PUTNAM
CONVERTIBLE
OPPORTUNITIES
AND INCOME
TRUST
[Artwork]
ANNUAL REPORT
February 29, 1996
[Putnam Logo]
Boston * London * Tokyo
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FUND HIGHLIGHTS
"[Putnam Convertible Opportunities and Income Trust's] converts offer a means to
participate in the often heady gains made by small-cap stocks, but with more
downside protection than the stocks themselves can offer. And by combining con-
verts with junk bonds, [the fund] is diversified across asset classes, which
should minimize its long-run volatility."
-- Morningstar Closed-End Funds, February 9, 1996
"With the volatility in the equity and straight bond markets, convertibles stood
out as a haven of stability. Over the last few months, in marked contrast to
last year, the convertible market has outperformed both equities and straight
bonds. With yet more convertibles leaving the market, we expect good performance
to continue."
-- Convertibles Monthly, March 13, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
23 Financial statements
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FROM THE CHAIRMAN Photograph of George Putnam
(C) Karsh, Ottawa
DEAR SHAREHOLDER:
BETWEEN THE INTRODUCTION OF PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
ON JUNE 29, 1995, AND THE END OF ITS ABBREVIATED INITIAL FISCAL YEAR ON FEBRUARY
29, 1996, YOUR FUND'S MANAGEMENT TEAM HAS BUILT A SOLID PORTFOLIO AND IMPLEMEN-
TED A DISCIPLINED INVESTMENT STRATEGY BACKED BY PUTNAM'S EXTENSIVE CREDIT RE-
SEARCH CAPABILITY.
STRONG STOCK AND BOND MARKETS FURNISHED A HOSPITABLE ENVIRONMENT IN WHICH THE
NEW FUND COULD INCUBATE. THE STOCK MARKET'S STEADY ADVANCE THROUGHOUT THE PERIOD
PROVIDED A SOLID UNDERPINNING FOR THE CONVERTIBLE SECURITIES IN WHICH THE FUND
INVESTS. THE LOWER-RATED HIGH-YIELD CORPORATE BONDS THAT PROVIDE THE MAIN FOCUS
OF YOUR FUND'S FIXED-INCOME HOLDINGS WERE HELPED BY THE OVERALL STRENGTH OF THE
BOND MARKET.
IN THE REPORT THAT FOLLOWS, YOUR FUND'S MANAGERS EXPLAIN THEIR STRATEGY IN THE
PREVAILING MARKETS AND THE FUND'S PERFORMANCE DURING THE PERIOD AND TAKE A LOOK
AT PROSPECTS AS THE FUND BEGINS ITS FIRST FULL FISCAL YEAR.
RESPECTFULLY YOURS,
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
APRIL 17, 1996
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REPORT FROM THE FUND MANAGERS
HUGH H. MULLIN, LEAD MANAGER
JENNIFER E. LEICHTER
When a fund that invests in two types of securities benefits from market condi-
tions in both portfolio sectors during its first fiscal year, it can certainly
be considered off to a strong start. During the eight months ended February 29,
1996 -- which marked the end of Putnam Convertible Opportunities and Income
Trust's first fiscal year -- favorable environments in both the convertible and
high-yield bond markets helped set the stage for solid performance.
The favorable atmosphere in the high-yield market echoed the stock market's
strength and is reflected in the 8.55% return of the First Boston High Yield In-
dex during the period. In fact, the triple play of a slowing economy, a decline
in interest rates, and an exceptionally strong stock market helped propel your
fund to a 12.20% total return at net asset value for the period. For performance
at market price, please see page 8.
SKILLFUL SECURITY SELECTION PROVES EFFECTIVE
Much of your fund's strong performance during the period can be attributed to
careful security selection. When the fund was first introduced in the summer of
1995, its original premise was that by combining investments in the high-yield
market and the small-capitalization sector of the convertible market, we would
be able to offer shareholders an attractive income opportunity -- plus the
potential to outpace other sectors of the market. Since the stock market's
strength has generally been dominated by stocks of large corporations, your
fund's small-cap convertibles have not yet demonstrated their potential. How-
ever, despite this market orientation, your fund delivered attractive perfor-
mance.
SMALL COMPANY CONVERTIBLES REMAIN ATTRACTIVE
Under normal market conditions, we will invest at least 25%, but not more than
75%, of the fund's total assets in convertible securities and high-yield bonds.
At period's end, your fund's portfolio was split approximately equally between
the two. Normally, the performance of a company's convertible securities is si-
milar to that of its stock -- but is less volatile than the stock
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due to the convertible's income component. Just as smaller-capitalization stocks
are considered to have the potential to outperform stocks of larger companies,
we believe small-company convertibles have the potential to outperform their
larger-capitalization relatives, in terms of both income and total return.
Your fund's portfolio currently has a heavy exposure to the financial area of
the market, primarily banks, where we still see solid fundamentals and attracti-
ve valuations. One financial holding that has performed well is Sovereign Ban-
corp, Inc., the holding company for Sovereign Bank, which conducts commercial
banking services through its branch offices throughout eastern Pennsylvania.
After a slow year in 1995, during which Sovereign retrenched, we believe the
company is poised to perform well over the next few years. With new products,
new capital, and a highly disrupted banking market, Sovereign has expanded
opportunities, and we believe it has the ability to leverage these opportuni-
ties. While this security, along with others discussed in this report, was
viewed favorably at the end of the period, all portfolio holdings are subject
to review and adjustment in accordance with the fund's investment strategy and
may well vary in the future.
Among your fund's largest convertible holdings during the period were SoftKey
International Inc. and Chiquita Brands International. SoftKey develops, publi-
shes, and markets more than 400 consumer software titles targeted at the home
user in the education, productivity, reference, and lifestyle categories. Chi-
quita Brands produces and markets fresh fruits and vegetables and prepared foods
under the trade names of Chiquita and John Morrell.
[Bar Chart - Page 5]
TOP INDUSTRY SECTORS *
Telecommunications 7.1%
Oil and gas 6.7%
Cable television 4.8%
Banks 4.6%
Consumer services 4.6%
* Based on net assets as of 2/29/96. Holdings will vary over time.
<PAGE>
We have recently altered some industry sector weightings within the convertible
portion of the portfolio. The energy sector has performed well during the past
five months. Consequently, we took profits on some energy-related holdings and
added to the technology sector.
HIGH-YIELD HOLDINGS FOCUS ON
TELECOMMUNICATIONS, MEDIA, AND CABLE
Corporate high-yield holdings continued to generate solid returns and substan-
tial income for the fund during the period. However, the most outstanding per-
formances came from widely diversified investments in telecommunications, media,
and cable television. Holdings in these industries advanced on the passage of
landmark telecommunications legislation. The new law essentially deregulates the
cable TV industry and, among other things, will permit local and long-distance
telephone companies to enter each other's markets. We believe this new legisla-
tion greatly expands the range of possibilities for companies to merge and grow.
In the process, they should meet the accelerating demand for a wider array of
communications devices and services.
STRONGER ECONOMY COULD PROVIDE SUPPORT FOR HIGH-YIELD MARKET
During the final two months of the period, high-yield securities -- both conver-
tible and nonconvertible -- continued to advance while U.S. Treasury securities
lagged. Treasury securities generally respond negatively to signs of economic
strength because investors fear the possibility of increasing inflation, which
erodes the value of investments with a fixed income stream. High-yield securi-
ties, however, in keeping with their sensitivity to both the equity and fixed-
income markets, frequently respond positively to the potential benefits that a
stronger economy can bring to high-yield issuers, including increased revenues
and cash flows. An extremely strong report on February employment levels, relea-
sed shortly after the close of the fiscal period, certainly seems to lend cre-
dence to the argument for potential strengthening.
SELECTIVE APPROACH TO MARKETS GOING FORWARD
While we expect the U.S. economy to proceed at a relatively slow pace, we never-
theless believe that many convertible and high-yield issuers will continue to
post strong cash flows. Sustained economic growth is a plus for convertible and
high-yield issuers,
<PAGE>
TOP HOLDINGS (2/29/96)
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CORPORATE HIGH YIELD
INTELCOM GROUP, INC. STEPPED-COUPON ZERO %, 2005
Telephone services provider
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TERRA NOVA INSURANCE HOLDINGS 10.75%, 2005
Insurance
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COMNET CELLULAR, INC. 11.25%, 2005
Cellular communications provider
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MIDLAND FUNDING CORP. 11.75%, 2005
Electric utility
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LOEHMANNS' HOLDINGS, INC 13.75%, 1999
Retail clothing
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CONVERTIBLE
SOFTKEY INTERNATIONAL, INC. 5.50%, 2000 144A UNITS CONVERTIBLE
Consumer software
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SERVICE CORP. INTERNATIONAL $3.125 CONVERTIBLE PREFERRED
Major funeral home and cemetery operator
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CHIQUITA BRANDS INTERNATIONAL, INC. $2.875 CONVERTIBLE PREFERRED
Fruit and vegetable producer
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FREEPORT-MCMORAN COPPER & GOLD CO., INC, STEPPED-COUPON $1.25
CONVERTIBLE PREFERRED
Metals and mining
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SOLECTRON CORP. LYON ZERO %, 2012 CONVERTIBLE
Electrical equipment
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These holdings represent 9.8% of the fund's assets. Portfolio holdings will
vary over time.
since many are small to medium-sized growth companies that require strong cash
flows to finance their growth and reduce their outstanding debt. The combination
of favorable cash-flow trends and low interest rates has enabled many companies
to strengthen their balance sheets by refinancing higher-rate debt and by aggre-
ssively paying down debt.
Our current overall strategy for your fund is to structure a well-diversified
portfolio of bonds and convertible securities with the potential for total re-
turn that are attractive relative to their risk levels. We will continue to mo-
nitor corporate and economic developments in the months ahead as we pursue these
goals in the fund's next fiscal year.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed fa-
vorably as of 2/29/96, there is no guarantee the fund will continue to hold the-
se securities in the future. The lower credit ratings of the high-yield corpora-
te bonds in which the fund invests reflect a greater possibility that adverse
changes in an issuer's business or financial condition, or in general economic
conditions, may impair the issuer's ability to pay principal and interest on the
bonds.
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PERFORMANCE SUMMARY
PERFORMANCE SHOULD ALWAYS BE CONSIDERED IN LIGHT OF A FUND'S INVESTMENT STRATE-
GY. PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST IS DESIGNED FOR INVESTORS
AGGRESSIVELY SEEKING CAPITAL APPRECIATION AND CURRENT INCOME THROUGH A DIVERSI-
FIED PORTFOLIO OF LOWER-GRADE AND NONRATED CONVERTIBLE SECURITIES AND NONCONVER-
TIBLE HIGH-YIELDING SECURITIES.
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time, assu-
ming you held the shares through the entire period and reinvested all distribu-
tions in the fund.
TOTAL RETURN FOR PERIODS ENDED 2/29/96
MERRILL LYNCH FIRST BOSTON
MARKET ALL-CONVERTIBLE HIGH YIELD
NAV PRICE INDEX INDEX
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Life of fund
(since 6/29/95) 12.20% -4.53% 12.84% 8.55%
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TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
MARKET
NAV PRICE
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Life of fund
(since 6/29/95) 13.17% -5.59%
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PRICE AND DISTRIBUTION INFORMATION
Period ended 2/29/96
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DISTRIBUTIONS (NUMBER): 6
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Income $1.150
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Capital gains
Short-term 0.068
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Total $1.218
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SHARE VALUE: NAV MARKET PRICE
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6/29/95 $24.85 $25.00
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2/29/96 26.43 22.625
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CURRENT RETURN:
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End of period
Current dividend rate (1) 6.17% 7.21%
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(1) Income portion of most recent distribution, annualized and divided by NAV or
market price at end of period.
Performance data represent past results, do not reflect future performance, and
will differ for each share class. They do not take into account any adjustment
for taxes payable on reinvested distributions. Investment returns, net asset
value, and market price will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost. The lower credit ratings of
the high-yield corporate bonds in which the fund invests reflect a greater po-
ssibility that adverse changes in an issuer's business or financial condition,
or in general economic conditions, may impair the issuer's ability to pay prin-
cipal and interest on the bonds.
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TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of the fund's assets, minus any liabilities
divided by the number of outstanding common shares.
MARKET PRICE is the current trading price of one share of the fund. Market pri-
ces are set by transactions between buyers and sellers on the New York Stock Ex-
change.
COMPARATIVE BENCHMARKS
FIRST BOSTON HIGH YIELD INDEX is a market-weighted index including publicly tra-
ded bonds having a rating below BBB by Standard & Poor's (R) and Moody's. Per-
formance figures for the index reflect changes of market prices, interest, and
reinvestment of all interest payments. The average quality of bonds included in
the index may be lower than the average quality of those bonds in which the fund
customarily invests. Securities in the fund's portfolio will differ from those
in the index. *
MERRILL LYNCH ALL-CONVERTIBLE INDEX is an unmanaged list of convertible securi-
ties. The index does not take into account brokerage commissions or other
costs. *
* Securities indexes assume reinvestment of all distributions and interest pay-
ments 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.
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A PUTNAM PERSPECTIVE ON RISK AND REWARD
You've probably been told how important it is to understand the relationship
between an investment's potential rewards and its accompanying risks. Given the
cautionary nature of such instructions, it may take most investors a while to
realize that risk has a positive side.
EVERY RISK SIGNALS A POTENTIAL REWARD. Selecting only those investments that
offer the greatest degree of security generally leads to only modest rewards.
Furthermore, even insured or guaranteed investments may be subject to changes in
their rates of return or, in some cases, in their principal values. Experienced
investors know that no investment is truly risk free and are therefore willing
to take on some measure of risk in order to increase their potential gains.
THE GREATER THE RISK, THE GREATER THE POTENTIAL REWARD.
Accepting an appropriate level of investment risk can give you a better chance
of outpacing inflation over time and seeking to maximize your investment's re-
turn. How much risk? Your
A RUNDOWN OF RISK TYPES
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MARKET RISK Most important for stock funds, but relevant to all funds, this is
a measure of how sensitive a fund's holdings are to changes in general market
conditions. Remember, though, that securities that lose value quickly in market
declines may also show the strongest gains in more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this type of
risk is a particular concern for fixed-income investors. However, interest-rate
increases can also have a substantial negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your money
will begin to lose its purchasing power. Stock investments are generally consi-
dered among the best ways of addressing inflation risk over the long term.
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<PAGE>
financial advisor's feedback and your time horizon can make all the difference
in determining how much risk is compatible with your investment goals and your
peace of mind.
FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their potential
rewards? It's helpful to understand the types of risks that can apply to diffe-
rent types of investments, and to look at your own portfolio with this perspec-
tive.
For short-term goals, your first priority may be managing market risk. Longer-
term investors may be more concerned with inflation risk. And all income-
oriented investors should consider interest-rate, credit, and prepayment risks
carefully.
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CREDIT AND PREPAYMENT RISK Credit risk is the concern that the security's issuer
will not be able to meet its payment, while prepayment risk involves the prema-
ture payoff of a loan, with a resulting loss of interest income. Professional
management and in-depth research are invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at their
perceived market values. Liquidity risk can affect the price of securities held
in the fund's portfolio and, thus, the fund's share prices.
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This list covers only the most general types of risks; however, each investment
will also have its own specific risks.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal period ended February 29, 1996
To the Trustees and Shareholders of
Putnam Convertible Opportunities andIncome Trust
We have audited the accompanying statement of assets and liabilities of Putnam
Convertible Opportunities and Income Trust, including the portfolio of invest-
ments owned, as of February 29, 1996, and the related statement of operations,
the statement of changes in net assets, and the financial highlights for the pe-
riod from June 29, 1995 (commencement of operations) to February 29, 1996. These
financial statements and financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these finan-
cial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of February 29, 1996, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Putnam
Convertible Opportunities and Income Trust as of February 29, 1996, the results
of its operations, the changes in its net assets, and the financial highlights
for the period June 29, 1995 (commencement of operations) to February 29, 1996,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 17, 1996
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
February 29, 1996
CORPORATE BONDS AND NOTES (43.8%)*
PRINCIPAL AMOUNT VALUE
ADVERTISING (1.0%)
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$ 500,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 $ 512,500
75,000 Universal Outdoor, Inc. sr. notes stepped-coupon
zero % (14s, 7/1/99), 2004 ++ 53,531
400,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 406,000
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972,031
AEROSPACE AND DEFENSE (0.7%)
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214,000 K&F Industries Inc. sub. deb. 13 3/4s, 2001 222,560
500,000 UNC, Inc. sr. notes 9 1/8s, 2003 485,000
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707,560
AGRICULTURE (1.4%)
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1,000,000 PMI Holdings Corp. sub. disc. deb. Ser. B, stepped-coupon
zero % (11 1/2s, 9/1/00), 2005 ++ 545,000
1,000,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004
(in default) + 850,000
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1,395,000
AUTOMOTIVE PARTS (0.1%)
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100,000 A.P.S., Inc. 144A sr. sub. notes 11 7/8s, 2006 103,750
BANKS (0.2%)
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200,000 First Nationwide Holdings 144A sr. sub. notes
9 1/8s, 2003 201,500
BROADCASTING (3.0%)
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40,000 Chancellor Broadcasting Co. sr. sub. notes 9 3/8s, 2004 39,100
350,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 346,500
500,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 490,000
250,000 International Cabletel Inc. sr. notes Ser. A, stepped-
coupon zero % (12 3/4s, 4/15/00), 2005 ++ 162,500
500,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 500,000
250,000 Paxson Communications Corp. sr. sub. notes 11 5/8s, 2002 262,500
414,000 Petracom Hldgs. notes stepped-coupon zero %,
(17 1/2s, 8/1/98), 2003 ++ 302,220
750,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 817,500
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2,920,320
BUILDING AND CONSTRUCTION (1.3%)
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300,000 Del. Webb Corp. sr. sub. deb. 9 3/4s, 2003 304,500
500,000 Presley Co. sr. notes 12 1/2s, 2001 460,000
450,000 Scotsman Group, Inc. sr. notes 9 1/2s, 2000 463,500
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1,228,000
BUILDING PRODUCTS (0.5%)
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250,000 Inter-City Products sr. notes 9 3/4s, 2000 200,000
275,000 Schuller International Corp. sr. notes 10 7/8s, 2004 308,000
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508,000
<PAGE>
CORPORATE BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
CABLE TELEVISION (4.8%)
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$ 500,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 $ 523,750
927,181 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 ^^ 811,283
250,000 American Telecasting, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (14 1/2s, 8/15/00), 2005 ++ 162,500
500,000 CF Cable TV, Inc. sr. notes 9 1/8s, 2007 (Canada) 512,500
250,000 Century Communications Corp. sr. notes 9 3/4s, 2002 260,625
200,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005 ++ 122,000
185,289 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 ^^ 176,951
875,000 International Cabletel, Inc. sr. notes Ser. A, stepped-
coupon zero % (11 1/2s, 2/1/01), 2006 ++ 516,250
350,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 347,813
500,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 530,000
250,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-
coupon zero % (13 1/2s, 8/1/99), 2004 ++ 187,500
855,000 Telewest Communications PLC deb. stepped-coupon
zero %, (11s, 10/1/00), 2007 (United Kingdom) ++ 525,825
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4,676,997
CHEMICALS (0.5%)
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250,000 Acetex Corp. 144A sr. notes 9 3/4s, 2003 261,250
250,000 Harris Chemical Corp. sr. notes 10 1/4s, 2001 250,000
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511,250
COMPUTER EQUIPMENT (0.7%)
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598,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 630,890
CONGLOMERATES (0.6%)
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435,000 MacAndrews & Forbes Group, Inc. deb. 12 1/4s, 1996 437,175
250,000 Talley Industries, Inc. sr. disc. deb. stepped-coupon
zero % (12 1/4s, 10/15/98), 2005 ++ 190,000
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627,175
CONSUMER SERVICES (0.2%)
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211,000 Coinmach Corp. 144A sr. notes 11 3/4s, 2005 215,220
ELECTRIC UTILITIES (1.6%)
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500,000 First PV Funding deb. 10.15s, 2016 517,500
1,000,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 1,075,000
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1,592,500
ELECTRICAL EQUIPMENT (1.2%)
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500,000 Amphenol Corp. sr. notes 10.45s, 2001 545,000
1,000,000 International Semi-Tech. Corp. sr. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00),
2003 (Canada) ++ 600,000
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1,145,000
ENTERTAINMENT (0.9%)
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400,000 Cinemark Mexico notes 12s, 2003 (Mexico) 372,000
500,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 530,000
-------------
902,000
<PAGE>
CORPORATE BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
FOOD (1.8%)
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$ 50,000 Doane Products Co. sr. notes 10 5/8s, 2006 + $ 50,875
520,000 Fresh Del Monte Produce Corp. NV 144A sr. notes
Ser. B, 10s, 2003 (Netherlands) 499,200
500,000 Safeway, Inc. med. term notes 8.57s, 2003 530,000
750,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 630,000
-------------
1,710,075
FOREST PRODUCTS (0.9%)
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250,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-
coupon zero % (12 3/4s, 5/15/96), 2005 ++ 256,875
200,000 Riverwood International Corp. sr. sub. notes 11 1/4s, 2002 221,000
400,000 Stone Container Corp. 1st mtge. 10 3/4s, 2002 405,000
-------------
882,875
HEALTH CARE (1.4%)
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100,000 Graphic Controls Corp. 144A sr. sub. notes 12s, 2005 106,000
500,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 530,000
400,000 Paracelsus Healthcare Corp. sr. sub. notes 9 7/8s, 2003 409,000
325,000 Total Renal Care Holdings, Inc. sr. disc. notes
stepped-coupon zero %, (12s, 8/15/97), 2004 ++ 325,000
-------------
1,370,000
INSURANCE AND FINANCE (1.8%)
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500,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 535,000
1,050,000 Terra Nova Insurance Holdings sr. notes 10 3/4s, 2005
(United Kingdom) 1,202,250
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1,737,250
LODGING (1.0%)
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500,000 HMH Properties, Inc. sr. notes Ser. B, 9 1/2s, 2005 510,000
500,000 John Q. Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 500,000
-------------
1,010,000
OFFICE EQUIPMENT (0.3%)
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250,000 United Stationer Supply Inc. sr. sub. notes 12 3/4s, 2005 282,500
OIL AND GAS (2.5%)
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250,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 262,500
500,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 577,500
500,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005
(Canada) 532,500
500,000 Maxus Energy Corp. deb. 11 1/4s, 2013 520,000
500,000 Trans Texas Gas Corp. sr. secd. notes 11 1/2s, 2002 507,500
-------------
2,400,000
PAGING (1.0%)
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500,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 540,000
250,000 Mobilemedia Corp. sr. sub. notes 9 3/8s, 2007 258,125
300,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 205,500
-------------
1,003,625
<PAGE>
CORPORATE BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
PACKAGING & CONTAINER (0.5%)
- -------------------------------------------------------------------------------
$ 500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 $ 531,250
PAPER AND FOREST PRODUCTS (0.3%)
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250,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 250,000
PUBLISHING (0.5%)
- -------------------------------------------------------------------------------
125,000 Hollinger International Publishing, Inc. sr. sub. notes
9 1/4s, 2006 125,625
500,000 Marvel Holdings, Inc. sr. notes Ser. B, zero %, 1998 375,000
-------------
500,625
RECREATION (3.6%)
- -------------------------------------------------------------------------------
200,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 215,500
400,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 380,000
250,000 Lady Luck Gaming Corp. 1st mtge. Ser. B, 10 1/2s, 2001 222,500
227,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 222,460
400,000 Mohegan Tribal Gaming 144A sr. notes 13 1/2s, 2002 480,000
500,000 Stratosphere Corp. 1st mtge. 14 1/4s, 2002 597,500
369,000 Trump Castle Funding Corp. 1st mtge. 11 3/4s, 2003 350,550
500,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 560,000
350,000 Trump Plaza Funding, Inc. 1st mtge. notes 10 7/8s, 2001 392,000
125,000 Trump Taj Mahal Funding, Inc. deb. Ser. A, 11.35s, 1999 ^^ 129,063
-------------
3,549,573
RETAIL (1.9%)
- -------------------------------------------------------------------------------
400,000 County Seat Stores Inc. sr. sub. notes 12s, 2002 284,000
250,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon
zero % (12s, 5/1/98), 2005 ++ 166,875
1,000,000 Loehmanns' Holdings, Inc. sr. sub. notes 13 3/4s, 1999 950,000
500,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 477,500
-------------
1,878,375
SCHOOL BUSES (0.1%)
- -------------------------------------------------------------------------------
90,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 92,250
SPECIALTY CONSUMER PRODUCTS (0.8%)
- -------------------------------------------------------------------------------
250,000 Herff Jones, Inc. sr. sub. notes 11s. 2005 270,000
500,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 530,000
-------------
800,000
TELECOMMUNICATION (6.0%)
- -------------------------------------------------------------------------------
250,000 Call-Net Enterprises sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/1/99), 2004 ++ 187,500
1,000,000 Comcast Cellular Corp. sr. participating notes Ser. B,
zero %, 2000 740,000
1,000,000 Commnet Cellular Inc. bonds 11 1/4s, 2005 1,080,000
200,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 220,000
1,980,000 Intelcom Group, Inc. sr. disc. notes stepped-coupon
zero % (13 1/2s, 9/15/00), 2005 ++ 1,296,900
500,000 MFS Communications sr. disc. notes stepped-coupon zero %
(8 7/8s, 1/1/01), 2006 ++ 324,375
250,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 260,000
1,000,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 675,000
<PAGE>
CORPORATE BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
TELECOMMUNICATION (continued)
- -------------------------------------------------------------------------------
$ 250,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 2/15/99), 2004 ++ $ 147,500
1,000,000 Pricellular Wire, sr. disc. notes Ser. B stepped-coupon
zero % (14s, 11/15/98), 2001 ++ 900,000
-------------
5,831,275
TEXTILES (0.7%)
- -------------------------------------------------------------------------------
750,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 682,500
-------------
TOTAL CORPORATE BONDS AND NOTES (cost $41,579,679) $42,849,366
CONVERTIBLE BONDS AND NOTES (33.5%)*
PRINCIPAL AMOUNT VALUE
AEROSPACE AND DEFENSE (0.5%)
- -------------------------------------------------------------------------------
$ 485,000 Diagnostic Retrieval Systems 144A cv. sr. sub. notes
9s, 2003 $ 509,250
AUTOMOTIVE (1.6%)
- -------------------------------------------------------------------------------
745,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 489,838
590,000 Magna International cv. sub. deb. 5s, 2002 586,313
JPY40,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 447,804
-------------
1,523,955
BANKS (1.1%)
- -------------------------------------------------------------------------------
$ 650,000 Banco Nacional De Mexico SA cv. bonds 7s, 1999 (Mexico) 559,000
485,000 Mitsubishi Bank Ltd. International Finance cv. trust
guaranteed notes 3s, 2002 (Japan) 528,650
-------------
1,087,650
BASIC INDUSTRIAL PRODUCTS (1.5%)
- -------------------------------------------------------------------------------
85,000 Agco Corp. cv. sub. deb. 6 1/2s, 2008 364,225
565,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 655,400
370,000 Titan Wheel International Inc. cv. sub. deb. 4 3/4s, 2000 482,388
-------------
1,502,013
BROADCASTING (0.5%)
- -------------------------------------------------------------------------------
450,000 International Cabletel Inc. 144A cv. deb. 7 1/4s, 2005 497,250
BUILDING AND CONSTRUCTION (0.3%)
- -------------------------------------------------------------------------------
265,000 Trimas Corp. cv. sub. deb. 5s, 2003 288,850
BUSINESS EQUIPMENT AND SERVICES (1.2%)
- -------------------------------------------------------------------------------
585,000 U.S. Office Products Co. cv. sub. notes 5 1/2s, 2001 700,538
535,000 Unisys Corp. cv. sub. notes 8 1/4s, 2000 484,175
-------------
1,184,713
COMPUTERS (2.0%)
- -------------------------------------------------------------------------------
250,000 EMC Corp. cv. sub. notes 4 1/4s, 2001 298,750
500,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 523,125
1,070,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s,
2000 886,763
160,000 Storage Tech Corp. cv. sub. deb. 7s, 2008 211,200
-------------
1,919,838
<PAGE>
CONVERTIBLE BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
CONGLOMERATES (0.4%)
- -------------------------------------------------------------------------------
$ 400,000 Alfa S.A. 144A cv. sub notes 8s, 2000 (Mexico) $ 385,000
CONSUMER DURABLE GOODS (0.4%)
- -------------------------------------------------------------------------------
900,000 Whirpool Corp. cv. Liquid Yield Option Note (LYON),
zero %, 2011 371,250
CONSUMER NON DURABLES (1.4%)
- -------------------------------------------------------------------------------
1,640,000 Coleman Worldwide Corp. cv. sr. sec. notes LYON
zero %, 2013 582,200
1,025,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 750,813
-------------
1,333,013
CONSUMER SERVICES (3.6%)
- -------------------------------------------------------------------------------
1,315,000 ADT Operations Inc. cv. sub. notes zero %, 2010 621,338
1,690,000 Boston Market Inc. cv. notes zero %, 2015 540,800
640,000 CML Group, Inc. 144A cv. jr. deb. 5 1/2s, 2003 448,000
950,000 Comcast Corp. cv. notes 1 1/8s, 2007 491,625
1,375,000 Hollinger, Inc. cv. LYON zero %, 2013 441,719
455,000 Pharmaceutical Marketing Services Inc. 144A cv. deb.
6 1/4s, 2003 396,988
580,000 WMS Industries, Inc. cv. deb. 5 3/4s, 2002 527,800
-------------
3,468,270
ELECTRONICS AND ELECTRICAL EQUIPMENT (2.5%)
- -------------------------------------------------------------------------------
535,000 Motorola Inc. cv. sub. deb. LYON zero %, 2013 399,244
750,000 Solectron Corp. cv. sub. LYON zero %, 2012 758,438
250,000 Thermo Instruments Systems cv. company guaranty
3 3/4s, 2000 403,750
480,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 518,400
380,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 410,400
-------------
2,490,232
ENVIRONMENTAL CONTROL (1.3%)
- -------------------------------------------------------------------------------
470,000 U.S. Filter Corp. 144A cv. sub. notes 6s, 2005 568,700
825,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 709,500
-------------
1,278,200
FOOD AND BEVERAGES (0.4%)
- -------------------------------------------------------------------------------
320,000 Grand Metropolitan PLC cv. unsub. 6 1/2s, 2000 360,000
HEALTH CARE (1.4%)
- -------------------------------------------------------------------------------
300,000 Careline, Inc. cv. sr. sub. notes 8s, 2001 335,250
715,000 Quantum Health Resources, Inc. cv. deb. 4 3/4s, 2000 573,788
485,000 Theratx Inc. cv. sub. 8s, 2002 441,350
-------------
1,350,388
HOSPITAL MANAGEMENT AND MEDICAL SERVICES (1.5%)
- -------------------------------------------------------------------------------
500,000 Emeritus Corp. 144A cv. sub. deb. 6 1/4s, 2006 550,000
520,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 497,900
550,000 Sun Healthcare Group Inc. 144A cv. sub. 6s, 2004 456,500
-------------
1,504,400
<PAGE>
CONVERTIBLE BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (1.5%)
- -------------------------------------------------------------------------------
$ 275,000 Aegon NV 144A cv. deb. 4 3/4s, 2004 (Netherlands) $ 422,813
430,000 Trenwick Group, Inc. cv. deb. 6s, 1999 466,550
950,000 USF&G Corp. cv. sub. notes zero %, 2009 543,875
-------------
1,433,238
MEDICAL SUPPLIES AND DEVICES (0.3%)
- -------------------------------------------------------------------------------
350,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 336,000
METALS AND MINING (1.0%)
- -------------------------------------------------------------------------------
675,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 654,750
280,000 Teck Corp. cv. sub. deb. 3 3/4s, 2006 287,000
-------------
941,750
OIL AND GAS (1.9%)
- -------------------------------------------------------------------------------
375,000 Apache Corp. 144A cv. sub. deb. 6s, 2002 404,531
555,000 Cross Timbers Oil Co. cv. deb. 5 1/4s, 2003 509,906
185,000 Pogo Producing Co. cv. sub. notes 5 1/2s, 2004 299,469
580,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 638,000
-------------
1,851,906
PHARMACEUTICALS (1.5%)
- -------------------------------------------------------------------------------
600,000 Alza Corp. cv. sub. notes LYON, zero %, 2014 287,250
315,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 342,563
900,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %,
2010 (Switzerland) 398,250
490,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s,
2002 (British Virgin Islands) 470,400
-------------
1,498,463
PUBLISHING (0.3%)
- -------------------------------------------------------------------------------
360,000 Graphic Industries cv. sub. deb. 7s, 2006 336,600
REIT's (REAL ESTATE INVESTMENT TRUST) (0.9%)
- -------------------------------------------------------------------------------
540,000 Camden Property Trust cv. sub. deb. 7.33s, 2001 536,625
340,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 340,000
-------------
876,625
RETAIL (2.5%)
- -------------------------------------------------------------------------------
950,000 Baker (J.) Inc. cv. deb. 7s, 2002 572,375
335,000 Food Lion, 144A Inc. cv. deb. 5s, 2003 329,975
445,000 Lowes Companies Inc. cv. deb. 3s, 2003 537,338
625,000 Michaels Stores, Inc. cv. sub. notes 4 3/4s, 2003 496,875
850,000 Office Depot Inc. cv. notes LYON zero %, 2008 499,375
-------------
2,435,938
SEMICONDUCTORS (0.4%)
- -------------------------------------------------------------------------------
430,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 432,150
COMMUNICATION (1.1%)
- -------------------------------------------------------------------------------
720,000 Cellular Communications, Inc. 144A cv. sub. deb.
zero %, 1999 577,800
970,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 516,525
-------------
1,094,325
<PAGE>
CONVERTIBLE BONDS AND NOTES (continued)
PRINCIPAL AMOUNT VALUE
TRANSPORTATION (0.5%)
- -------------------------------------------------------------------------------
$ 310,000 British Airport Authority (BAA) PLC cv. bonds 5 3/4s,
2006 (United Kingdom) $ 488,414
-------------
TOTAL CONVERTIBLE BONDS AND NOTES (cost $31,509,084) $32,779,681
CONVERTIBLE PREFERRED STOCKS (16.8%)*
NUMBER OF SHARES VALUE
AEROSPACE AND DEFENSE (0.5%)
- -------------------------------------------------------------------------------
10,000 Kaman Corp. $3.25 cv. pfd. $ 482,500
AUTOMOTIVE (1.2%)
- -------------------------------------------------------------------------------
10,550 Federal Mogul Corp. $3.875 cv. pfd. 603,988
6,000 Ford Motor Co. Ser. A, $4.20, dep. shs. cv. pfd. 612,750
-------------
1,216,738
BANKS (3.3%)
- -------------------------------------------------------------------------------
8,600 Matewan Bancshares, Inc. Ser. A, $1.875 cv. pfd. 215,000
5,500 National City Corp. $4.00 cv. pfd. 453,750
9,000 Roosevelt Financial Group $3.25 cv. pfd. 625,500
16,150 Southern National Corp. Ser A, $1.6875 cv. pfd. 668,206
9,600 Sovereign Bancorp Inc. $3.13 cv. pfd. 595,200
16,000 Union Planters Corp. Ser. E, $2.00 cv. pfd. 630,000
-------------
3,187,656
BUSINESS EQUIPMENT AND SERVICES (0.3%)
- -------------------------------------------------------------------------------
3,000 Alco Standard Corp. $5.03 cv. pfd. 270,375
COMPUTER SOFTWARE (0.7%)
- -------------------------------------------------------------------------------
12,300 Wang Laboratories, Inc. 144A Ser. B, $3.25 cv. pfd. 648,825
CONGLOMERATES (0.8%)
- -------------------------------------------------------------------------------
14,200 Corning Deleware (L.P.) $3.00 cv. pfd. 754,375
CONSUMER NON DURABLES (0.6%)
- -------------------------------------------------------------------------------
14,550 Fieldcrest Cannon Ser. A, $3.00, cv. pfd. 629,288
CONSUMER SERVICES (0.8%)
- -------------------------------------------------------------------------------
10,200 Service Corp. International $3.125 cv. pfd. 808,350
ENTERTAINMENT (0.3%)
- -------------------------------------------------------------------------------
19,225 Bally Entertainment Corp. $0.89 cv. pfd. 302,794
FOOD (0.8%)
- -------------------------------------------------------------------------------
16,050 Chiquita Brands Intl. Inc. Ser. A, $2.875, cv. pfd. 776,419
HMOs (0.6%)
- -------------------------------------------------------------------------------
18,725 FHP International Corp. Ser. A, $1.25 cv. pfd. 550,047
INSURANCE AND FINANCE (1.1%)
- -------------------------------------------------------------------------------
11,000 American General Delaware Corp. $3.00 cv. pfd 610,500
8,600 St Paul Capital LLC $3.00 cv. pfd. 505,250
-------------
1,115,750
<PAGE>
CONVERTIBLE PREFERRED STOCKS (continued)
NUMBER OF SHARES VALUE
METALS AND MINING (2.5%)
- -------------------------------------------------------------------------------
2,080 Alumax, Inc. Ser. A, $4.00 cv. pfd. $ 311,480
5,900 Cyprus Amax Minerals Ser. A, $4.00 cv. pfd. 342,200
26,500 Freeport-McMoRan Copper & Gold Co., Inc. stepped-coupon
$1.25 ($1.75, 8/1/96) dep. shs. cv. pfd. ++ 775,125
18,800 Pittston Mineral Corp. 144A $3.125, dep. shs. cv. pfd. 714,400
7,300 WHX Corp. Ser. A, $3.25 cv. pfd. 340,363
-------------
2,483,568
NON-FERROUS METALS (0.5%)
- -------------------------------------------------------------------------------
7,800 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 471,900
OIL AND GAS (2.3%)
- -------------------------------------------------------------------------------
4,750 Diamond Shamrock, Inc. 144A $2.50 cv. pfd. 292,125
13,400 Noble Drilling Corp. $1.50 cv. pfd. 361,800
8,025 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 464,447
3,000 Reading & Bates Corp. $1.625 cv. pfd. 168,000
11,550 Tejas Gas Corp. $2.65 cv. pfd. 545,738
8,250 Unocal Corp. 144A $3.50, cv. pfd. 447,563
-------------
2,279,673
REIT's (REAL ESTATE INVESTMENT TRUST) (0.5%)
- -------------------------------------------------------------------------------
8,400 Rouse Co. Ser. A, $3.25 cv. pfd. 442,050
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $15,007,390) $16,420,308
UNITS (2.9%)*
NUMBER OF UNITS VALUE
60 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ $ 558,000
600 Cellnet Data Systems Inc. units stepped-coupon
zero % (13s, 6/15/00), 2005 ++ 357,000
200 Fitzgerald Gaming Co. units 13s, 2002 187,006
62 GST Telecommunications, Inc. 144A units stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 (Canada) ++ 359,755
2,200 SDW Holdings Corp. pfd. 144A units $15.00, 2006 + 616,000
350 Terex Corp. 144A units 13 3/4s, 2002 336,000
225 Winstar Communications, Inc. 144A units stepped-coupon
zero % (14s, 10/15/00), 2005 ++ 380,250
-------------
TOTAL UNITS (cost $2,557,806) $ 2,794,011
PREFERRED STOCKS (2.3%)*
NUMBER OF SHARES VALUE
4,124 Cablevision Systems Corp Ser. G, $11.75 exch. pfd. $ 443,330
2,800 Cablevision Systems Corp. 144A Ser. L, $11.125 pfd. 289,100
4,000 California Federal Bank Ser. B, $10.625 exch. pfd. 440,000
2,000 El Paso Electric Co. $11.40 pfd. ^^ 210,000
3,000 First Nationwide Bank $11.50 pfd. 339,000
5,000 Pantry Pride Inc. Ser. B, $14.875 pfd. 500,000
-------------
TOTAL PREFERRED STOCKS (cost $2,142,500) $ 2,221,430
<PAGE>
COMMON STOCKS (0.2%)*
NUMBER OF SHARES VALUE
20,000 Grand Union Co. (acquired 06/30/95 cost $282,500) ^+ $ 121,250
3,000 Total Renal Care Holdings, Inc. (acquired 6/29/95,
cost $5,751) ^+ 88,500
-------------
TOTAL COMMON Stocks (cost $288,251) $ 209,750
WARRANTS (0.1%)* +
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
6,534 Intelcom Group 10/15/05 $ 58,806
1,001 Petracom Holdings, Inc. 8/1/00 7,132
-------------
TOTAL WARRANTS (cost $28,068) $ 65,938
SHORT-TERM INVESTMENTS (0.7%)* (cost $682,103)
PRINCIPAL AMOUNT VALUE
$ 682,000 Interest in $1,108,361,000 joint repurchase agreement
dated February 29, 1996 Morgan (J.P.) & Co. due
March 1, 1996 with respect to various U.S. Treasury
obligations -- maturity value of $682,103 for an
effective yield of 5.42% $ 682,103
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $93,794,881)*** $98,022,587
- -------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $97,881,258.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the new interest
rate to be paid and the date the fund will begin receiving interest at this
rate.
^ Restricted, excluding 144A securities, as to public resale. At the date of
acquisition, these securities were valued at cost. There were no outstanding
unrestricted securities of the same class as those held. Total market value
of restricted securities owned at February 29, 1996 was $209,750 or 0.2% of
net assets.
^^ Income may be received in cash or additional securities at the discretion of
the issuer.
*** The aggregate identified cost for federal income tax purposes is
$93,792,529, resulting in gross unrealized appreciation and depreciation
of $9,734,917 and $5,504,859, respectively, or net unrealized appreciation
of $4,230,058.
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 re-
sold in transactions exempt from registration, normally to qualified insti-
tutional buyers.
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $93,794,881) (Note 1) $98,022,587
- -------------------------------------------------------------------------------
Cash 33,918
- -------------------------------------------------------------------------------
Dividends and interest receivable 1,305,710
- -------------------------------------------------------------------------------
Receivable for securities sold 563,681
- -------------------------------------------------------------------------------
Unamortized organization expense (Note 1) 31,422
- -------------------------------------------------------------------------------
TOTAL ASSETS 99,957,318
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 616,875
- -------------------------------------------------------------------------------
Distribution payable to shareholders 503,785
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 3) 317,131
- -------------------------------------------------------------------------------
Payable for administrative services (Note 3) 921
- -------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 3) 229
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 3) 12,482
- -------------------------------------------------------------------------------
Payable for organizational and offering expense (Notes 1 and 2) 604,010
- -------------------------------------------------------------------------------
Other accrued expenses 20,627
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 2,076,060
- -------------------------------------------------------------------------------
NET ASSETS $97,881,258
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 2) $92,014,814
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 124,797
- -------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions
(Notes 1 and 4) 1,513,941
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,227,706
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $97,881,258
COMPUTATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------
Net asset value per share ($97,881,258 divided by 3,704,000 shares) $26.43
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
For the period June 29, 1995 (commencement of operations) to February 29, 1996
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest $ 4,634,493
- -------------------------------------------------------------------------------
Dividends 751,985
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 5,386,478
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 3) 858,833
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 113,352
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 3) 2,121
- -------------------------------------------------------------------------------
Reports to shareholders 25,075
- -------------------------------------------------------------------------------
Auditing 35,277
- -------------------------------------------------------------------------------
Legal 14,394
- -------------------------------------------------------------------------------
Postage 9,114
- -------------------------------------------------------------------------------
Registration and exchange listing fees 16,403
- -------------------------------------------------------------------------------
Administrative services (Note 3) 3,763
- -------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 4,712
- -------------------------------------------------------------------------------
Other 1,592
- -------------------------------------------------------------------------------
TOTAL EXPENSES 1,084,636
- -------------------------------------------------------------------------------
Expense reduction (Note 3) (38,625)
- -------------------------------------------------------------------------------
NET EXPENSES 1,046,011
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 4,340,467
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 4) 1,791,739
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 4,227,706
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 6,019,445
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,359,912
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
JUNE 29, 1995
(COMMENCEMENT
OF OPERATIONS) TO
FEBRUARY 29
- -------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 4,340,467
- -------------------------------------------------------------------------------
Net realized gain on investments 1,791,739
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,227,706
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 10,359,912
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
- -------------------------------------------------------------------------------
From net investment income (4,259,594)
- -------------------------------------------------------------------------------
From net realized gain on investments (251,871)
- -------------------------------------------------------------------------------
Increase from capital share transactions (Note 2) 91,932,811
- -------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 97,781,258
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of period 100,000
- -------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $124,797) $97,881,258
- -------------------------------------------------------------------------------
NUMBER OF FUND SHARES
- -------------------------------------------------------------------------------
Shares outstanding at beginning of period (Note 2) 4,000
- -------------------------------------------------------------------------------
Shares issued in connection with public offering (Note 2) 3,700,000
- -------------------------------------------------------------------------------
SHARES OUTSTANDING AT END OF PERIOD 3,704,000
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FOR THE PERIOD
JUNE 29, 1995
(COMMENCEMENT
OF OPERATIONS) TO
FEBRUARY 29
1996
- -------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $24.85*
- -------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------
Net investment income 1.17
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1.63
- -------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.80
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (1.15)
- -------------------------------------------------------------------------------
From net realized gain on investments (.07)
- -------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.22)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.43
- -------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $22.625
- -------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT MARKET VALUE (%)(b) (4.53)(a)
- -------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $97,881
- -------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (c) 1.14(a)
- -------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.56(a)
- -------------------------------------------------------------------------------
Portfolio turnover (%) 38.92(a)
- -------------------------------------------------------------------------------
* Represents initial net asset value of $25.00 less offering expenses of
$0.15. Original offering costs were reduced by $0.03 to reflect actual
cost incurred.
(a) Not annualized.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charge.
(c) Includes amounts paid through expense offset arrangements (Note 3).
<PAGE>
NOTES TO FINANCIAL STATEMENTS
February 29, 1996
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
Putnam Convertible Opportunities and Income Trust (the "fund") is registered un-
der the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The fund seeks current income and capital appre-
ciation by investing primarily in a diversified portfolio of convertible securi-
ties and non-convertible, higher risk, high yield securities. The preparation of
financial statements is in conformity with generally accepted accounting princi-
ples 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 avail-
able are stated at market value, which is determined using the last reported sa-
le price, or, if no sales are reported -- as in the case of some securities tra-
ded over-the-counter -- the last reported bid price. Market quotations are not
considered to be readily available for certain long-term corporate bonds and no-
tes, preferred stocks and certain foreign securities. These investments are sta-
ted at fair value on the basis of valuations furnished by a pricing service,
approved by the Trustees, which determines 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 re-
maining maturities of 60 days or less are stated at amortized cost, which appro-
ximates 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 compa-
nies managed by Putnam Investment Management, Inc. ("Putnam Management"), the
fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., and cer-
tain other accounts. 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
102% of the resale price, including accrued interest. Putnam Management is res-
ponsible for determining that the value of these underlying securities is at all
times at least equal to 102% of 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). In-
terest income is recorded on the accrual basis and dividend income is recorded
on the
<PAGE>
ex-dividend date, except that certain dividends from foreign securities are re-
corded as soon as the fund is informed of the ex-dividend date.
Discounts on zero coupon bonds, payment in kind, original issue discount bonds
and step-up bonds are accreted according to the effective yield method.
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 impo-
sition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on income, capital
gains or unrealized appreciation of securities held and for excise tax on income
and capital gains.
F) DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay distribu-
tions at a level rate even though, as a result of market conditions or invest-
ment decisions, the fund may not achieve projected investment results for a gi-
ven period. The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from gene-
rally accepted accounting principles.
These differences include treatment of non-taxable dividends, dividends payable,
defaulted bond interest, amortization of bond premium and market discount. Re-
classifications 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 February 29, 1996, the fund reclassi-
fied $43,924 to increase undistributed net investment income and $17,997 to de-
crease paid-in-capital, with a decrease to accumulated net realized gains and
losses of $25,927. The calculation of net investment income per share in the fi-
nancial highlights table excludes these adjustments.
G) UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in connection
with its organization, its registration with the Securities and Exchange Commi-
ssion and with various states and the initial offering price of its shares were
$36,134. These expenses are being amortized on a straight line basis over a five
year period. The fund will reimburse Putnam Management for the payment of these
expenses.
NOTE 2
INITIAL CAPITALIZATION AND OFFERING
OF SHARES
The fund was established as a Massachusetts business trust on February 23, 1995.
During the period February 23, 1995 to June 28, 1995 the fund had no operations
other than those related to organizational matters, including the initial capi-
tal contribution of $100,000, and the issuance of 4,000 shares to Putnam Mutual
Funds Corp. on June 12, 1995.
On June 29, 1995, the fund completed the initial public offering of 3,700,000 of
its shares for which it received net proceeds of $92,500,000 before deducting
$567,189 of initial offering expense. The fund will reimburse Putnam Management
for these expenses.
<PAGE>
NOTE 3
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment advisory servi-
ces is computed and paid quarterly at an annual rate of 1.10% of the average net
assets of the fund, subject under current law, to reductions in any year by the
amount of certain brokerage commission and fees (less expenses) received by
affiliates of Putnam Management on the fund's portfolio transactions.
The fund reimburses Putnam Management for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The fund will pay a fee computed and paid quarterly at an
annual rate of 0.25% of the average net assets of the fund.
Trustees of the fund receive an annual Trustee's fee of $590 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Putnam Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
During the period ended February 29, 1996, the fund adopted a Trustee Fee Defe-
rral Plan (the "Plan") which allows the Trustees to defer the receipt of all or
a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees
remain in the fund and are invested in the fund or in other Putnam funds until
distribution in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust
Company (PFTC), a wholly owned subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the period ended February 29, 1996, fund expenses were reduced by $38,625
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 the assets utilized in connection with the expense offset
arrangements in an income producing asset if it had not entered into such arran-
gements.
NOTE 4
PURCHASES AND SALES OF SECURITIES
During the period ended February 29, 1996, purchases and sales of investment
securities other than short-term investments aggregated $125,961,730 and
$35,563,399, respectively. There were no purchases and sales of U.S. government
obligations during the period ended February 29, 1996. In determining the net
gain or loss on securities sold, the cost of securities has been determined on
the identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA
(UNAUDITED)
NET REALIZED AND
UNREALIZED GAIN NET INCREASE IN NET
INVESTMENT INCOME NET INVESTMENT INCOME ON INVESTMENTS ASSETS FROM OPERATIONS
- ----------------------------------------------------------------------------------------------------------------
PER PER PER PER
QUARTER COMMON COMMON COMMON COMMON
ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
* 8/31/95 $1,399,921 $.38 $1,115,739 $.30 $1,471,411 $.40 $2,587,150 $0.70
- ----------------------------------------------------------------------------------------------------------------
11/30/95 $1,985,698 $.53 $1,594,563 $.43 $1,176,622 $.32 $2,771,185 $0.75
- ----------------------------------------------------------------------------------------------------------------
02/29/96 $2,000,859 $.54 $1,630,165 $.44 $3,371,412 $.91 $5,001,577 $1.35
- ----------------------------------------------------------------------------------------------------------------
<FN>
* For the period 6/29/95 through 8/31/95
</TABLE>
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 11.93% of the distributions from net investment income
as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1997 will show the tax status of all dis-
tributions paid to your account in calendar 1996.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Robert E. Patterson
Donald S. Perkins George Putnam, III
Eli Shapiro A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty John D. Hughes
Senior Vice President Senior Vice President and Treasurer
Lawrence J. Lasser Gordon H. Silver
Vice President Vice President
Peter Carman Brett C. Browchuk
Vice President Vice President
Thomas V. Reilly Hugh H. Mullin
Vice President Vice President and Fund Manager
Jennifer E. Leichter William N. Shiebler
Vice President and Fund Manager Vice President
John R. Verani Paul M. O'Neil
Vice President Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-to-date
information about the fund's NAV or to request Putnam's quarterly Closed-End
Commentary.
<PAGE>
<PAGE>
---------------
PUTNAM INVESTMENTS Bulk Rate
U.S. Postage
THE PUTNAM FUNDS PAID
One Post Office Square Putnam
Boston, Massachusetts 02109 Investments
---------------
24036-224 4/96
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The registered mark symbol has been replaced by (R).
(8) The dagger symbol has been replaced by +
(9) The double dagger symbol has been replaced by ++
(10) The dagger over dagger symbol has been replaced by ^
(11) The double dagger over double dagger symbol has been replaced by ^^
