Putnam
High Income
Convertible
and Bond
Fund
SEMIANNUAL REPORT
February 28, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam High Income Convertible and Bond Fund's income returns are very
impressive at that, thanks to its unique blend of convertibles and
high yield bonds."
-- Morningstar, February 28, 1997
* The fund has received a special Lipper Performance Achievement Certificate
in recognition of its number 1 ranking in the high-yield fund category for
the 5-year period ended December 31, 1996. The fund was the top performer
among the 7 funds tracked over this period. For 1- and 5-year periods ended
3/31/97, the fund's shares ranked 3 and 3 out of 11 and 10 funds,
respectively.*
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
10 Portfolio holdings
24 Financial statements
*Lipper Analytical Services, an independent research organization, ranks funds
according to total return performance. Rankings vary over time and do not
reflect the effects of sales charges.
Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Generally favorable convertible and high-yield bond markets undeniably
contributed to Putnam High Income Convertible and Bond Fund's positive results
during the first half of fiscal 1997. But it was astute security selection in
both markets that was perhaps the most differentiating factor in the fund's
exceptional competitive performance during the six months ended February 28,
1997.
With Charles Pohl managing the fund's convertible sector and Jennifer Leichter
managing the high-yield bond sector, your fund was able once again to
outperform the benchmark indexes in both market sectors during the period.
Among the managers' security selections were holdings that benefited from
strong sector performance and those that rose with the recovery of the stock
market from its summer correction.
On the following pages, Charlie and Jennifer discuss first-half results and
look at prospects for the remainder of the fiscal year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 16, 1997
Report from the Fund Managers
Charles G. Pohl, lead manager
Jennifer E. Leichter
Opportunities seized in the wake of stock market weakness in mid-1996 as well
as special situations enabled Putnam High Income Convertible and Bond Fund to
outperform both of its competitive indexes over the six months ended February
28, 1997. Over the period, the fund's return of 10.38% at net asset value
(8.91% at market price) was well ahead of both the Merrill Lynch
All-Convertible Index return of 8.01% and the First Boston High Yield Bond
Index return of 8.99%. Please see pages 8 and 9 for complete performance
information.
* PRIMARY SOURCE OF RETURN IS FROM INCOME
To explain how your fund was managed during this reporting period, a little
background is required. The high-yield convertible bonds in your fund's
portfolio are affected by movements in both the stock and bond markets.
However, unlike most other convertible bond funds, your fund's primary source
of return is from interest income rather than from capital gains.
Consequently, the fund's portfolio can be more sensitive to interest-rate and
bond market movements than other convertible bond funds.
As we select high-yielding convertible bonds for the fund, we take this
sensitivity into account. We look for bonds issued primarily by two types of
companies: young, fast-growing companies with solid balance sheets and mature
companies experiencing a cyclical slowdown, such as those in the paper and
retail industries. Both types of companies usually have experienced a
short-term interruption in their earnings, contributing to a decline in their
stocks' prices. This is the point at which we evaluate the purchase. As the
bonds generate an attractive level of income for fund shareholders, there is
also the potential that the stock price may recover. If this happens, the
bonds' prices usually recover as well, and we have the opportunity to sell the
bonds at a higher price. We can also convert the bonds into a fixed number of
shares of common stock, although our discipline involves reducing holdings
before they become sensitive to the action of the underlying stock.
* HEALTH-CARE AND TECHNOLOGY HOLDINGS BOOST RETURNS
Healthsource Inc., a health maintenance organization and one of your fund's
largest positions, exemplifies the type of mature company we look for. After a
series of disappointing earnings reports in 1996, the company's stock lost
more than two thirds of its value. At that point, we purchased the bonds,
which carried double-digit yields. On February 28, 1997, Healthsource was
acquired by Cigna Corp., an A-rated, financially stronger insurance company.
The resulting increase in the bond's price provided substantial gains to the
fund. Another health-care holding, Theratx, Inc., was taken over by Vencor
Corp. -- providing another example of how consolidation in the health-care
industry benefited your fund over the period. While these holdings and others
discussed in the report were viewed favorably at the end of the fiscal period,
all are subject to review and adjustment in accordance with the fund's
investment strategy and may well vary in the future.
TOP FIVE CONVERTIBLE HOLDINGS*
Atlantic Richfield Co., $2.23 cv. pfd stock
Oil and gas
National Semiconductor, 6.5%, 2002
Electronics
Healthsource, Inc., 5%, 2003
Health care
Softkey International, Inc., 5.5%, 2000
Computers
Exide Corp., 2.9%, 2005
Automotive
TOP FIVE CORPORATE HIGH-YIELD HOLDINGS*
NEXTEL Communications, Inc., 9.75%, 2001
Cellular communications
Midland Funding Corp., 11.75%, 2005
Electric utilities
Mohegan Tribal Gaming Authority, 13.5%, 2002
Gaming
ICG Holdings, Inc., 13.5%, 2005
Telecommunications
Act III Theatres, Inc., 11.875%, 2003
Motion picture distribution
Footnote reads:
* These holdings represent 13.7% of the fund's assets as of 2/28/97.
Portfolio holdings will vary over time.
We have experienced success in the technology sector as well. In this area, we
are even more selective than usual because we don't want to overexpose the
fund to a traditionally volatile sector. Nevertheless, as we noted in the last
annual report, we carefully added to the fund's technology holdings in the
wake of the stock market declines that took place last summer. Holdings
currently include Park Electrochemical Corp., National Semiconductor, and
MacNeil Schwendler Corp.
* HIGH-YIELD MARKET'S ONGOING STRENGTH BOLSTERS PERFORMANCE
Over the first half of the fiscal year, your fund's strong performance echoed
that of the high-yield market. There are several reasons for the exceptional
strength of this market relative to other fixed-income sectors. First, new
cash continued to flow into the market, creating a favorable supply/demand
relationship that tended to drive prices higher. Second, there was a
tremendous amount of merger and acquisition activity with many large
investment-grade companies absorbing high-yield issuers. When a lower-rated
company is purchased by a stronger, higher-rated company, it is usually good
news for the holders of the acquired company's securities. Finally, benefiting
from the strong economy, high-yield issuers continued to report relatively
strong growth in cash flows and earnings.
* ELECTRIC UTILITY SECTOR REBOUNDS
The fund's investments in electric utility bonds proved particularly
successful during the period. Negative investor reaction had caused the bonds
of high-cost power producers to decline substantially in the face of utility
deregulation and retail competition. Late in the fiscal year, as investors
developed clearer conceptions of the shape that regulatory change is likely to
take, the bonds of many high-yield utility issuers appreciated dramatically
from their previously depressed price levels.
The wireless cable industry has not done as well as we had anticipated.
Wireless cable has been very successful in rural areas, but when it extended
its business to urban areas through the telephone companies, profits took a
nosedive. Test marketing revealed that consumers did not want to make
telephone and cable TV service decisions together. As a result, plans for
expansion into the urban markets by the wireless cable companies failed. The
fund owned one company with exposure to urban markets, American Telecasting.
The value of American Telecasting's bonds dropped by roughly 75% over the
period; however, because this holding constituted less than 1% of the
portfolio, the impact on the fund was minimal.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION (2/28/97)]
PORTFOLIO COMPOSITION (2/28/97)
Retail 5.9%
Health care 5.6%
Automotive 4.0%
Oil and gas 4.0%
Broadcasting 3.6%
Footnote reads:
Based on a percentage of net assets. Composition will vary over time.
* SECURITY SELECTION REMAINS KEY TO POSITIVE OUTLOOK
In the colorful high-yield convertible market, we are exposed to a diverse
palette of securities. The best-performing securities have come from the
large-capitalization sectors, but we are confident that securities from the
small-capitalization sectors will soon have their day in the sun. Therefore,
our security selection is fairly broad based, relying heavily on each
company's particular situation: sales, earnings, cash flow, and the like.
The recent interest-rate increase by the Federal Reserve Board made many
investors wonder if the Fed may be on the verge of moving to a tighter
monetary policy. Within the fixed-income market, however, high-yield bonds
have historically been the least sensitive to interest-rate changes. This is
generally the case because the Fed typically raises rates in response to a
strong economy -- a condition that has always been supportive of high-yield
issuers.
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 2/28/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam High Income Convertible and Bond Fund is designed for
investors seeking high current income through an aggressive portfolio of
high-yielding convertible and debt securities with potential for capital
appreciation.
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 2/28/97
Merrill Lynch First
All- Boston Consumer
Market Convertible High Yield Price
NAV price Index* Bond Index Index
- ------------------------------------------------------------------------------
6 months 10.38% 8.91% 8.01% 8.99% 1.14%
- ------------------------------------------------------------------------------
1 year 13.35 13.85 11.62 12.62 2.71
- ------------------------------------------------------------------------------
5 years 91.83 99.87 82.55 74.51 14.79
Annual average 13.92 14.86 12.79 11.78 2.80
- ------------------------------------------------------------------------------
Life of fund
(since 7/9/87) 199.41 195.57 N/A 191.04 40.18
Annual average 12.04 11.88 N/A 11.68 3.56
- ------------------------------------------------------------------------------
*Index began on 12/31/87.
TOTAL RETURN FOR PERIODS ENDED 3/31/97
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------------
6 months 6.59% 3.77%
- ------------------------------------------------------------------------------
1 year 12.22 11.12
- ------------------------------------------------------------------------------
5 years 86.79 92.00
Annual average 13.51 13.94
- ------------------------------------------------------------------------------
Life of fund
(since 7/9/87) 195.84 190.64
Annual average 11.74 11.59
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future performance.
They do not take into account any adjustment for taxes payable on reinvested
distributions. Investment returns, net asset value, and market price will
fluctuate so that an investor's shares, when sold, may be worth more or less
than their original cost. The lower credit ratings of high-yield corporate
bonds reflect a greater possibility that adverse changes in an issuer's
business or financial condition, or in general economic conditions, may impair
the issuer's ability to pay principal and interest on its bonds.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 2/28/97
- ------------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------------
Income $0.426
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term $0.060
- ------------------------------------------------------------------------------
Total $0.486
- ------------------------------------------------------------------------------
Share value: NAV Market price
- ------------------------------------------------------------------------------
08/31/96 $9.48 $10.125
- ------------------------------------------------------------------------------
02/28/97 9.96 10.500
- ------------------------------------------------------------------------------
Current return: NAV Market price
- ------------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------------
Current dividend rate1 8.55% 8.11%
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV or
market price at end of period.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
Merrill Lynch All-Convertible Index* is an unmanaged list of convertible
securities commonly used as a measure of performance for the convertible
market.*
First Boston High-Yield Bond Index* is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard &
Poor's(registered trademark) and Baa by Moody's. The average quality
of bonds included in the index may be lower than the average quality
of those bonds in which the fund customarily invests.*
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund will
differ. It is not possible to invest directly in an index.
Portfolio of investments owned
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
CONVERTIBLE BONDS AND NOTES (51.6%) *
PRINCIPAL AMOUNT VALUE
Aerospace (1.2%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,600,000 UNC, Inc. cv. sub. deb. 7 1/2s, 2006 $ 1,592,000
Aerospace and Defense (2.1%)
- ---------------------------------------------------------------------------------------------------------
500,000 Hexcel Corp. cv. deb. 7s, 2011 459,375
2,450,000 Rohr Industries, Inc. cv. sub. deb. 7s, 2012 2,290,750
--------------
2,750,125
Airlines (0.3%)
- ---------------------------------------------------------------------------------------------------------
400,000 Reno Air, Inc. cv. sr. notes 9s, 2002 392,000
Automotive (4.0%)
- ---------------------------------------------------------------------------------------------------------
4,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 2,688,750
3,000,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 2,602,500
--------------
5,291,250
Banks (2.5%)
- ---------------------------------------------------------------------------------------------------------
2,395,000 Banamex 144A cv. jr. sub. notes 11s, 2003 2,526,725
832,000 Banco Nacional De Mexico S.A. cv. bonds 7s, 1999 (Mexico) 790,400
108,000 Banco Nationale Mexico 144A cv. company guaranty 7s,
1999 (Bahamas) 102,600
--------------
3,419,725
Broadcasting (1.9%)
- ---------------------------------------------------------------------------------------------------------
4,754,000 Comcast Corp. cv. notes 1 1/8s, 2007 2,472,080
Computer Equipment (1.4%)
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2,700,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 1,863,000
Computer Software (1.0%)
- ---------------------------------------------------------------------------------------------------------
1,000,000 Apple Computer, Inc. 144A cv. sub. notes 6s, 2001 846,250
500,000 MacNeal-Schwendler cv. sub. deb. 7 7/8s, 2004 480,000
--------------
1,326,250
Computers (2.1%)
- ---------------------------------------------------------------------------------------------------------
3,600,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 2,781,000
Consumer Services (0.7%)
- ---------------------------------------------------------------------------------------------------------
1,000,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 931,250
Electrical Equipment (1.1%)
- ---------------------------------------------------------------------------------------------------------
1,400,000 Magnetek, Inc. cv. deb. 8s, 2001 1,515,500
Electronics (3.3%)
- ---------------------------------------------------------------------------------------------------------
300,000 Diagnostic Retrieval Systems cv. sr. sub. deb. 9s, 2003 395,625
3,000,000 National Semiconductor 144A cv. deb. 6 1/2s, 2002 2,977,500
750,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 679,688
288,000 Richardson Electronics Ltd. cv. sub. deb. 7 1/4s, 2006 245,880
70,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 70,175
--------------
4,368,868
Entertainment (1.5%)
- ---------------------------------------------------------------------------------------------------------
3,500,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 1,964,375
Environmental Control (1.8%)
- ---------------------------------------------------------------------------------------------------------
1,300,000 OHM Corp. cv. sub. deb. 8s, 2006 1,241,500
1,300,000 Weston (Roy F.), Inc. cv. deb. 7s, 2002 1,135,875
--------------
2,377,375
Food (2.1%)
- ---------------------------------------------------------------------------------------------------------
2,500,000 Chiquita Brands International, Inc. cv. sub. deb. 7s, 2001 2,375,000
400,000 Chiquita Brands International, Inc. 144A cv. sub. deb. 7s, 2001 380,000
--------------
2,755,000
Health Care (5.6%)
- ---------------------------------------------------------------------------------------------------------
2,950,000 Healthsource, Inc. 144A cv. sub. notes 5s, 2003 2,920,500
300,000 Quantum Health Resources, Inc. cv. deb. 4 3/4s, 2000 272,250
2,250,000 Theratx, Inc. cv. sub. deb. 8s, 2002 2,233,125
2,050,000 Theratx, Inc. 144A cv. sub. 8s, 2002 2,034,625
--------------
7,460,500
Health Care Services (2.0%)
- ---------------------------------------------------------------------------------------------------------
2,850,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 2,604,188
Office Equipment (0.4%)
- ---------------------------------------------------------------------------------------------------------
550,000 U.S. Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 501,875
Paper and Forest Products (1.0%)
- ---------------------------------------------------------------------------------------------------------
1,500,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 1,275,000
Pharmaceuticals (2.5%)
- ---------------------------------------------------------------------------------------------------------
1,500,000 IVAX Corp. cv. deb. 6 1/2s, 2001 1,376,250
400,000 Pharmaceutical Marketing Services, Inc. cv. notes
6 1/4s, 2003 316,000
2,150,000 Pharmaceutical Marketing Services, Inc. 144A
cv. deb. 6 1/4s, 2003 1,687,750
--------------
3,380,000
Pipelines (0.9%)
- ---------------------------------------------------------------------------------------------------------
950,000 SFP Pipeline Holdings, Inc. var. rate exch. cv. deb. 11.16s,
2010 [2 DBL. DAGGERS] 1,175,625
Publishing (1.0%)
- ---------------------------------------------------------------------------------------------------------
3,850,000 Hollinger, Inc. cv. Liquid Yield Option Notes (LYON)
zero %, 2013 1,386,000
REITs (Real Estate Investment Trust) (0.6%)
- ---------------------------------------------------------------------------------------------------------
850,000 Alexander Haagen Properties cv. sub. deb. Ser. A, 7 1/2s, 2001 811,750
Real Estate (1.3%)
- ---------------------------------------------------------------------------------------------------------
1,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 1,728,125
Retail (4.6%)
- ---------------------------------------------------------------------------------------------------------
2,900,000 Baker (J.), Inc. cv. deb. 7s, 2002 2,472,250
2,550,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 2,049,563
2,050,000 Sunglass Hut International, Inc. 144A cv. sub. notes 5 1/4s, 2003 1,583,625
--------------
6,105,438
Semiconductors (1.6%)
- ---------------------------------------------------------------------------------------------------------
1,050,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 854,438
1,412,000 Richardson Electronics, Ltd. cv. sr. sub. deb 8 1/4s, 2006 1,290,215
--------------
2,144,653
Specialty Consumer Products (0.4%)
- ---------------------------------------------------------------------------------------------------------
750,000 Bell Sports Corp. cv. sub. deb. 4 1/4s, 2000 577,500
Telecommunication (0.2%)
- ---------------------------------------------------------------------------------------------------------
300,000 Winstar Communications, Inc. 144A cv sr. disc. notes
zero % (14s, 10/15/00), 2005 210,000
Telephone Services (0.5%)
- ---------------------------------------------------------------------------------------------------------
750,000 MIDCOM Communications, Inc. 144A cv. sub. deb.
8 1/4s, 2003 701,250
Textiles (0.6%)
- ---------------------------------------------------------------------------------------------------------
1,000,000 Dixie Yarns, Inc. cv. deb. 7s, 2012 782,500
Tobacco (1.4%)
- ---------------------------------------------------------------------------------------------------------
2,115,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 1,890,281
--------------
Total Convertible Bonds and Notes (cost $62,172,858) $ 68,534,483
CORPORATE BONDS AND NOTES (33.4%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
- ---------------------------------------------------------------------------------------------------------
$ 95,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $ 98,800
Aerospace and Defense (0.7%)
- ---------------------------------------------------------------------------------------------------------
500,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 525,000
160,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 172,800
50,000 Howmet Corp. sr. sub. notes 10s, 2003 54,000
100,000 Sequa Corp. med. term notes 10s, 2001 103,152
55,000 UNC, Inc. sr. sub. notes 11s, 2006 60,500
--------------
915,452
Agriculture (0.6%)
- ---------------------------------------------------------------------------------------------------------
585,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon Ser. B,
zero % (11 1/2s, 9/1/00), 2005 ++ 415,350
368,143 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 [2 DBL. DAGGERS] 401,277
--------------
816,627
Apparel (0.1%)
- ---------------------------------------------------------------------------------------------------------
25,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 25,375
Automotive (0.1%)
- ---------------------------------------------------------------------------------------------------------
90,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 93,600
Automotive Parts (0.7%)
- ---------------------------------------------------------------------------------------------------------
25,000 A.P.S., Inc. company guaranty 11 7/8s, 2006 26,750
262,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 293,440
100,000 Harvard Industries, Inc. sr. notes 11 1/8s, 2005 62,000
350,000 Key Plastics Corp. sr. notes 14s, 1999 388,500
205,000 Lear Corp. sub. notes 9 1/2s, 2006 221,144
--------------
991,834
Banks (0.1%)
- ---------------------------------------------------------------------------------------------------------
75,000 Provident Capital Trust 144A bonds 8.6s, 2026 75,675
45,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 45,896
55,000 Webster Capital Trust I 144A bonds 9.36s, 2027 56,166
--------------
177,737
Broadcasting (1.6%)
- ---------------------------------------------------------------------------------------------------------
100,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 103,000
225,000 Capstar Broadcasting 144A sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 ++ 130,500
40,000 Chancellor Radio Broadcasting Corp. sr. sub. notes
9 3/8s, 2004 41,200
250,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 178,125
265,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s (13 1/4s, 5/1/98), 2003 ++ 279,575
250,000 Heritage Media Servoces Corp. sr. sub. notes 8 3/4s, 2006 248,125
45,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 47,700
200,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 213,000
260,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 280,800
80,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 80,400
145,000 TCI Satellite Entertainment 144A sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/02), 2007 ++ 80,475
490,000 Telemedia Broadcasting Corp. 144A deb. stepped-coupon
3.8s (16s, 6/15/99), 2004 ++ 445,900
35,000 TV Azteca S.A. De CV 144A sr. notes 10 1/2s, 2007 (Mexico) 35,525
--------------
2,164,325
Building Materials (0.1%)
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165,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 192,638
Building Products (0.4%)
- ---------------------------------------------------------------------------------------------------------
250,000 American Standard, Inc. deb. 9 1/4s, 2016 261,250
150,000 Schuller International Corp. sr. notes 10 7/8s, 2004 166,500
50,000 Waxman Industries, Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 ++ 41,000
--------------
468,750
Building and Construction (1.5%)
- ---------------------------------------------------------------------------------------------------------
90,000 Atrium Companies, Inc. 144A sr. sub. notes 10 1/2s, 2006 92,475
40,000 Continental Homes Holding Corp. sr. notes 10s, 2006 42,000
285,000 Inter-City Products sr. notes 9 3/4s, 2000 292,125
500,000 NVR, Inc. sr. notes 11s, 2003 525,000
300,000 Presley Cos. sr. notes 12 1/2s, 2001 291,750
200,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 206,000
500,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 555,000
40,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 40,750
--------------
2,045,100
Buses (0.2%)
- ---------------------------------------------------------------------------------------------------------
355,000 MCII Holding (USA), Inc. sec. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 302,638
Business Services (0.2%)
- ---------------------------------------------------------------------------------------------------------
100,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 102,000
75,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 78,656
75,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 82,500
--------------
263,156
Cable Television (3.3%)
- ---------------------------------------------------------------------------------------------------------
250,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005 241,250
630,578 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 567,520
200,000 Bell Cablemedia PLC sr. disc. notes zero % (11.95s, 7/15/99),
2004 (United Kingdom) 175,000
200,000 Century Communications Corp. sr. notes 9 1/2s, 2005 208,000
400,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005 ++ 276,000
215,000 Diamond Cable Communication Co. 144A sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007 ++ 129,538
579,110 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 521,199
210,000 Heartland Wireless Communications, Inc. 144A sr. notes
14s, 2004 199,500
100,000 Heartland Wireless Communications, Inc. sr. notes
13s, 2003 97,000
100,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. A,
zero % (12 3/4s, 4/15/00), 2005 ++ 75,000
490,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 328,300
200,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 194,000
250,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 208,750
860,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) ++ 591,250
45,000 TV Filme, Inc. 144A sr. notes 12 7/8s, 2004 (Brazil) 46,800
520,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 280,800
200,000 Wireless One, Inc. sr. notes 13s, 2003 186,000
--------------
4,325,907
Cellular Communications (1.9%)
- ---------------------------------------------------------------------------------------------------------
500,000 Comunicacion Celular bonds stepped-coupon zero %
(13 1/8s, 11/15/00), 2003 (Colombia) 348,750
250,000 Dial Call Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 4/15/99), 2004 ++ 196,250
550,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 357,500
325,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 219,375
100,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (11 1/2s, 9/1/98), 2003 ++ 83,500
1,400,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 ++ 1,025,500
250,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 11/15/97), 2001 ++ 251,250
--------------
2,482,125
Chemicals (0.8%)
- ---------------------------------------------------------------------------------------------------------
500,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 505,000
40,000 Freedom Chemicals, Inc. 144A sr. sub. notes 10 5/8s, 2006 42,500
125,000 Harris Chemical Corp. sr. secd. disc. notes 10 1/4s, 2001 132,188
250,000 ISP Holdings, Inc. 144A sr. notes 9 3/4s, 2002 266,250
125,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 114,375
75,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 49,125
--------------
1,109,438
Computer Services (0.2%)
- ---------------------------------------------------------------------------------------------------------
240,000 Unisys Corp. sr. notes 11 3/4s, 2004 261,600
Conglomerates (0.5%)
- ---------------------------------------------------------------------------------------------------------
625,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 625,781
Consumer Durable Goods (0.1%)
- ---------------------------------------------------------------------------------------------------------
140,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
zero % (14s, 11/15/01), 2006 ++ 77,350
100,000 Remington Products Co. LLC 144A sr. sub. notes Ser. B, 11s, 2006 93,250
--------------
170,600
Consumer Services (0.4%)
- ---------------------------------------------------------------------------------------------------------
526,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 579,915
Containers (0.3%)
- ---------------------------------------------------------------------------------------------------------
350,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 381,500
40,000 Radnor Holdings Corp. 144A sr. notes 10s, 2003 41,400
--------------
422,900
Cosmetics (0.3%)
- ---------------------------------------------------------------------------------------------------------
590,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 1998 405,469
Electric Utilities (1.7%)
- ---------------------------------------------------------------------------------------------------------
55,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (Bermuda) 58,300
150,000 BVPS II Funding Corp. secd. lease obligation bonds 9s, 2017 150,656
287,000 First PV Funding Corp. deb. 10.15s, 2016 304,220
35,000 Hidro Pierda Aguila 144A bonds 10 5/8s, 2001 (Argentina) 36,575
500,000 Long Island Lighting Co. deb. 9s, 2022 527,810
150,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 180,767
650,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 731,835
223,674 Northeast Utilities System notes Ser. A, 8.58s, 2006 213,480
--------------
2,203,643
Electronics (0.5%)
- ---------------------------------------------------------------------------------------------------------
55,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (India) 59,469
67,772 Cirent Semiconductor sr. sub. notes 10.22s, 2002 67,688
68,050 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 67,966
750,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003
(Canada) ++ 431,250
50,000 Moog, Inc. 144A sr. sub. notes Ser. B, 10s, 2006 52,500
--------------
678,873
Entertainment (0.6%)
- ---------------------------------------------------------------------------------------------------------
400,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 450,000
400,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 396,000
--------------
846,000
Environmental Control (0.1%)
- ---------------------------------------------------------------------------------------------------------
95,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10 1/4s, 2006 101,650
Financial Services (0.5%)
- ---------------------------------------------------------------------------------------------------------
165,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 165,000
40,000 Colonial Capital Trust I 144A company guaranty 8.92s, 2027 40,488
110,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 113,300
45,000 Dollar Financial Group Inc. 144A sr. notes 10 7/8s, 2006 47,363
45,000 Imperial Credit Industries, Inc. 144A sr. notes 9 7/8s, 2007 45,900
80,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 88,600
50,000 Ocwen Financial Corp. notes 11 7/8s, 2003 55,375
25,000 Olympic Financial Ltd. sr. notes 13s, 2000 28,000
50,000 Outsourcing Solutions Inc. 144A sr. sub. notes 11s, 2006 53,625
--------------
637,651
Food and Beverages (0.8%)
- ---------------------------------------------------------------------------------------------------------
125,000 Canandaigua Wine Co. 144A sr. sub. notes 8 3/4s, 2003 126,250
289,000 Del Monte Corp. notes 12 1/4s, 2002 [2 DBL. DAGGERS] 286,110
500,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 537,500
25,000 MBW Foods, Inc. 144A sr. sub. notes 9 7/8s, 2007 25,438
100,000 Specialty Foods Corp. sr. notes Ser. B, 10 1/4s, 2001 98,500
--------------
1,073,798
Gaming (2.8%)
- ---------------------------------------------------------------------------------------------------------
100,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 110,000
290,000 Argosy Gaming Co. 144A 1st mtge. 13 1/4s, 2004 254,475
330,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 231,000
120,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000 + 90,000
295,000 Casino America, Inc. sr. notes 12 1/2s, 2003 302,375
90,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 90,000
150,000 Elsinore Corp. 1st mtge. 12 1/2s, 2000 (In Default) + 144,000
200,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 206,000
60,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 65,100
350,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 353,500
475,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 456,000
125,000 Louisiana Casino Cruises Corp. sr. sub. deb. 11 1/2s, 1998 126,250
550,000 Mohegan Tribal Gaming Auth. rev. bonds Ser. B, 13 1/2s, 2002 730,125
125,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 88,750
100,000 Trump A.C. 1st mtge. 11 1/4s, 2006 96,500
243,000 Trump Castle Funding Corp. notes 11 1/2s, 2000 245,430
100,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 114,500
--------------
3,704,005
Health and Fitness (0.2%)
- ---------------------------------------------------------------------------------------------------------
250,000 IHF Holdings, Inc. sr. disc. notes Ser. B, zero %, 2004 210,000
Health Care (0.1%)
- ---------------------------------------------------------------------------------------------------------
40,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 40,800
Hospital Management and Medical Services (1.0%)
- ---------------------------------------------------------------------------------------------------------
250,000 Integrated Health Services, Inc. sr. sub. notes 9 5/8s, 2002 261,875
200,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 220,000
250,000 Paracelsus Healthcare Corp. sr. sub. notes 10s, 2006 245,000
500,000 Tenet Healthcare Corp. sr. sub. notes 10 1/8s, 2005 551,875
--------------
1,278,750
Insurance (0.2%)
- ---------------------------------------------------------------------------------------------------------
200,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 211,000
Medical Supplies and Devices (0.3%)
- ---------------------------------------------------------------------------------------------------------
150,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 166,125
220,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 118,800
125,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 126,250
--------------
411,175
Metals and Mining (0.6%)
- ---------------------------------------------------------------------------------------------------------
35,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 36,313
500,000 Ispat Mexicana, S.A. 144A deb. 10 3/8s, 2001 (Mexico) 507,500
50,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 54,375
75,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 78,938
75,000 Royal Oak Mines, Inc. sr. sub. notes Ser. B, 11s, 2006
(Canada) 77,250
--------------
754,376
Motion Picture Distribution (0.8%)
- ---------------------------------------------------------------------------------------------------------
600,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 657,000
221,200 Cinemark Mexico USA notes Ser. B, 13s, 2003 (Mexico) [2 DBL. DAGGERS] 214,564
14,800 Cinemark Mexico USA notes Ser. D, 13s, 2003 (Mexico) [2 DBL. DAGGERS] 14,356
170,000 Cinemark USA, Inc. notes 9 5/8s, 2008 175,100
--------------
1,061,020
Networking (0.3%)
- ---------------------------------------------------------------------------------------------------------
515,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/00), 2005 ++ 365,650
Office Equipment (0.2%)
- ---------------------------------------------------------------------------------------------------------
250,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 282,500
Oil and Gas (1.7%)
- ---------------------------------------------------------------------------------------------------------
75,000 Abraxas Petroleum Corp. 144A sr. notes 11 1/2s, 2004 81,469
350,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 378,875
45,000 CIA Naviera Perez Companc S.A. 144A bonds 9s, 2004
(Argentina) 45,000
60,000 Cliffs Drilling Co. 144A sr. notes Ser. B, 10 1/4s, 2003 64,425
140,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 167,300
50,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 53,875
50,000 Forcenergy, Inc. sr. sub. notes 9 1/2s, 2006 53,250
40,000 Forcenergy, Inc. 144A sr. sub. notes 8 1/2s, 2007 39,600
65,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 69,063
184,000 Maxus Energy Corp. deb. 11 1/4s, 2013 190,440
150,000 Maxus Energy Corp. notes 9 1/2s, 2003 155,250
250,000 OPI International sr. notes 12 7/8s, 2002 271,563
80,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 85,200
40,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 42,900
350,000 Transamerican Refining Corp. variable coupon 1st mtge.
zero % (18 1/2s 2/15/98), 2002 ++ 323,750
50,000 Transamerican Refining Corp. variable coupon 2nd mtge.
16 1/2s (16s, 8/15/98), 2002 ++ 54,000
323,000 TransTexas Gas Corp. sr. disc. notes stepped-coupon zero %
(13 1/4s, 12/16/01), 2003 ++ 203,490
--------------
2,279,450
Packaging and Containers (0.3%)
- ---------------------------------------------------------------------------------------------------------
60,000 Printpack, Inc. sr. notes Ser. B, 9 7/8s, 2004 63,000
400,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 343,000
--------------
406,000
Paging (0.8%)
- ---------------------------------------------------------------------------------------------------------
250,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 224,375
400,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 393,000
500,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 350,000
100,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 96,000
--------------
1,063,375
Paper and Forest Products (1.0%)
- ---------------------------------------------------------------------------------------------------------
175,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 192,500
295,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 318,600
500,000 Gaylord Container Corp. sr. sub. disc. deb. 12 3/4s, 2005 ++ 553,750
300,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 301,500
--------------
1,366,350
Publishing (--%)
- ---------------------------------------------------------------------------------------------------------
30,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 2007 (Canada) 30,900
Restaurants (0.1%)
- ---------------------------------------------------------------------------------------------------------
35,000 AmeriKing, Inc. sr. notes 10 3/4s, 2006 36,750
100,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 106,000
--------------
142,750
Retail (1.3%)
- ---------------------------------------------------------------------------------------------------------
125,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon zero %
(12s, 5/1/98), 2005 ++ 115,625
185,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 202,575
450,000 K mart Corp. med. term notes Ser. C, 7.85s, 2002 429,017
135,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 147,825
250,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 265,000
100,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 104,000
50,000 Supermercados Norte 144A bonds 10 7/8s, 2004 (Argentina) 50,563
400,000 Waban, Inc. sr. sub. notes 11s, 2004 444,000
--------------
1,758,605
Specialty Consumer Products (0.3%)
- ---------------------------------------------------------------------------------------------------------
250,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 271,250
145,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 1999 145,000
--------------
416,250
Steel (0.1%)
- ---------------------------------------------------------------------------------------------------------
85,000 AK Steel Corp. 144A sr. notes 9 1/8s, 2006 88,188
Supermarkets (0.2%)
- ---------------------------------------------------------------------------------------------------------
300,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 319,500
Telecommunications (1.9%)
- ---------------------------------------------------------------------------------------------------------
350,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 215,250
145,000 Brooks Fiber Properties, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 11/01/01), 2006 ++ 93,888
200,000 Brooks Fiber Properties, Inc. sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/1/01), 2006 ++ 135,500
100,000 Dobson Communications Corp. 144A sr. notes 11 3/4s, 2007 101,750
250,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 ++ 161,250
250,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 146,875
890,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 660,825
250,000 Intermedia Communication, Inc. sr. notes Ser. B, 13 1/2s, 2005 287,500
210,000 International Cabletel, Inc. 144A sr. notes 10s, 2007 211,050
125,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 134,375
600,000 Winstar Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 390,000
--------------
2,538,263
Telephone Services (0.4%)
- ---------------------------------------------------------------------------------------------------------
155,000 Globo Communicacoes S,A. 144A company guaranty 10 1/2s,
2006 (Brazil) 158,875
170,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 102,425
250,000 Nextlink Communications, Inc. sr. notes 12 1/2s, 2006 271,875
--------------
533,175
Textiles (0.3%)
- ---------------------------------------------------------------------------------------------------------
165,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 180,263
200,000 Reeves Industries, Inc. sub. deb. 13 3/4s, 2001 170,000
--------------
350,263
Wireless Communications (0.1%)
- ---------------------------------------------------------------------------------------------------------
105,000 International Wireless Communications, Inc. sr. disc. notes
zero %, 2001 62,475
80,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 79,200
50,000 Omnipoint Corp. 144A sr. notes Ser. A, 11 5/8s, 2006 50,125
--------------
191,800
--------------
Total Corporate Bonds and Notes (cost $43,927,129) $ 44,285,527
CONVERTIBLE PREFERRED STOCKS (5.3%) *
NUMBER OF SHARES VALUE
Construction (0.4%)
- ---------------------------------------------------------------------------------------------------------
25,000 Perini Corp. $2.125 dep. shares cv. pfd. $ 475,000
Insurance (0.9%)
- ---------------------------------------------------------------------------------------------------------
22,674 USF&G Corp. Ser. A, $4.10 cv. pfd. 1,153,540
Oil and Gas (2.3%)
- ---------------------------------------------------------------------------------------------------------
130,864 Atlantic Richfield Co. $ 2.23 cv. pfd. 2,993,500
REITs (Real Estate Investment Trust) (0.9%)
- ---------------------------------------------------------------------------------------------------------
44,500 Oasis Residential, Inc. Ser. A, $2.25 cv. pfd. 1,207,063
Steel (0.9%)
- ---------------------------------------------------------------------------------------------------------
24,500 Armco, Inc. $4.50 cv. pfd. 1,182,125
--------------
Total Convertible Preferred Stocks (cost $7,558,797) $ 7,011,228
PREFERRED STOCKS (2.9%) *
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
2,075 Alliance Gaming Corp. Ser. B, $15.00 pfd. [2 DBL. DAGGERS] $ 211,650
300 American Radio Systems Corp. 144A $11.375 pfd. [2 DBL. DAGGERS] 31,050
2,000 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 54,000
4,301 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 395,690
4,000 California Federal Bancorp, Inc. Ser. B, $11.50 pfd. 457,000
3,500 California Federal Bancorp, Inc. Ser. B, $10.625 exch. pfd. 389,375
1,050 Chancellor Radio Broadcasting 144A $12.00 pfd. + 108,150
3,115 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 165,874
2,229 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 248,534
4,700 Fitzgerald Gaming Co. $3.75 pfd. + 107,513
130 Fresenius Medical Care AG Ser. D, $9.00 pfd. 133,900
105 International CableTel, Inc. 144A $13.00 pfd. [2 DBL. DAGGERS] 105,000
2,117 K-III Communications Ser. B, $11.625 pfd. [2 DBL. DAGGERS] 215,934
14,900 SDW Holdings Corp. 144A $3.50 pfd. + 432,100
2,050 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 211,150
537 Time Warner, Inc. Ser. M, $10.25 pfd. [2 DBL. DAGGERS] 596,070
--------------
Total Preferred Stocks (cost $3,644,018) $ 3,862,990
UNITS (1.5%) *
NUMBER OF UNITS VALUE
- ---------------------------------------------------------------------------------------------------------
80 Advanced Radio Telecommunications units 14s, 2007 $ 96,000
30 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s,3/15/98), 2004 ++ 384,000
100 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 64,500
195 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2006 ++ 115,050
95 Esat Holdings Ltd. 144A units stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 ++ (Ireland) 56,050
400 Fitzgerald Gaming Co. units 13s, 2002 320,000
120 Globalstar L.P. Capital units 11 3/8s, 2004 126,000
350 Health-O-Meter Product units 13s, 2002 383,250
2,665 Nextlink Communications 144A pfd. units zero % (14s, 2/1/02),
2009 [2 DBL. DAGGERS]++ 133,250
190 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 105,450
255 RSL Communications, Ltd. 144A units 12 1/4s, 2006 265,200
--------------
Total Units (cost $1,870,915) $ 2,048,750
COMMON STOCKS (1.3%) *
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
50 AmeriKing, Inc. + $ 2,500
6,303 Elsinore Corp. + 882
22,946 Freeport-McMoRan Copper & Gold Co., Inc. Class B 780,164
1,885 IFINT Diversified Holdings 144A + 30,160
14,351 Lady Luck Gaming Corp. + 26,011
197 PMI Holdings Corp. 144A + 49,250
144 Premium Holdings (L.P.) 144A + 718
33,430 PSF Holdings LLC Class A 835,750
3,750 Specialty Foods Acquisition Corp. + 938
2,000 Terex Corp. Rights + expiration date 5/15/02 6,000
--------------
Total Common Stocks (cost $1,073,266) $ 1,732,373
FOREIGN GOVERNMENT BONDS AND NOTES (0.2%) *(COST $249,263)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$ 460,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan 144A 8s,
2020 ##+++ $ 277,150
WARRANTS (0.2%) * +
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ---------------------------------------------------------------------------------------------------------
15,000 Becker Gaming Corp. 144A 11/15/00 $ 3,750
4,060 Cellnet Data Systems 6/15/05 71,050
500 Comunicacion Cellular 144A (Colombia) 11/15/03 35,000
500 County Seat Holdings, Inc. 10/15/98 10
600 DeGeorge Financial Corp. 4/01/97 6
200 Fitzgerald Gaming Co. 144A 3/15/99 20
250 Hyperion Telecommunications 144A 4/15/01 5,563
1,617 Intelcom Group 9/15/05 22,638
220 Interact Systems, Inc. 8/01/03 55
250 Intermedia Communications 144A 6/01/00 5,000
105 International Wireless Communications Holdings 8/15/01 1
135 Louisiana Casino Cruises, Inc. 144A 12/01/98 2,295
250 NEXTEL Communications, Inc. 1/01/99 3
1,490 SDW Hldgs Corp. Ser. B 144A 4/01/04 19,370
75 Sterling Chemicals Holdings 8/15/08 2,625
9 Telemedia Broadcasting Corp. 144A 4/01/04 6,443
2,700 UCC Investor Holding, Inc. 10/31/99 39,150
21 Wright Medical Technology, Inc. 144A 6/30/03 2,669
--------------
Total Warrants (cost $284,510) $ 215,648
SHORT-TERM INVESTMENTS (2.8%) * (COST $3,778,564)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
3,778,000 Interest in $579,653,000 joint repurchase agreement
dated February 28, 1997 with UBS Securities due
March 3, 1997, with respect to various U.S. Treasury
obligations -- maturity value of $3,779,691 for an
effective yield of 5.37% $ 3,778,564
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $124,559,320) *** $131,746,713
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $132,742,426.
*** The aggregate identified cost on a tax basis is $124,559,320, resulting in gross unrealized appreciation and
depreciation of $12,633,425 and $5,446,032, respectively, or net unrealized appreciation of $7,187,393.
+ Non-income-producing security.
++ 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.
+++ A portion of the income will be received in additional securities.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer.
## When-issued securities (Note 1).
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.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 28, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $124,559,320) (Note 1) $131,746,713
- ---------------------------------------------------------------------------------------------------
Cash 9,823
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,426,597
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 778,536
- ---------------------------------------------------------------------------------------------------
Total assets 134,961,669
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 942,959
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 950,619
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 241,512
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 29,363
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,147
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,237
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 47,406
- ---------------------------------------------------------------------------------------------------
Total liabilities 2,219,243
- ---------------------------------------------------------------------------------------------------
Net assets $132,742,426
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $124,274,024
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 485,992
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 795,017
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,187,393
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $132,742,426
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($132,742,426 divided by 13,329,190 shares) $9.96
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended February 28, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 5,724,953
- --------------------------------------------------------------------------------------------------
Dividends 557,359
- --------------------------------------------------------------------------------------------------
Total investment income 6,282,312
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 481,369
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 93,414
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,596
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,672
- --------------------------------------------------------------------------------------------------
Reports to shareholders 3,504
- --------------------------------------------------------------------------------------------------
Auditing 16,608
- --------------------------------------------------------------------------------------------------
Legal 9,544
- --------------------------------------------------------------------------------------------------
Postage 10,320
- --------------------------------------------------------------------------------------------------
Exchange listing fees 12,340
- --------------------------------------------------------------------------------------------------
Other 1,917
- --------------------------------------------------------------------------------------------------
Total expenses 645,284
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (25,854)
- --------------------------------------------------------------------------------------------------
Net expenses 619,430
- --------------------------------------------------------------------------------------------------
Net investment income 5,662,882
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,250,745
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 4,876,366
- --------------------------------------------------------------------------------------------------
Net gain on investments 7,127,111
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $12,789,993
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
February 28 August 31
1997* 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 5,662,882 $ 11,598,744
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 2,250,745 1,260,469
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 4,876,366 (1,728,563)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 12,789,993 11,130,650
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (5,667,332) (11,263,468)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (798,322) --
- ----------------------------------------------------------------------------------------------------------------------
Increase in capital share transactions from
reinvestment of distributions 554,459 1,085,846
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 6,878,798 953,028
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 125,863,628 124,910,600
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $485,992 and $490,442, respectively) $132,742,426 $125,863,628
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 13,272,242 13,158,906
- ----------------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 56,948 113,336
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 13,329,190 13,272,242
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share February 28
operating performance (Unaudited) Year ended August 31
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.48 $9.49 $9.13 $9.52 $8.49 $7.56
- --------------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .43 .88 .79 .78 .84 .88
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .54 (.04) .42 (.30) 1.05 .99
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .97 .84 1.21 .48 1.89 1.87
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.85) (.85) (.87) (.84) (.94)
- --------------------------------------------------------------------------------------------------------------------------------
From net realized
gains on investments (.06) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- -- (.02) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (.49) (.85) (.85) (.87) (.86) (.94)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.96 $9.48 $9.49 $9.13 $9.52 $8.49
- --------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $10.500 $10.125 $10.000 $9.750 $10.000 $8.875
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 8.91* 10.63 12.60 6.84 23.78 30.71
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $132,742 $125,864 $124,911 $118,988 $123,285 $108,909
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .50* 1.06 1.00 1.04 1.03 1.13
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.38* 9.19 8.73 8.23 9.39 10.92
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.01* 56.82 61.19 52.10 71.63 45.84
- --------------------------------------------------------------------------------------------------------------------------------
* 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 August 31, 1996 and thereafter
includes amounts paid through expense offset arrangements. Prior period ratios
these amounts. (See Note 2).
</TABLE>
Notes to financial statements
February 28, 1997 (Unaudited)
Note 1
Significant accounting policies
The Putnam High Income Convertible and Bond Fund (the "fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company. The fund's primary investment
objective is high current income; its secondary objective is capital
appreciation. The fund invests in high-yielding convertible securities. The
fund seeks to augment current income by investing in non-convertible
securities, lower-rated, or non-rated debt securities, which are believed not
to involve undue risk to income or principal.
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, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Market
quotations are not considered to be readily available for long-term corporate
bonds and notes; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or brokers, approved by the
Trustees, which determine valuations for normal, institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities that are
generally recognized by institutional traders. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments, including restricted
securities, are stated at fair value following procedures approved by the
Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date. Discounts on zero coupon bonds, original issue, stepped-coupon bonds and
payment in kind bonds are accreted according to the effective yield method.
Securities purchased or sold on a when-issued or delayed delivery basis may be
settled a month or more after the trade date; interest income is accrued based
on terms of security. Losses may arise due to changes in the market value of
the underlying securities or if the counterparty does not perform under the
contract.
E) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for excise tax
on income and capital gains.
At August 31, 1996, the fund had a capital loss carryover of approximately
$657,000 available to offset future net capital gain, if any, which will
expire on August 31, 1999.
F) Distributions to shareholders Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of market conditions or
investment decisions, the fund may not achieve projected investment results
for a given period. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.75% of the first $500 million of
average weekly net assets, 0.65% of the next $500 million, 0.60% of the next
$500 million, and 0.55% of any amount over $1.5 billion.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended February 28, 1997, fund expenses were reduced by
$25,854 under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these credits.
The fund could have invested a portion of the assets utilized in connection
with the expense offset arrangements in an income producing asset if it had
not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $650 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended February 28, 1997, purchases and sales of
investment securities other than short-term investments aggregated $32,353,960
and $32,171,568, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Charles G. Pohl
Vice President and Fund Manager
Jennifer E. Leichter
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
32143-061 4/97
