set price on a future date. Upon entering into such a contract the fund is required to pledge to the broker an amount of cash or U.S. government securities equal to the minimum "initial margin" requirements of the exchange. Pursuant to the contract, the fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin," and are recorded by the fund as unrealized gains or losses. 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 potential risk to the fund is that the change in value of the underlying securities may not correspond to the change in value of the futures contracts. F) Federal taxes It is the policy of the fund to distribute all of its income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held and excise tax on income and capital gains. At October 31, 1994, the fund had approximately $28,920,201 in capital loss carryovers available to offset future realized capital gains, if any. The Fund may at times continue to pay taxable distributions from a net realized short-term gain which could have been retained by the Fund and offset by a capital loss carryforward available to the Fund. In such circumstances the Fund would lose the benefit of such a loss carryforward.
Loss Carryover Expiration - ----------------------------------- $28,920,201 October 31, 2002
G) Distributions to shareholders Distributions to shareholders are recorded by the fund on the ex-dividend date. 26 27 The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the fund 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, 1994, the fund reclassified $5,900,818 to decrease distributed in excess of net investment income, $26,818,825 to increase accumulated net realized loss on investments, and $32,719,644 decrease paid-in capital. H) Equalization Prior to November 1, 1993, the Fund used the accounting practice known as equalization to keep a continuing shareholder's per share interest in undistributed net investment income unaffected by sales or repurchases of Fund shares. This was accomplished by allocating a per share portion of the proceeds from sales and the costs of repurchases of shares to undistributed net investment income. As of November 1, 1993, the Fund discontinued using equalization. This change has no effect on the Fund's total net assets, net asset value per share, its net invested income or its net increase (decrease) in net assets from operations. Discontinuing the use of equalization will result in simpler financial statements. The cumulative effect of the change was to increase overdistributed net investment income and increase paid-in-capital previously reported through October 31, 1993 by $4,732,373. 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 for the quarter. 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 and 0.60% of any amount over $1.5 billion, subject to reduction in any year to the extent that expenses (exclusive of brokerage, interest and taxes) of the fund exceed 2.5% of the first $30 million of average net assets, 2.0% of the next $70 million and 1.5% of any amount over $100 million, and by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of the Manager on the fund's portfolio transactions. The fund also reimburses the Manager 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. For the year ended October 31, 1994, the Trust paid $16,016 for these services. Trustees of the fund receive an annual Trustee's fee of $1,470 and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of the Manager and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. Fees paid for investor servicing and custodian functions for the year ended October 31, 1994, amounted to $811,511. Investor servicing and custodian fees reported in the Statement of operations for the year ended October 31, 1994 have been reduced by credits allowed by PFTC. The fund has adopted a distribution plan with respect to its class A shares 27 28 (the "class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the class A Plan is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for services provided and expenses incurred by it in distributing class A shares. The Trustees have approved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of 0.25% of the fund's average net assets attributable to class A shares. For the year ended October 31, 1994, the fund paid $1,309,739 in distribution fees for class A shares. During the year ended October 31, 1994, Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., acting as an underwriter, received net commissions of $277,974 from the sale of shares of the fund. A deferred sales charge of 1% is assessed on certain redemptions of class A shares purchased as part of an investment of $1 million or more. For the year ended October 31, 1994, Putnam Mutual Funds Corp., acting as underwriter, received $20,593 on such redemptions. The fund has adopted a separate distribution plan with respect to its class B shares (the "class B Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the class B Plan is to compensate Putnam Mutual Funds Corp. for services provided and expenses incurred by it in distributing class B shares. The class B Plan provides for payments by the Fund to Putnam Mutual Funds Corp. at an annual rate of 1.00% of the fund's average net assets attributable to class B shares. For the year ended October 31, 1994, the Fund incurred fees of $119,751 for class B shares. Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred sales charges levied on class B share redemptions within six years of purchase. The charge is based on declining rates, which begin at 5.0% of the lower of cost or net asset value of the redeemed shares. Putnam Mutual Funds Corp. received contingent deferred sales charges of $22,942 from such redemptions for the year ended, October 31, 1994. NOTE 3 PURCHASES AND SALES OF SECURITIES During the year ended October 31, 1994, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $1,692,157,334 and $1,714,813,990, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Written put option transactions on foreign currencies during the year are summarized as follows:
COST -------- Outstanding at prior year end $ -- Options written 728,799 Options closed 728,799 -------- WRITTEN OPTIONS OUTSTANDING AT END OF YEAR $ -- ========
Transactions in U.S. Treasury Bond futures contracts during the year are summarized as follows:
SALES OF FUTURES CONTRACTS NUMBER OF AGGREGATE CONTRACTS FACE VALUE --------- ------------ Contracts outstanding at prior year end 700 $ 82,818,750 Contracts opened 7070 785,953,969 Contracts closed 7670 858,833,969 ------- ------------ OPEN AT END OF YEAR 100 $ 9,938,750 ======= ============
28 29 Written option transactions on foreign currencies during the year are summarized as follows:
PREMIUMS RECEIVED -------- Options written $137,187 Options closed -- -------- WRITTEN OPTIONS OUTSTANDING AT END OF YEAR $137,187 ========
Transactions in forward futures contracts during the year are summarized as follows:
SALES OF FUTURES CONTRACTS AGGREGATE FACE VALUE ----------- Contracts outstanding at prior year end $28,887,529 Contracts opened -- Contracts closed 28,887,529 ----------- OPEN AT END OF YEAR $ -- ===========
Transactions in forward currency contracts during the year are summarized as follows:
PURCHASES OF FORWARD CURRENCY CONTRACTS AGGREGATE FACE VALUE -------------- Contracts outstanding at beginning of year $ 142,011,108 Contracts opened 1,324,085,738 -------------- 1,466,096,846 Contracts closed 1,377,743,030 -------------- OPEN AT END OF YEAR $ 88,353,816 ==============
SALES OF FORWARD CURRENCY CONTRACTS AGGREGATE FACE VALUE -------------- Contracts outstanding at beginning of year $ 292,735,260 Contracts opened 3,246,660,883 -------------- 3,539,396,143 Contracts closed 3,371,487,921 -------------- OPEN AT END OF YEAR $ 167,908,222 ==============
NOTE 4 CAPITAL SHARES At October 31, 1994, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
YEAR ENDED OCTOBER 31, 1994 --------------------------- CLASS A SHARES AMOUNT - ------- ------------ ------------- Shares sold 9,595,670 $ 140,467,719 Shares issued in connection with reinvestment of distributions 1,887,452 26,856,105 ----------- ------------- 11,483,122 167,323,824 Shares repurchased (13,251,878) (188,605,364) ----------- ------------- NET DECREASE (1,768,756) $ (21,281,540) =========== =============
YEAR ENDED OCTOBER 31, 1993 --------------------------- CLASS A SHARES AMOUNT - ------- ------------ ------------- Shares sold 18,986,679 $ 288,425,499 Shares issued in connection with reinvestment of distributions 3,004,256 44,684,292 ----------- ------------- 21,990,935 333,109,791 Shares repurchased (12,955,144) (197,066,718) ----------- ------------- Portion represented by undistributed net investment income -- (3,586) ----------- ------------- NET INCREASE 9,035,791 $ 136,039,487 =========== =============
29 30
FROM FEBRUARY 1,1994 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1994 ---------------------------- CLASS B SHARES AMOUNT - ------- ------------ ----------- Shares sold 2,439,453 $34,493,046 Shares issued in connection with reinvestment of distributions 45,301 615,670 ---------- ----------- 2,484,754 35,108,716 ---------- ----------- Shares repurchased (803,055) (10,992,726) ---------- ----------- NET INCREASE 16,816,699 $24,115,990 ========== ===========
NOTE 5 RECLASSIFICATION OF CAPITAL ACCOUNTS Effective November 1, 1993 Putnam Global Governmental Income Trust has adopted the provisions of the AICPA Statement of Position (SOP) 93-2 "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies." The purpose of this SOP is to report the accumulated net investment income and accumulated net realized gain (loss) accounts in such a manner as to approximate amounts available for future distributions (or to offset future realized capital gains) and to achieve uniformity in the presentation of distributions by investment companies. As a result of the SOP, the Fund has reclassified $13,415,326 to decrease distributions in excess of net investment income and $12,244,956 to increase accumulated net realized loss and $1,170,370 to decrease paid-in capital. These adjustments represent the cumulative amounts necessary to report these balances through October 31, 1993, the close of the fund's most recent fiscal year end for financial reporting and tax purposes. Federal Tax Information The fund had $0.102 distributions from net investment income, $0.149 from "short-term capital gain" and $0.798 return of capital totaling $1.049 for class A shares. The class B shares had distributions of $0.147 from net investment income and $0.467 return of capital totalling $0.614. The $0.251 for class A shares and $0.147 for class B shares distributions constitute dividend income for federal income tax purposes. The Form 1099 you receive in January 1995 will show the tax status of all distributions paid to your account in calendar 1994. If you are a shareholder in an IRA or other tax-sheltered retirement plan, this statement is for information only and will serve as a record of distributions reinvested in your account during the fiscal year. Money invested in these plans generally is not subject to federal income tax until you withdraw it. As required by law, your Fund reports to the Internal Revenue Service on a calendar year basis the amount of distributions paid to each shareholder. 76% of the fiscal year's distribution represents a return of capital and is therefore not taxable to shareholders. 30 31 FUND INFORMATION
INVESTMENT MANAGER OFFICERS Putnam Investment Management, Inc. George Putnam One Post Office Square President Boston, MA 02109 Charles E. Porter Executive Vice President MARKETING SERVICES Patricia C. Flaherty Putnam Mutual Funds Corp. Senior Vice President One Post Office Square John R. Verani Boston, MA 02109 Vice President Gordon H. Silver CUSTODIAN Vice President Putnam Fiduciary Trust Company Gary Coburn Vice President LEGAL COUNSEL E. Mark Turner Ropes & Gray Vice President and Fund Manager D. William Kohli INDEPENDENT ACCOUNTANTS Senior Vice President and Fund Manager Coopers & Lybrand L.L.P. Jonathan Francis Vice President and Fund Manager TRUSTEES William N. Shiebler George Putnam, Chairman Vice President William F. Pounds, Vice Chairman Paul M. O'Neil Jameson Adkins Baxter Vice President Hans H. Estin John D. Hughes John A. Hill Vice President and Treasurer Elizabeth T. Kennan Beverly Marcus Lawrence J. Lasser Clerk and Assistant Treasurer Robert E. Patterson Donald S. Perkins This report is for the information of George Putnam, III shareholders of Putnam Global Governmental A.J.C. Smith Income Trust. It may also be used as sales W. Nicholas Thorndike 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.
31 32 PUTNAM INVESTMENTS ----------------- The Putnam Funds Bulk Rate One Post Office Square U.S. Postage Boston, Massachusetts 02109 PAID PutnamInvestments ----------------- 041/220 - 15433 -----END PRIVACY-ENHANCED MESSAGE-----