Putnam
High Income
Convertible and
Bond Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Since the price of a convertible bond generally moves in the opposite
direction as its yield, a decline in a bond's price frequently provides
the occasion to lock in above-market income. Besides securing higher
current income, this strategy also provides potential opportunity for
capital appreciation when and if the bond's price recovers. Putnam High
Income Convertible and Bond Fund's managers used this approach to
advantage during the fiscal year ended August 31, 1999, as concerns over
such issues as inflation, global recession, and Y2K drove securities
prices lower. In the following report they review the fund's fiscal 1999
performance and offer their insights into prospects for the year ahead.
I am pleased to announce the appointment of Kevin J. Rogers to your fund's
management team. Before joining Putnam in 1998, Kevin was with INVESCO and
Fidelity Investments. He has 11 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 20, 1999
Report from the Fund Managers
Forrest N. Fontana
Kevin Rogers
After months of sagging prices, the small-company convertible market has
rebounded, rewarding patient investors in the process. Putnam High Income
Convertible and Bond Fund's positive performance over the 12 months ended
August 31, 1999, reflects the success of its securities selection strategy
early in the period, when the convertibles of many high-quality companies
were selling at significant discounts. However, overall performance was
held back by the relatively lackluster returns of the fund's high-yield
bond holdings.
Total return for 12 months ended 8/31/99
Net asset value Market price
- ----------------------------------------------------------------
6.01% 9.93%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* MARKET VOLATILITY YIELDS OPPORTUNITIES
Your fund seeks a high level of current income by investing in the
convertible bonds of companies whose stocks have fallen a great deal. When
a company's stock falls, its convertible bonds tend to decline as well,
although to a lesser extent. Since falling bond prices typically translate
into higher yields, we view each episode of market volatility as an
opportunity to secure high current income for the fund.
As the fiscal year began, a number of events conspired to produce an
unusual buying opportunity in the convertible market. Perhaps most
significant was the slump in the prices of technology companies. In the
summer of 1998, declining currencies and economic turmoil in Asia prompted
many investors to sell shares in technology companies that have direct
ties to the region. Investors were also concerned about the Y2K bug, which
they feared would slow business spending on new software until the new
millennium. This low point in investor sentiment coincided with a cyclical
downturn in the industry, epitomized by rapidly falling semiconductor
prices. During this period it was not uncommon to find convertible issues
of high-quality technology companies selling at $0.50 on the dollar with
yields in excess of 10%. We took advantage of this opportunity to upgrade
the portfolio and increased our holdings in names that possessed clean
balance sheets and healthy cash flows, including Lam Research, Credence
Systems, and Kent Electronics.
[GRAPHIC OMITTED: horizontal bar chart PORTFOLIO COMPOSITION]
PORTFOLIO COMPOSITION (8/31/99)*
Convertible
securities 59.9%
Corporate
high-yield bonds 33.7%
Other 2.9%
Preferred stocks 2.6%
Common stocks,
including warrants 0.9%
Footnote reads:
*Based on total market value of investments. Composition will vary over time.
Another area of opportunity was the energy sector. By the end of 1998 the
price of oil had fallen 60% from a high of roughly $25 a barrel in early
1997. OPEC was having trouble restricting supply among its members, the
Asian financial crisis was threatening to leech demand from the global
commodity market, and an unseasonably warm winter in the United States
made matters worse. To take advantage of the opportunity, we more than
tripled our investment in Pride International, an oil-service and drilling
company. While this holding, as well as others discussed in this report,
was viewed favorably at the end of the period, all are subject to review
and adjustment in accordance with the fund's investment strategy and may
vary in the future.
* CONVERTIBLE RALLY A BONUS
Capital appreciation is not your fund's primary objective. However, when
convertible securities began to rally in the spring of 1999, the fund was
prepared to make the most of it. Technology issues, which make up roughly
20% of the convertible market, were the primary contributors to
performance during the period. The Asian situation appeared to stabilize,
Y2K proved to be less of an issue than feared, and semiconductor prices
began to rebound off their 1998 lows. Many of the convertible issues we
purchased at $0.50 and $0.75 on the dollar rebounded sharply during this
time. At the same time, OPEC managed to restrict supply, resulting in a
100% increase in the price of oil and a boost to the fund's energy-related
convertibles.
Convertibles were also aided during the period by a general recovery in
small-company fundamentals. Small companies are the primary issuers of
convertible securities. After a prolonged downturn, in which a handful of
the largest U.S. companies delivered the bulk of the market's earnings
gains, small caps began to meet earnings expectations and rally in the
second calendar quarter of 1999. Examples of small-company convertibles
that made a positive contribution to performance during the period include
Weatherford International, HNC Software, and BEA Systems. These holdings
were later sold to lock in gains.
* HIGH-YIELD BONDS STRUGGLE
In contrast to the fund's convertible securities, the high-yield corporate
bond portion of the portfolio detracted from the fund's overall
performance during the year. The year began in the midst of a bear market
for high-yield bonds. The flight to high-quality securities in the summer
of 1998 made for the most severe sell-off in this sector since 1990.
Performance improved in early 1999 as the Asian financial crisis subsided
along with the risk of a global economic slowdown. The telecommunications
and energy sectors recovered, and the bonds of financial and chemical
companies also performed well due to consolidation activity and a general
rebound in economically sensitive issues. However, as spring turned to
summer, rising interest rates, an increase in defaults, and Y2K concerns
pushed bond prices lower.
The portfolio was well positioned to weather the weakness in the market.
In late 1998, we sold bonds with poor fundamentals and bought
higher-quality bonds that were selling at discounts, upgrading the
portfolio in the process. Our strategy throughout the period was to remain
broadly diversified in more than 50 segments of the market, increasing
concentrations only when extremely undervalued situations presented
themselves. In our opinion, the current performance headwinds are
temporary and therefore represent potential buying opportunities. Even the
rise in default rates, although disappointing, may be an anomaly.
Historically, defaults for high-yield issuers occur most frequently in the
second year following issuance, and 1997 was a banner year for new
high-yield issues, nearly doubling the size of the market.
[GRAPHIC OMITTED: TOP FIVE CONVERTIBLE HOLDINGS]
TOP FIVE CONVERTIBLE HOLDINGS*
National Semiconductor Corp.,
cv. sub. deb. 6.5%, 2002
Semiconductors
Evi, Inc., cv. cum. pfd. $2.50
Engineering
OHM Corp., cv. sub. deb 8%, 2006
Environmental control
Stone Container Corp.,
cv. sub. deb 6.75%, 2007
Paper and forest products
Malan Realty Investors,
cv. sub. notes 9.50%, 2004
Real estate investment trust
[GRAPHIC OMITTED: TOP FIVE CORPORATE HIGH-YIELD HOLDINGS]
TOP FIVE CORPORATE HIGH-YIELD HOLDINGS*
Benedek Communications Corp.,
stepped-coupon zero %, 2006
Broadcasting
Weirton Steel Corp. senior notes
10.75%, 2005
Metals and mining
Global Crossing Holdings, Ltd.
9.625%, 2008
Telecommunications
International Cabletel, Inc.
stepped-coupon zero %, Ser B, 2006
Telecommunications
ICG Services, Inc. senior discount
notes, stepped-coupon zero %, 2008
Telecommunications
Footnote reads:
These combined holdings represent 10.2% of the fund's net assets as of 8/31/99.
Portfolio holdings will vary over time.
* OPPORTUNITIES FOR INCOME AND GROWTH
Despite the appreciation in the convertible market thus far, in our view,
convertible securities remain attractive from a valuation standpoint, with
opportunities for both income and growth. We continue to take a
company-by-company approach to portfolio selection with an emphasis on
diversification. Although the convertible market traditionally has been
dominated by a handful of sectors including technology and energy, we have
sought to increase the fund's exposure, where prudent, in other areas of
the market, such as telecommunications and finance. Similarly, in the
high-yield segment of the portfolio, we continue to emphasize overall
diversification while seeking to take advantage of undervalued situations.
With the convertible and high-yield markets far from fair value, in our
opinion, we believe the portfolio is well positioned for the coming
months.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 8/31/99, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield bonds reflect a greater possibility that adverse changes in
the economy or poor performance by the issuers may affect the issuer's
ability to pay principal and interest.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its 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.
TOTAL RETURN FOR PERIODS ENDED 8/31/99
Merrill Lynch First Boston
Market All Convertible High-Yield
NAV price Index* Bond Index
- -------------------------------------------------------------------------
1 year 6.01% 9.93% 28.95% 4.74%
- -------------------------------------------------------------------------
5 years 51.58 49.09 96.65 52.96
Annual average 8.67 8.31 14.49 8.87
- -------------------------------------------------------------------------
10 years 193.84 228.03 230.67 167.77
Annual average 11.38 12.61 12.71 10.35
- -------------------------------------------------------------------------
Life of fund 230.13 224.84 -- 224.28
(since 7/9/87)
Annual average 10.33 10.18 -- 10.22
- -------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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.
*Index began on 12/31/97.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/99
- ---------------------------------------------------------------------------
Distributions (common shares)
- ---------------------------------------------------------------------------
Number 12
- ---------------------------------------------------------------------------
Income $0.8108
- ---------------------------------------------------------------------------
Capital gains
Long-term 0.1408
- ---------------------------------------------------------------------------
Short-term 0.0407
- ---------------------------------------------------------------------------
Total $0.9923
- ---------------------------------------------------------------------------
Share value NAV Market price
- ---------------------------------------------------------------------------
8/31/98 $8.82 $8.937
- ---------------------------------------------------------------------------
8/31/99 8.32 8.813
- ---------------------------------------------------------------------------
Current return (end of period)
- ---------------------------------------------------------------------------
Current dividend rate1 10.24% 9.67%
- ---------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Market
NAV price
- ---------------------------------------------------------------------------
1 year 7.71% -11.80%
- ---------------------------------------------------------------------------
5 years 50.21 39.04
Annual average 8.48 6.81
- ---------------------------------------------------------------------------
10 years 195.45 207.45
Annual average 11.44 11.89
- ---------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
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 and
Moody's. The average quality of bonds included in the index may be lower
than the average quality of the bonds in which the fund customarily
invests.
*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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended August 31, 1999
To the Trustees and Shareholders of
Putnam High Income Convertible and Bond Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam High Income
Convertible and Bond Fund at August 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which requires that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at August 31, 1999 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 13, 1999
<TABLE>
<CAPTION>
The fund's portfolio
August 31, 1999
CONVERTIBLE BONDS AND NOTES (45.8%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Aerospace and Defense (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
$1,500,000 Kellstrom Industries, Inc. cv. sub. notes 5 1/2s, 2003 $ 1,033,125
500,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 375,000
--------------
1,408,125
Automotive (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 710,937
1,250,000 Mark IV Industries, Inc. cv. sub. notes 4 3/4s, 2004 1,084,375
1,500,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 1,222,500
--------------
3,017,812
Business Equipment and Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 960,000
Computers (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Adaptec, Inc. cv. sub. notes 4 3/4s, 2004 478,125
Computer Equipment (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,750,000 Quantum Corp. cv. sub. 7s, 2004 1,561,873
2,000,000 Western Digital Corp. cv. sub. deb. zero %, 2018 312,500
--------------
1,874,373
Computer Services (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Aspen Technology, Inc. cv. sub. deb. 5 1/4s, 2005 1,142,500
1,500,000 Data General Corp. 144A cv. sub. notes 6s, 2004 1,466,250
1,000,000 Silicon Graphics Corp. cv. sr. notes 5 1/4s, 2004 790,000
1,500,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 624,375
--------------
4,023,125
Computer Software (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Arbor Software Corp. cv. sub. notes 4 1/2s, 2005 871,875
3,500,000 Network Associates, Inc. cv. sub deb. zero %, 2018 1,063,125
750,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 661,875
--------------
2,596,875
Consumer Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
400,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero %, (13s, 8/15/04), 2009 (STP) 216,000
750,000 SportsLine USA, Inc. cv. sub. notes 5s, 2006 470,625
--------------
686,625
Electronics (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Cirrus Logic, Inc. cv. sub notes 6s, 2003 1,111,875
2,000,000 HMT Technology Corp. cv. sub. notes 5 3/4s, 2004 767,500
1,400,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 1,104,250
1,250,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 1,118,750
--------------
4,102,375
Entertainment (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 1,582,500
Environmental Control (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 OHM Corp. cv. sub. deb. 8s, 2006 1,882,500
1,300,000 Weston (Roy F.), Inc. cv. deb. 7s, 2002 1,200,875
--------------
3,083,375
Food (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Chiquita Brands International, Inc. cv. sub. deb. 7s, 2001 943,750
Medical Supplies and Devices (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Omnicare, Inc. cv. bonds 5s, 2007 673,750
1,000,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 802,500
--------------
1,476,250
Metals and Mining (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Homestake Mining Co. 144A cv. sub. 5 1/2s, 2000 975,000
500,000 Inco Ltd. cv. deb. 7 3/4s, 2016 450,625
600,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 603,750
--------------
2,029,375
Oil and Gas (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Pride International, Inc. cv. sub. deb. zero %, 2018 657,500
Paper and Forest Products (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Stone Container Corp. cv. sub. deb. 6 3/4s, 2007 1,850,000
Pharmaceuticals (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Duramed Pharmaceuticals, Inc. cv. sub. notes 3 1/2s, 2002 1,535,000
750,000 Sepracor, Inc. 144A cv. notes 7s, 2005 700,312
--------------
2,235,312
REITs (Real Estate Investment Trust) (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004 1,677,813
Restaurants (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 CKE Restaurants, Inc. cv. sub. notes 4 1/4s, 2004 330,000
Retail (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Amazon.com Inc. cv. sub. deb. 4 3/4s, 2009 470,000
1,500,000 Baker (J.), Inc. cv. deb. 7s, 2002 1,258,125
1,100,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 1,094,500
1,250,000 Sunglass Hut International, Inc. cv. sub. notes 5 1/4s, 2003 1,003,125
--------------
3,825,750
Semiconductors (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Advanced Micro Devices, Inc. cv. sub. notes 6s, 2005 1,173,750
1,350,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 1,258,875
1,500,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 1,400,625
1,700,000 Lam Research Corp. cv. sub. notes 5s, 2002 1,661,750
2,000,000 National Semiconductor Corp. cv. sub. deb. 6 1/2s, 2002 1,937,500
--------------
7,432,500
Supermarkets (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 1,260,000
Telecommunications (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Aspect Telecommunications Corp. cv. sub. deb. zero %, 2018 218,750
1,000,000 World Access, Inc. cv. sub. notes 4 1/2s, 2002 681,250
500,000 World Access, Inc. 144A cv. sub. notes 4 1/2s, 2002 340,625
--------------
1,240,625
Textiles (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Dixie Group, Inc. (The) cv. deb. 7s, 2012 102,700
Tobacco (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,300,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 1,339,750
Wireless Communications (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 Cellstar Corp. cv. sub notes 5s, 2002 817,186
1,500,000 Telxon Corp. cv. sub. notes 5 3/4s, 2003 1,035,000
--------------
1,852,186
--------------
Total Convertible Bonds and Notes (cost $55,251,807) $ 52,066,821
CORPORATE BONDS AND NOTES (33.2%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
$ 90,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 94,050
75,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 73,875
100,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 100,000
--------------
267,925
Aerospace and Defense (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 44,000
60,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 52,800
130,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 122,525
70,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 71,050
70,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 65,275
210,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 212,100
50,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 49,125
100,000 Sequa Corp. med. term notes 10s, 2001 102,768
--------------
719,643
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
409,514 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 378,800
Airlines (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Calair LLC 144A company guaranty 8 1/8s, 2008 73,000
80,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 52,800
140,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) 119,000
70,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 59,850
180,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 115,200
--------------
419,850
Apparel (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Fruit of the Loom company guaranty 8 7/8s, 2006 58,500
70,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 70,350
--------------
128,850
Automotive (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 76,000
180,000 Federal Mogul Corp. notes 7 1/2s, 2009 163,857
70,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 68,950
190,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 184,775
250,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 235,000
15,000 San Luis Corp. SA sr. notes 8 7/8s, 2008 (Mexico) 12,150
60,000 Transportation Manufacturing Operations Inc.
144A company guaranty 11 1/4s, 2009 59,400
--------------
800,132
Automotive Parts (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
262,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 267,240
90,000 Hayes Lemmerz International, Inc. company guaranty
Ser. B, 8 1/4s, 2008 83,250
50,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 49,625
180,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 144,000
--------------
544,115
Banks (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 75,375
100,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 99,590
80,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 79,010
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 16,250
80,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 78,500
50,000 Ocwen Financial Corp. notes 11 7/8s, 2003 44,500
75,000 Provident Capital Trust company guaranty 8.6s, 2026 71,019
45,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 41,675
65,000 Sovereign Capital Trust company guaranty 9s, 2027 62,091
55,000 Webster Capital Trust I 144A bonds 9.36s, 2027 52,816
--------------
620,826
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Grove Holdings LLC deb. stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 82,500
90,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 43,200
30,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 27,600
--------------
153,300
Broadcasting (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 115,200
600,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 508,500
215,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 180,600
215,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 217,150
75,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 42,750
90,220 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 93,829
10,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 9,975
125,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 117,188
270,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 273,375
80,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 77,400
250,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 256,875
250,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 286,875
30,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 29,700
110,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 113,300
50,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 39,000
35,000 TV Azteca Holdings S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 26,425
25,000 TV Azteca Holdings S.A. de C.V. sr. notes Ser. A, 10 1/8s, 2004
(Mexico) 19,625
--------------
2,407,767
Building and Construction (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
55,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 30,250
160,000 D.R. Horton, Inc. company guaranty 8s, 2009 147,200
190,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 95,000
60,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 58,350
80,000 Toll Corp. company guaranty 8 1/8s, 2009 75,800
--------------
406,600
Building Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2009 29,175
90,000 Building Materials Corp. company guaranty 8s, 2008 82,350
150,000 Consumers International 144A sr. notes 10 1/4s,
2005 (Canada) 149,250
--------------
260,775
Business Equipment and Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Corporate Express Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 121,050
110,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 103,675
50,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 48,500
320,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 187,200
--------------
460,425
Cable Television (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 115,500
149,530 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 150,277
80,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 71,900
2,044 Australis Media, Ltd. sr. disc. notes stepped-coupon 1 3/4s,
(15 3/4s 5/15/00), 2003 (In default) (Australia) (STP) (PIK) (NON) 0
180,000 Century Communications Corp. sr. notes 8 7/8s, 2007 173,250
230,000 Charter Communications Holdings LLC 144A sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 139,150
200,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 193,500
120,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 124,200
30,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 27,383
140,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00),
2005 (United Kingdom) (STP) 126,000
215,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 168,775
95,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 95,713
20,000 TeleWest Communications PLC 144A sr. notes
11 1/4s, 2008 (United Kingdom) 22,200
110,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (9 1/4s, 4/15/04),
2009 (United Kingdom) (STP) 67,238
120,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 68,700
--------------
1,543,786
Cellular Communications (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 176,000
391,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 164,220
105,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (In default)
(United Kingdom) (NON) 13,650
100,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 105,500
160,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 92,000
325,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01),
2006 (Luxembourg) (STP) 241,312
190,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 211,375
330,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 165,000
50,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 36,625
70,000 Nextel Partners Inc. 144A sr. disc. notes stepped-coupon
zero % (14s, 2/1/04), 2009 (STP) 40,950
30,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 30,300
--------------
1,276,932
Chemicals (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 65,100
30,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 28,200
90,000 Huntsman Corp. 144A sr. sub. notes FRN 8.873s, 2007 81,450
240,000 Huntsman ICI Chemicals Inc. 144A sr. sub. notes 10 1/8s, 2009 235,800
100,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 101,000
300,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 300,000
50,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 53,125
100,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 74,000
134,108 Polytama International notes 11 1/4s, 2007 (Indonesia) 24,139
80,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 76,000
100,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 96,750
75,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 18,750
--------------
1,154,314
Computer Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 35,525
351,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 72,833
240,000 Unisys Corp. sr. notes 11 3/4s, 2004 264,600
60,000 Verio Inc. sr. notes 11 1/4s, 2008 60,900
40,000 Verio Inc. sr. notes 10 3/8s, 2005 39,800
--------------
473,658
Computer Software (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Interact Systems, Inc. 144A 14s, 2003 39,600
120,000 PSINet, Inc. sr. notes 11 1/2s, 2008 121,800
130,000 PSINet, Inc. 144A sr. notes 11s, 2009 128,375
55,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 52,800
--------------
342,575
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Axia, Inc. company guaranty 10 3/4s, 2008 112,800
170,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 62,900
--------------
175,700
Consumer Durable Goods (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Albecca Inc. company guaranty 10 3/4s, 2008 69,075
20,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 8,000
30,000 Iron Age Corp. company guaranty 9 7/8s, 2008 23,400
300,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 259,500
50,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 49,250
--------------
409,225
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
256,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 274,560
40,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %,
(13 5/8s, 6/30/00), 2005 (STP) 36,000
--------------
310,560
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 29,100
40,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 39,650
60,000 Revlon Consumer Products sr. notes 9s, 2006 55,950
250,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 227,500
--------------
352,200
Electric Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 37,800
40,000 Calpine Corp. sr. notes 7 7/8s, 2008 38,000
420,000 Calpine Corp. sr. notes 7 3/4s, 2009 388,163
150,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 169,869
60,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 59,611
193,946 Northeast Utilities System notes Ser. A, 8.58s, 2006 195,876
350,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 189,000
150,000 York Power Funding 144A company guaranty 12s,
2007 (Cayman Islands) 148,500
--------------
1,226,819
Electronics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 36,925
80,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 76,000
85,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 83,300
20,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 16,200
180,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 177,300
50,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 51,125
105,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 91,088
25,000 Wavetek Corp. company guaranty 10 1/8s, 2007 21,750
--------------
553,688
Entertainment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 ITT Corp. notes 6 3/4s, 2005 172,433
190,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 182,875
80,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 76,800
80,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 75,800
100,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 46,000
--------------
553,908
Environmental Control (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10s, 2009 336,000
260,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 234,000
--------------
570,000
Financial Services (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
165,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 124,987
250,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 231,802
50,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 43,000
70,000 Capital One Financial Corp. notes 7 1/8s, 2008 64,329
100,000 Colonial Capital II 144A company guaranty 8.92s, 2027 91,578
120,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 41,400
110,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 37,400
90,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 32,400
70,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 59,500
415,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B, zero %
(12 1/2s, 03/01/03), 2008 (STP) 142,138
75,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 60,000
45,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 35,944
40,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 24,800
140,000 RBF Finance Co. company guaranty 11 3/8s, 2009 148,400
20,000 RBF Finance Co. company guaranty 11s, 2006 20,650
--------------
1,158,328
Food and Beverages (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 24,938
120,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 119,700
20,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 20,150
30,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 22,650
160,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 108,800
114,000 Triarc Consumer Products, Inc. 144A sr. sub. notes 10 1/4s, 2009 110,580
80,000 Vlassic Foods Intl. Inc. 144A sr. sub. notes 10 1/4s, 2009 72,800
--------------
479,618
Gaming (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Argosy Gaming Co. 144A sr. sub. notes 10 3/4s, 2009 102,500
110,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 108,350
20,000 Circus Circus Enterprises, Inc. deb. 7s, 2036 17,546
50,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 44,070
190,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s,
2004 (In default) (NON) 102,125
50,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 46,990
150,000 Hollywood Casino Corp. 144A sec. notes 11 1/4s, 2007 150,750
60,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 58,050
120,000 Horseshoe Gaming Holdings 144A sr. sub. notes 8 5/8s, 2009 115,200
60,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 66,000
100,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 98,000
80,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 75,200
175,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) 78,313
60,000 Riviera Black Hawk 144A 1st mtge. 13s, 2005 63,000
190,000 Trump A.C. 1st mtge. 11 1/4s, 2006 161,500
210,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 212,642
--------------
1,500,236
Health Care (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 26,850
90,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 78,233
235,000 Conmed Corp. company guaranty 9s, 2008 220,900
110,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 98,450
90,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 27,000
60,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 18,000
160,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 8,000
255,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 127,500
140,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 111,825
55,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 24,750
100,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 98,500
80,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 73,600
--------------
913,608
Hospital Management and Medical Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 69,825
Lodging (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 69,600
220,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 196,900
40,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 37,600
125,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 121,250
--------------
425,350
Manufacturing (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Blount Inc. 144A sr. sub. notes 13s, 2009 154,875
Medical Supplies and Devices (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 21,000
80,000 Mediq, Inc. company guaranty 11s, 2008 62,400
90,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 34,200
--------------
117,600
Metals and Mining (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s,
2007 (In default) (NON) 36,800
85,000 Continental Global Group sr. notes Ser. B, 11s, 2007 56,950
120,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 98,400
120,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 118,800
500,000 Weirton Steel Corp. sr. notes 10 3/4s, 2005 480,000
--------------
790,950
Motion Picture Distribution (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 92,950
70,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 58,100
115,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 34,500
--------------
185,550
Nursing Homes (--%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 AP Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 18,000
60,000 Sun Healthcare144A sr. sub. notes 9 3/8s, 2008 (In default) (NON) 7,200
--------------
25,200
Oil and Gas (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 92,700
95,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 57,000
180,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 167,328
40,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 41,000
70,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 68,408
80,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 78,400
40,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 40,600
80,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 80,400
100,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 97,500
90,000 R & B Falcon Corp. sr. notes 12 1/4s, 2006 94,950
60,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 29,850
60,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 24,000
160,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 158,000
160,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 163,200
--------------
1,193,336
Packaging and Containers (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 115,500
35,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 25,900
20,000 Owens-Illinois, Inc. deb. 7.8s, 2018 18,485
150,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 140,102
110,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 111,375
40,000 Radnor Holdings Inc. sr. notes 10s, 2003 40,800
--------------
452,162
Paper and Forest Products (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
155,000 APP Finance II Mauritius Ltd. bonds stepped-coupon
12s, (16s, 2/15/04), 2049 (Indonesia) (STP) 93,775
10,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 9,642
80,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 76,200
120,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 121,800
155,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 93,000
170,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 146,200
30,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 28,575
210,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 203,700
100,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 100,750
60,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 58,500
--------------
932,142
Pharmaceuticals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Biovail Corp. International sr. notes 10 7/8s, 2005 41,400
115,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 112,987
70,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 64,925
--------------
219,312
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 18,900
Publishing (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Affinity Group Holdings sr. notes 11s, 2007 141,000
60,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 58,050
180,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 168,300
60,000 Perry-Judd company guaranty 10 5/8s, 2007 55,800
32,799 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 30,503
40,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 39,800
--------------
493,453
Railroads (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 9,750
30,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 25,800
160,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %,
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 83,200
--------------
118,750
REITs (Real Estate Investment Trust) (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 189,314
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 92,700
100,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 89,000
--------------
181,700
Retail (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 38,000
115,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 108,100
250,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 257,500
75,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 62,063
160,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 153,600
20,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 18,400
110,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 109,450
--------------
747,113
Satellite Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 325,050
115,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 123,625
--------------
448,675
Semiconductors (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 97,500
48,386 Cirent Semiconductor sr. sub. notes 10.22s, 2002 47,176
55,517 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 54,128
140,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 136,150
90,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 81,900
--------------
416,854
Shipping (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 36,000
105,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 107,100
--------------
143,100
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
105,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 97,650
Steel (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 238,750
40,000 Armco, Inc. sr. notes 8 7/8s, 2008 40,000
80,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 79,600
--------------
358,350
Telecommunications (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 51,200
80,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 80,000
60,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 59,700
50,000 CapRock Communications Corp. 144A sr. notes 11 1/2s, 2009 49,500
100,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01),
2006 (United Kingdom) (STP) 82,000
90,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 87,300
305,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 163,175
240,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 136,800
65,000 Esprit Teleom Group PLC sr. notes 11 1/2s,
2007 (United Kingdom) 67,600
30,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 30,450
420,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 222,600
200,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 112,000
470,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 470,000
45,000 Globe Telecom 144A sr. notes 13s, 2009 (Philippines) 46,350
140,000 GST Equipment Funding sr. notes 13 1/4s, 2007 147,000
250,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 213,125
220,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 127,600
30,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 31,200
70,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 58,450
130,800 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 136,032
60,000 Hyperion Telecommunications Inc. sr. sub. notes 12s, 2007 60,000
150,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 133,125
755,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 422,800
205,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 143,500
140,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 124,250
490,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 439,775
220,000 IPC Information Systems Inc. sr. disc. notes zero %
(10 7/8s, 11/01/01), 2008 (STP) 167,200
500,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 252,500
10,000 KMC Telecommunications 144A sr. notes 13 1/2s, 2009 9,875
255,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 148,538
65,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 67,438
50,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 48,125
40,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 37,300
100,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 86,000
200,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 164,500
20,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 12,700
40,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 34,400
150,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 154,500
100,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 106,250
210,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 212,100
160,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 86,400
145,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 113,381
195,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 98,475
159,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 162,180
70,000 RSL Communications PLC 144A company guaranty 10 1/2s,
2008 (United Kingdom) 63,700
40,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 34,400
65,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 51,025
90,000 Startec Global Communications Corp. sr. notes 12s, 2008 76,500
60,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 57,000
55,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 33,000
210,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 213,150
280,000 United Pan-Europe N.V. 144A stepped-coupon zero %
(12 1/2s, 2004), 2009 (Netherlands) (STP) 156,800
130,000 United Pan-Europe N.V. 144A unit 10 7/8s,
2009 (Netherlands) 130,325
40,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 40,000
90,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 90,000
120,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 73,200
220,000 Viatel, Inc. sr. notes 11 1/4s, 2008 215,600
160,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 191,200
--------------
7,083,294
Telephone Services (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 82,550
40,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 43,200
250,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 217,500
90,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 78,300
170,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 91,800
190,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 121,600
175,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 98,000
65,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 56,550
140,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 124,600
105,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 76,650
71,000 ITC Deltacom, Inc. sr. notes 11s, 2007 75,260
250,000 Level 3 Communications Corp. sr. notes 9 1/8s, 2008 231,250
20,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 10,000
45,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 29,250
250,000 Primus Telecommunications Group, Inc. sr. notes 11 3/4s, 2004 245,000
30,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (Colombia) (STP) 19,800
45,000 Transtel pass-through certificates 12 1/2s, 2007 22,050
60,000 US Xchange LLC sr. notes 15s, 2008 59,100
--------------
1,682,460
Textiles (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
245,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 208,250
120,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 57,600
70,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 66,500
40,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 37,600
--------------
369,950
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 58,200
Wireless Communications (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 27,600
100,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 78,750
55,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 21,450
110,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon
zero %, (11 5/8s, 4/15/04), 2009 (STP) 64,075
--------------
191,875
--------------
Total Corporate Bonds and Notes (cost $42,116,680) $ 37,730,103
CONVERTIBLE PREFERRED STOCKS (13.1%) (a)
NUMBER OF SHARES VALUE
Apparel (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 Designer Finance $3.00 cv. cum. pfd. $ 790,625
Automobiles (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 1,075,000
Broadcasting (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 1,093,750
Building and Construction (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 Txi Capital Trust I $2.75 cv. pfd. 515,625
Building Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
12,500 Owens Corning Capital LLC $3.25 cv. cum. pfd. 548,438
Electronic Components (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 531,250
Engineering (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Evi, Inc. $2.50 cv. cum. pfd. 1,925,000
Financial Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 Suiza Capital Trust II $2.75 cv. pfd. 480,000
9,000 USX Capital Trust I $3.375 cv. cum. pfd. 382,500
--------------
862,500
Information Systems (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Vanstar Financial Trust Corp. $3.375 cv. cum. pfd. 1,140,000
Medical Supplies and Devices (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 1,450,000
Metals and Mining (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Cyprus Amax Minerals Co. Ser. A, $4.00 cv. cum. pfd. 471,250
50,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. cum. pfd. 893,750
20,000 Titanium Metals Corp. $3.313 cv. pfd. 440,000
--------------
1,805,000
Oil and Gas (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
590 Chesapeake Energy Corp. $3.50 cv. cum. pfd. 16,963
45,000 Lomack Financing Trust 144A $2.875 cv. cum. pfd. 1,175,625
10,000 Tosco Financing Trust $2.875 cv. pfd. 451,250
7,000 Unocal Capital Trust $3.125 cv. cum. pfd. 399,874
87 XCL Ltd 144A Ser. A, 9.50% cv. cum. pfd. 261
--------------
2,043,973
Telephone Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Intermedia Communications, Inc. Ser. F, $1.75 cv. cum. pfd. 1,081,250
--------------
Total Convertible Preferred Stocks (cost $15,612,562) $ 14,862,411
PREFERRED STOCKS (2.6%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
294 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) $ 147,000
2,745 AmeriKing, Inc. $3.25 cum. pfd. (PIK) 38,430
758 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 87,170
1,033 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 119,828
3,115 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 169,768
839 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 95,227
67 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 61,640
3,414 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 361,884
110 Dobson Communications 13.00% pfd. (PIK) 105,600
105 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 92,400
4,700 Fitzgeralds Gaming $3.75 cum. pfd. 9,400
130 Fresenius Medical Capital Trust I company guaranty Ser. D,
9.00% pfd. (Germany) 128,050
140 Fresenius Medical Capital Trust II company guaranty,
7.875% pfd. (Germany) 129,150
186 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 174,840
213 IXC Communications, Inc. 12.50% cum. pfd. (PIK) 219,390
2,364 Lady Luck Gaming Corp. $11.25 pfd. 99,288
93 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 98,580
10 NEXTEL Communications, Inc. Ser. E, 11.125% pfd. (PIK) 9,850
3,753 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 187,650
400 Packaging Corp. America 144A $12.375 pfd. (PIK) 43,600
20 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 192,000
83 R& B Falcon Corp. 13.875% cum. pfd 78,020
148 Spanish Broadcasting Systems 14.25% cum. pfd. 162,800
165 WinStar Communications, Inc. 144A 14.25% cum. pfd. 138,600
--------------
Total Preferred Stocks (cost $3,265,230) $ 2,950,165
COMMON STOCKS (0.6%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
50 AmeriKing, Inc. (NON) $ 1,000
1,200 AMFM, Inc. (NON) 59,100
35,772 A.P. Celcaribe S.A. 144A (Colombia) (NON) 44,715
12,348 Celcaribe 144A (Colombia) (NON) 6,174
8,120 CellNet Data Systems, Inc. (NON) 56,586
9,047 Fitzgerald Gaming Corp. (NON) 4,524
1,213 Hedstrom Holdings, Inc. 144A (NON) 1,213
1,885 IFINT Diversified Holdings 144A (NON) 3,770
554 Intermedia Communications, Inc. (NON) 14,404
2,391 Lady Luck Gaming Corp. (NON) 16,885
73 Mothers Work, Inc. (NON) 1,022
590 NEXTEL Communications, Inc. Class A (NON) 34,109
55 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 1
144 Premium Holdings (L.P.) 144A (NON) 575
33,430 PSF Holdings LLC Class A (NON) 409,518
44 Spanish Broadcasting System, Inc. (NON) 28,600
3,750 Specialty Foods Acquisition Corp. (NON) 188
795 Viatel, Inc. (NON) 30,757
162 WinStar Communications. Inc. (NON) 8,232
--------------
Total Common Stocks (cost $1,332,349) $ 721,373
WARRANTS (0.3%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
250 21st Century Telecom Group 144A 2/15/10 $ 5,000
80 Bestel S.A. (Mexico) 5/15/05 2,400
80 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 4,400
721 Cellnet Data Systems, Inc. 9/15/07 18,025
90 Club Regina, Inc. 144A 12/1/04 90
100 Colt Telecommunications Group PLC 12/31/06 37,500
500 Comunicacion Cellular 144A (Colombia) 11/15/03 27,500
1,417 Conecel Holdings 144A (Ecuador) 10/1/00 142
210 Decrane Holdings 9/30/08 0
195 Diva Systems Corp. 5/15/06 35,100
1,053 Diva Systems Corp. 3/8/08 8,424
2,075 DTI Holdings Inc. 3/1/08 21
80 Epic Resorts 6/15/05 1
95 Esat Holdings, Inc. (Ireland) 2/1/07 6,650
420 Firstworld Communication 4/15/08 29,400
250 Hyperion Telecommunications 144A 4/15/01 19,875
90 Insilco Holding Co. 8/15/08 0
1,617 Intelcom Group 10/15/05 29,915
220 Interact Systems, Inc. 8/1/03 2
250 Intermedia Communications 6/1/00 22,500
105 International Wireless Communications
Holdings 144A 8/15/01 1
175 Iridium World Com 144A 7/15/05 22
210 KMC Telecom Holdings, Inc. 4/15/08 630
245 Knology Holdings, Inc. 144A 10/15/07 613
20 Long Distance International, Inc. 144A 4/15/08 40
160 McCaw International Ltd. 4/15/07 680
90 Mediq Inc. 144A 6/1/09 1
135 MGC Communications, Inc. 144A 10/1/04 12,083
45 Onepoint Communications, Inc. 6/1/08 45
100 Orbital Imaging Corp. 144A 3/1/05 2,000
160 Pathnet, Inc. 144A 4/15/08 1,600
80 R& B Falcon Corp. 144A 5/1/09 12,800
90 Startec Global Communications Corp. 5/15/08 90
75 Sterling Chemicals Holdings 8/15/08 1,125
55 Telehub Communications Corp. 7/31/05 1,650
520 UIH Australia/Pacific, Inc. 144A 5/15/06 15,600
130 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 20,800
21 Wright Medical Technology, Inc. 144A 6/30/03 0
--------------
Total Warrants (cost $168,772) $ 316,725
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
250 Australis Media, Ltd. units stepped-coupon zero %,
(15 3/4s, 5/15/00), 2003 (In default) (Australia) (STP) (NON) (PIK) $ 25
120 Carrier International 144A units 13 1/4s, 2009 (Switzerland) 122,400
210 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 76,650
628 XCL Ltd. 144A units 9.50% cv. cum. pfd. (PIK) 1,884
--------------
Total Units (cost $610,027) $ 200,959
SHORT-TERM INVESTMENTS (2.6%) (a) (cost $2,976,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$2,976,000 Interest in $469,282,000 joint repurchase agreement dated
August 31, 1999 with Salomon Smith Barney due
September 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $2,976,446 for an effective
yield of 5.40% $ 2,976,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $121,333,427) (b) $ 111,824,557
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $113,575,544.
(b) The aggregate identified cost on a tax basis is $121,826,672, resulting in gross unrealized appreciation and
depreciation of $2,979,856 and $12,981,971, respectively, or net unrealized depreciation of $10,002,115.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to be paid
and the date the fund will begin receiving interest or dividend income at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
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 rates shown on Floating Rate Notes (FRN) are the current interest rates shown at August 31, 1999, which are
subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $121,333,427) (Note 1) $111,824,557
- -----------------------------------------------------------------------------------------------
Cash 440
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,973,642
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 1,036,078
- -----------------------------------------------------------------------------------------------
Total assets 114,834,717
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 963,649
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 9,761
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 223,005
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 33,781
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,035
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,099
- -----------------------------------------------------------------------------------------------
Other accrued expenses 13,843
- -----------------------------------------------------------------------------------------------
Total liabilities 1,259,173
- -----------------------------------------------------------------------------------------------
Net assets $113,575,544
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $128,158,348
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,736,704
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,810,638)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (9,508,870)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $113,575,544
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($113,575,544 divided by 13,648,608 shares) $8.32
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended August 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $4,905) $10,988,863
- -----------------------------------------------------------------------------------------------
Dividends 1,460,109
- -----------------------------------------------------------------------------------------------
Total investment income 12,448,972
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 863,467
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 224,353
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,609
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,569
- -----------------------------------------------------------------------------------------------
Reports to shareholders 24,106
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 67,343
- -----------------------------------------------------------------------------------------------
Legal 14,377
- -----------------------------------------------------------------------------------------------
Postage 18,408
- -----------------------------------------------------------------------------------------------
Exchange listing fees 26,769
- -----------------------------------------------------------------------------------------------
Other 19,468
- -----------------------------------------------------------------------------------------------
Total expenses 1,277,544
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (16,344)
- -----------------------------------------------------------------------------------------------
Net expenses 1,261,200
- -----------------------------------------------------------------------------------------------
Net investment income 11,187,772
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (6,660,169)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 2,151,231
- -----------------------------------------------------------------------------------------------
Net loss on investments (4,508,938)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 6,678,834
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 11,187,772 $ 12,156,729
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (6,660,169) 4,881,112
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 2,151,231 (21,079,788)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 6,678,834 (4,041,947)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (11,015,483) (11,465,083)
From net realized gain on investments (2,461,525) (5,135,583)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions 1,180,572 1,435,825
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (5,617,602) (19,206,788)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 119,193,146 138,399,934
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $1,736,704 and $1,302,503, respectively) $113,575,544 $119,193,146
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 13,515,511 13,377,770
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 133,097 137,741
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 13,648,608 13,515,511
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.82 $10.35 $9.48 $9.49 $9.13
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .82 .90 .86 .88 .79
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.33) (1.20) .92 (.04) .42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .49 (.30) 1.78 .84 1.21
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.81) (.85) (.85) (.85) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gains on investments (.18) (.38) (.06) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.99) (1.23) (.91) (.85) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.32 $8.82 $10.35 $9.48 $9.49
- ------------------------------------------------------------------------------------------------------------------------------------
Market price,
end of period $8.813 $8.937 $10.562 $10.125 $10.000
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market price (%)(a) 9.93 (4.74) 14.29 10.63 12.60
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $113,576 $119,193 $138,400 $125,864 $124,911
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.11 1.13 1.03 1.06 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.72 9.01 8.80 9.19 8.73
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.62 59.13 58.88 56.82 61.19
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total 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 exclude these amounts. (Note 2).
</TABLE>
Notes to financial statements
August 31, 1999
Note 1
Significant accounting policies
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 (including convertible 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Discounts on zero coupon bonds, original
issue discount bonds, stepped-coupon bonds and payment-in-kind bonds are
accreted according to the yield-to-maturity basis.
Any premium resulting from the purchase of stepped-coupon securities in
excess of market value is amortized on a yield-to-maturity basis.
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, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At August 31, 1999, the fund had a capital loss carryover of approximately
$6,120,000 available to offset future net capital gain, if any, which will
expire on August 31, 2007.
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. These differences include temporary and permanent differences
of post-October loss deferrals, nontaxable dividends, dividends payable,
defaulted bond interest, market discount, interest on payment-in-kind
securities, capital loss carryover and losses on wash sale transactions.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended August 31,
1999, the fund reclassified $261,912 to increase undistributed net
investment income and $156,208 to decrease paid-in-capital, with an
increase to accumulated net realized losses of $105,704. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services, is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.75% 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 an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended August 31, 1999, fund expenses were reduced by $16,344
under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized in
connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $632 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the year ended August 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $87,322,058 and
$92,765,822, respectively. There were no purchases and sales of U.S.
government obligations.
Federal tax information
(Unaudited)
The fund has designated 12.69% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of June 3, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on June 3, 1999. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 11,696,308 135,375
Hans H. Estin 11,684,176 147,507
John A. Hill 11,705,600 126,083
Ronald J. Jackson 11,704,433 127,250
Paul L. Joskow 11,690,212 141,471
Elizabeth T. Kennan 11,684,587 147,096
Lawrence J. Lasser 11,702,931 128,752
John H. Mullin III 11,699,409 132,274
Robert E. Patterson 11,703,298 128,385
William F. Pounds 11,681,176 150,507
George Putnam 11,685,309 146,374
George Putnam, III 11,687,626 144,057
A.J.C. Smith 11,703,946 127,737
W. Thomas Stephens 11,691,560 140,123
W. Nicholas Thorndike 11,689,227 142,456
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows: 11,679,342
votes for, and 50,733 votes against, with 101,608 abstentions and broker
non-votes.
All tabulations are rounded to nearest whole number.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Forrest N. Fontana
Vice President and Fund Manager
Kevin Rogers
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site www.putnaminv.com. any 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
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
55082 10/99
