Putnam
Convertible
Opportunities
and Income
Trust
SEMIANNUAL REPORT
August 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "When the stock market corrected in late June and early July, Putnam
Convertible Opportunities and Income Trust (PCV) held up better than
most of its peers. Even though small-cap stocks suffered badly, which
hurt the fund's converts, PCV's junk-bond stake softened the blow."
-- Morningstar Closed-End Funds, August 9, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
11 Portfolio holdings
25 Financial statements
From the Chairman
(copyright) Karsh, Ottawa
Dear Shareholder:
Unlike many other income-oriented investments, both convertibles and
lower-rated high-yield bonds thrive on a vibrant economy. For the
former, the reason is their potential convertibility into the
underlying common stock of the issuing company; for the latter, it is
because they are almost always issued by companies under some pressure
to maintain steady cash flows. There is nothing like a strong economy
to bolster the stock market and fill company coffers.
Vigorous economies also invite higher interest rates and, in turn,
rising inflation, conditions not always friendly to the performance of
other income-oriented securities. Thus was the case just after the
start of Putnam Convertible Opportunities and Income Trust's fiscal
year. When several key indicators suggested that the economy was still
advancing at a rather rapid clip, the bond market underwent a
significant downturn.
Because of its portfolio orientation, however, your fund benefited
from the market environment that prevailed during the first half of
its current fiscal year, the six months ended August 31, 1996. In the
midyear report that follows, the fund's management team discusses
performance to date and takes a look at the fiscal year's second half.
Respectfully yours,
/S/ George Putnam
George Putnam
Chairman of the Trustees
October 16, 1996
Report from the Fund Managers
Hugh H. Mullin
Jennifer E. Leichter
Putnam Convertible Opportunities and Income Trust completed a
successful first half of its current fiscal year on August 31, 1996.
Your fund's six-month performance of 4.46% at net asset value and
4.28% at market price surpassed both the Merrill Lynch All-Convertible
Index and the First Boston High-Yield Bond Index, the fund's principal
performance benchmarks. (Please refer to the tables on pages 9 and 10
for complete performance information.) An advancing stock market
during most of the fiscal period boosted the overall convertible-
securities market. In addition, the high-yield corporate bond market
outperformed all other domestic fixed-income sectors over the period.
*SUPPLY OF CONVERTIBLES SHRINKS IN FACE OF STEADY DEMAND, BOOSTING
PERFORMANCE
In addition to generally favorable stock market performance,
convertibles were bolstered during the period by a shrinkage in the
outstanding supply. Typically, convertibles are issued with three
years of call protection. This means that, regardless of what happens
in the market, an issuer cannot redeem the security for three years.
Large numbers of convertibles were issued in 1992 and 1993 and,
consequently, the call protection on those securities began to expire
in 1995 and 1996. Strong stock market performance over the past four
years made it advantageous for many companies to call their
outstanding convertibles at their earliest opportunity.
During the first six months of calendar 1996, we witnessed a shrinkage
of approximately $6 billion representing approximately 5% of the
overall convertible market, primarily because of call activity.*
Meanwhile, investor demand remained steady, providing a firm tone to
the market throughout the period.
In July, a significant correction shook both the stock and convertible
markets. Convertibles weathered the setback relatively well and
bounced back briskly in August. Prior to the correction, we had taken
profits on many of your fund's top-performing energy holdings,
including Apache Corp., Reading and Bates, Noble Drilling, and Pride
Petroleum. Consistent with our value-oriented investment approach, we
viewed July's correction as an opportunity to redeploy a portion of
the fund's assets into a multitude of exceptional investment
opportunities, especially in the technology and health-care sectors.
*According to Putnam research.
Some of the fund's health-care holdings have been sluggish performers
thus far. We have, however, added to the positions because we believe
they represent a great deal of value yet to be realized. Much of the
current underperformance is a reflection of the uncertainty
surrounding Medicaid and Medicare reform and the reimbursement system
that will finally be approved for managed health-care providers. While
we cannot provide guarantees, we believe that once there is more
clarity with respect to the regulatory environment, greater numbers of
investors may add these securities to their portfolios which may, in
turn, boost the sector's overall performance.
[GRAPHIC CHARTS OMITTED: (1) TOP FIVE CONVERTIBLE HOLDINGS
AND (2) TOP FIVE CORPORATE HIGH-YIELD HOLDINGS]
TOP FIVE CONVERTIBLE HOLDINGS
Softley International 5.5% convertible, 2000
Computer software
Standard Commercial Corp. 7.255 convertible, 2007
Processing and wholesale distribution of tobacco and wool
J.Baker, Inc. 7.0% convertible, 2002
Footwear retailing
Sovereign Bancorp, Inc. $3.13 convertible preferred
Banking
U.S. Filter Corp. 6.0% convertible, 2005
Water treatment systems
TOP FIVE CORPORATE HIGH-YIELD HOLDINGS
ICG Holdings, Inc. 13.5% stepped coupon, 2005
Telecommunications
Midland Funding Corp. 11.75%, 2005
Finance subsidiary of electric utility
Pricellular Wireless, Inc. 14% stepped coupon, 2001
Telecommunications
Adelphia Communications Corp. 9.5%, 2004
Cable television
Foamex (L.P.) Capital Corp. 11.875%, 2004
Finance subsidiary of textile producer
Footnote reads:
Top holdings are as of 8/31/96 and represent 8.6% of the fund's net
assets. Holdings will vary over time.
Several holdings benefited from being the subject of takeover bids
during the period. Most notably, ADT, a leading manufacturer of
electronic security systems and the operator of an auto-auction
business, was to be acquired by Republic Industries. The proposed
merger was eventually called off but not before providing a
significant boost to the prices of ADT's convertibles. In addition,
FHP International, a California-based health maintenance organization,
agreed to merge with Pacificare, a rival managed-care provider. While
these securities, along with the others discussed in this report, were
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 vary in the future.
*SEVERAL FACTORS COMBINE TO PROPEL HIGH-YIELD MARKET
We believe several factors were responsible for the high-yield
market's strong relative performance over the period. First, the
technical, or supply and demand, condition of the market was conducive
to rising bond prices. According to AMG Data Services, cash flows into
high-yield bonds -- the principal measure of investor demand -- have
been substantial, averaging upward of $200 million to $300 million per
week over the past year.
Mergers and acquisition activity also bolstered the performance of
several of the fund's high-yield holdings. Most recently, MFS
Communications -- one of the largest issuers in the high-yield market
- -- was purchased by WorldCom, the nation's fourth largest long-
distance carrier. MFS is the leading provider of alternative local
telephone services to business customers.
Numerous high-yield issuers became publicly traded companies during
the period, providing a further boost to the market. One noteworthy
example from the portfolio was Loehmann's, a long-standing holding.
Loehmann's successful initial public stock offering during the spring
enabled it to refinance all of its outstanding debt. The company
called all of its existing high-yield bonds -- which entails
purchasing the bonds at premiums to their face values -- enabling the
fund to realize considerable gains on many of its investments.
[GRAPHIC OMITTED: pie chart PORTFOLIO COMPOSTION (8/31/96)*
Convertible securities 51.3%
Corporate high-yield bonds 42.0%
Preferred stocks 2.9%
Common stocks (including warrants) 0.4%
Other 3.4%
Footnote reads:
*Based on total market value of assets. Composition will vary over
time.
Finally, continuing economic strength, resulting in solid corporate
earnings, contributed to an extremely low default rate of less than 1%
of outstanding bonds during the period.
We were also pleased with the performance of the fund's emerging
markets corporate holdings, which represented approximately 3% of the
portfolio at the end of the period. Investments such as Cemex, the
leading cement manufacturer in Mexico, and PT Polysindo, a polyester
producer based in Indonesia, advanced along with the broader emerging
fixed-income markets.
Other highlights of the period included an increase in the fund's
dividend from $0.136 to $0.141 per share. This half-cent per share
increase was made possible primarily by the consistent level of high
income earned by the fund's high-yield holdings.
One area of underperformance during the period was the fund's
telecommunications holdings. With the passage of the landmark
telecommunications bill last February, telecom companies launched
aggressive financing plans to enable them to compete effectively with
the telephone companies. While we believe this legislation
fundamentally improved the business environment for the telecom
industry, the oversupply of telecom bonds placed a temporary drag on
the sector's performance.
*FAVORABLE SUPPLY AND DEMAND SCENARIO MAY PERSIST IN CONVERTIBLE
MARKET
Although we cannot know with certainty, we believe the favorable
supply and demand imbalance discussed earlier is likely to persist in
the convertible market for the remainder of the fiscal year. If our
expectation proves correct, then this imbalance may continue to
provide the market with a positive backdrop.
If the pace of economic activity begins to slow as we move into
calendar 1997 -- which is far from certain at this point -- this could
put pressure on the operations of many of the smaller companies that
issue convertibles and high-yield bonds. Accordingly, we will, as
always, continue to monitor economic indicators closely in the months
to come. In the case of convertibles, the dominance of smaller
companies in the marketplace has enabled us to diversify the fund's
holdings across a variety of industries. Broad diversification has
been and continues to be a key part of our high-yield investment
strategy as well, as we seek to structure a portfolio of bonds in
which yield is appropriately balanced against risk.
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 8/31/96, there is no guarantee
the fund will continue to hold these securities in the future. The
lower credit ratings of high-yield corporate bonds reflect a greater
possibility that adverse changes in an issuer's business or financial
condition, or in general economic conditions, may impair the issuer's
ability to pay principal and interest on its bonds.
Performance summary
Performance should always be considered in light of a fund's
investment strategy. Putnam Convertible Opportunities and Income Trust
is designed for investors aggressively seeking capital appreciation
and current income through a diversified portfolio of lower-grade and
nonrated convertible securities and nonconvertible 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, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 8/31/96
Merrill Lynch First Boston Consumer
Market All-Convertible High-Yield Price
NAV price Index Bond Index Index
- ----------------------------------------------------------------------
6 months 4.46% 4.28% 3.34% 3.33% 1.55%
- ----------------------------------------------------------------------
1 year 14.12 1.59 11.30 10.15 2.88
- ----------------------------------------------------------------------
Life of fund
(since 6/29/95) 17.20 -0.44 16.62 12.17 3.15
Annual average 14.40 -0.36 14.02 10.29 2.66
- ----------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/96
(most recent calendar quarter)
Market
NAV price
- ----------------------------------------------------------------------
6 months 6.99% 9.50%
- ----------------------------------------------------------------------
Life of fund
(since 6/29/95) 21.08 4.00
Annual average 16.40 3.16
- ---------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset
value and market price will fluctuate so that an investor's shares,
when sold, may be worth more or less than their original cost. The
lower credit ratings of high-yield corporate bonds reflect a greater
possibility that adverse changes in an issuer's business or financial
condition, or in general economic conditions, may impair the issuer's
ability to pay principal and interest on its bonds.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 8/31/96
- ----------------------------------------------------------------------
Distributions (number) 6
- ----------------------------------------------------------------------
Income $0.831
- ----------------------------------------------------------------------
Total $0.831
- ----------------------------------------------------------------------
Share value: NAV Market price
- ----------------------------------------------------------------------
2/29/96 $26.43 $22.625
- ----------------------------------------------------------------------
8/31/96 26.62 22.750
- ----------------------------------------------------------------------
Current return NAV Market price
- ----------------------------------------------------------------------
End of period
- ----------------------------------------------------------------------
Current dividend rate1 6.36% 7.44%
- ----------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided
by NAV or market price at end of period.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on
the New York Stock Exchange.
COMPARATIVE BENCHMARKS
The Merrill Lynch All-Convertible Index* is an unmanaged list of
convertible securities commonly used as a measure of performance for
the convertible market.
The First Boston High-Yield Bond Index* is a market-weighted index
including publicly traded bonds having a rating below BBB by Standard
& Poor's(registered trademark) and Moody's. The average quality of
bonds included in the index may be lower than the average quality of
those bonds in which the fund customarily invests.
Consumer Price Index (CPI ) is a commonly used measure of inflation;
it does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and
performance of the fund will differ. It is not possible to invest
directly in an index.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Portfolio of investments owned
August 31, 1996 (Unaudited)
CORPORATE BONDS AND NOTES (42.0%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
$75,000 Universal Outdoor, Inc. sr. notes stepped-coupon zero %
14s, 7/1/99), 2004 ++ $ 60,000
400,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 430,000
-----------
490,000
Aerospace and Defense (0.7%)
- -------------------------------------------------------------------------------------------------------------------------------
155,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 158,100
50,000 Moog, Inc. 144A sr. sub. notes 10s, 2006 50,813
500,000 UNC, Inc. sr. notes 9 1/8s, 2003 490,000
50,000 UNC, Inc. 144A sr. sub. notes 11s, 2006 52,000
-----------
750,913
Agriculture (1.1%)
- -------------------------------------------------------------------------------------------------------------------------------
1,000,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon Ser. B,
zero % (11 1/2s, 9/1/00), 2005 ++ 582,500
1,000,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004
(acquired 6/29/95, cost $1,033,000)(Chapter 11)+(doubledagger) 546,200
-----------
1,128,700
Automotive Parts (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
100,000 APS Inc. company guaranty 11 7/8s, 2006 106,500
50,000 Delco Remy International, Inc. 144A sr. sub. notes 10 5/8s, 2006 51,000
195,000 Lear Corp. sub. notes 9 1/2s, 2006 200,850
-----------
358,350
Banks (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
200,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 187,500
Broadcasting (2.5%)
- -------------------------------------------------------------------------------------------------------------------------------
40,000 Chancellor Broadcasting Co. sr. sub. notes 9 3/8s, 2004 39,000
350,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s,
(13 1/4s, 5/1/98), 2003 ++ 360,500
500,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 ++ 308,750
500,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 465,000
160,000 Net Sat Servicos Ltd. 144A sr. notes 12 3/4s, 2004 (Brazil) 164,600
250,000 Paxson Communications Corp. sr. sub. notes 11 5/8s, 2002 260,000
414,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 352,404
340,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 345,950
209,000 Telemedia Broadcasting Corp. 144A deb.
stepped-coupon 3.8s, (16s, 6/15/99), 2004 ++ 188,884
-----------
2,485,088
Building and Construction (0.7%)
- -------------------------------------------------------------------------------------------------------------------------------
300,000 Presley Cos. sr. notes 12 1/2s, 2001 287,250
450,000 Scotsman Group, Inc. sr. notes 9 1/2s, 2000 454,500
-----------
741,750
Building Products (0.8%)
- -------------------------------------------------------------------------------------------------------------------------------
160,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 170,800
250,000 Inter-City Products sr. notes 9 3/4s, 2000 240,625
275,000 Schuller International Corp. sr. notes 10 7/8s, 2004 298,375
150,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 ++ 100,500
-----------
810,300
Business Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------------------
75,000 Pierce Leahy Corp. 144A sr. sub. notes 11 1/8s, 2006 77,813
Cable Television (4.2%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 515,000
971,222 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (2 double daggers) 801,258
250,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14 1/2s, 8/15/00), 2005 ++ 148,125
500,000 CF Cable TV, Inc. sr. notes 9 1/8s, 2007 (Canada) 515,000
200,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero %
(11 3/4s, 12/15/00), 2005 ++ 126,000
195,479 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 (2 double daggers) 182,773
250,000 International Cabletel Inc. sr. notes stepped-coupon
Ser. A, zero % (12 3/4s, 4/15/200), 2005 ++ 166,250
350,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 323,750
500,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 520,000
250,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon zero %
(13 1/2s, 8/1/99), 2004 ++ 183,750
705,000 Telewest Communications PLC deb. stepped-coupon zero %
(11s, 10/1/00), 2007 (United Kingdom) ++ 435,338
435,000 UIH Australia/Pacific 144A sr. disc. notes zero %
(14s, 5/15/01), 2006 (Australia) ++ 215,325
-----------
4,132,569
Cellular Communications (1.5%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 265,000
305,000 Milicom International Cellular 144A sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/01/00), 2006 (Luxembourg) ++ 163,938
1,000,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero %
(11 1/2s, 9/1/98), 2003 ++ 680,000
250,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero %
(9 3/4s, 2/15/99), 2004 ++ 147,500
75,000 Omnipoint Corp. 144A sr. notes 11 5/8s, 2006 75,563
120,000 Orbcom Global Capital Corp. 144A sr. notes 14s, 2004 120,300
-----------
1,452,301
Chemicals (1.4%)
- -------------------------------------------------------------------------------------------------------------------------------
350,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 335,125
250,000 Arcadian Partner sr. notes 10 3/4s, 2005 271,875
500,000 G - I Holdings sr. notes Ser. B, 10s, 2006 486,250
250,000 Harris Chemical Corp. sr. secd. disc. notes stepped-coupon 10 1/4s, 2001 ++ 250,000
40,000 Texas Petrochemical 144A sr. sub. notes 11 1/8s, 2006 41,650
-----------
1,384,900
Computer Equipment (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
598,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 618,930
Conglomerates (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
215,000 Talley Industries, Inc. sr. disc. deb. stepped-coupon zero %
(12 1/4s, 10/15/98), 2005 ++ 178,450
Consumer Durable Goods (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
150,000 Remington Products Co. LLC 144A sr. sub. notes 11s, 2006 150,750
Consumer Services (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
211,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 222,078
Containers (1.0%)
- -------------------------------------------------------------------------------------------------------------------------------
350,000 Four M Corp. 144A sr. notes 12s, 2006 361,375
500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 530,000
30,000 Printpack, Inc. 144A sr. notes 10 5/8s, 2006 30,300
60,000 Printpack, Inc. 144A sr. notes 9 7/8s, 2004 60,600
-----------
982,275
Electric Utilities (1.6%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 First PV Funding deb. 10.15s, 2016 526,250
1,000,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 1,061,250
-----------
1,587,500
Electrical Equipment (1.1%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 Amphenol Corp. sr. notes 10.45s, 2001 527,500
1,000,000 International Semi-Tech. Corp. sr. disc. notes stepped-coupon zero %
(11 1/2s, 8/15/00), 2003 (Canada) 565,000
-----------
1,092,500
Entertainment (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 530,000
Financial Services (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
105,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 104,475
145,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 146,450
-----------
250,925
Food (1.1%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 Safeway, Inc. med. term notes 8.57s, 2003 514,630
750,000 Southland Corp. 1st priority sr. sub. deb 5s, 2003 593,438
-----------
1,108,068
Gaming (3.2%)
- -------------------------------------------------------------------------------------------------------------------------------
100,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 99,000
510,000 Argosy Gaming Co. 144A 1st. mtge. 13 1/4s, 2004 490,875
80,000 Casino America, Inc. sr. notes 12 1/2s, 2003 80,400
85,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 84,575
200,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 195,000
400,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 380,000
350,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 344,750
216,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 178,200
400,000 Mohegan Tribal Gaming sr. notes Ser. B, 13 1/2s, 2002 498,000
200,000 Trump A.C. company guaranty 11 1/4s, 2006 191,000
500,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 577,500
-----------
3,119,300
Health Care (1.1%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 522,500
400,000 Ivac Corp. sr. notes 9 1/4s, 2002 404,000
135,000 Paracelsus Healthcare Corp. sr. sub. notes 10s, 2006 136,350
-----------
1,062,850
Insurance and Finance (0.8%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 563,750
335,000 MCII Holding (USA), Inc. bonds 144A 12.0s, 2002 259,625
-----------
823,375
Lodging (0.1%)
- -------------------------------------------------------------------------------------------------------------------------------
100,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 94,500
Medical Supplies and Devices (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
150,000 Dade International, Inc. 144A sr. sub. notes 11 1/8s, 2006 158,250
100,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 106,000
-----------
264,250
Metals and Mining (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
70,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 73,675
90,000 Royal Oak Mines, Inc. 144A sr. sub. notes 11s, 2006 (Canada) 90,000
- -------------------------------------------------------------------------------------------------------------------------------
163,675
Motion Picture Distribution (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
160,000 Cinemark USA, Inc. 144A sr. sub. notes 9 5/8s, 2008 155,200
400,000 Cinemark Mexico 144A notes Ser. C, 12s, 2003 370,000
-----------
525,200
Office Supplies (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 270,625
Oil and Gas (3.0%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 261,875
200,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 199,000
50,000 Cliffs Drilling Co. 144A sr. notes 10 1/4s, 2003 50,500
500,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 582,500
500,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 516,250
500,000 Maxus Energy Corp. deb. 11 1/4s, 2013 511,250
400,000 Transamerican Refining Corp. variable rate 1st mtge. Ser. 1, zero %
(18 1/2s, 2/15/98), 2002 ++ 284,000
500,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 521,250
-----------
2,926,625
Paging (1.0%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 520,000
250,000 Mobilemedia Corp. sr. sub. notes 9 3/8s, 2007 217,500
300,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon zero %
(15s, 2/1/00), 2005 ++ 199,500
100,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 91,000
-----------
1,028,000
Paper and Forest Products (1.1%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 APP International Finance Co. notes 11 3/4s, 2005 (Netherlands) 252,500
125,000 Domtar, Inc. 9 1/2s, 2016 (Canada) 128,125
50,000 Domtar, Inc. notes deb> 8 3/4s, 2006 (Canada) 50,563
130,000 Florida Coast Paper LLC 144A 1st. mtge. 12 3/4s, 2003 136,825
250,000 Gaylord Container Corp. sr. sub. disc. deb. 12 3/4s, 2005 266,250
200,000 Stone Container Corp. 144A sr. notes 11 7/8s, 2016 205,000
-----------
1,039,263
Pharmaceuticals (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 Owens & Minor, Inc. sr. sub. notes 10 7/8s, 2006 260,000
Publishing (0.8%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 Affinity Group sr. sub. notes 11 1/2s, 2003 256,250
700,000 Marvel Holdings, Inc. sr. notes Ser. B, zero %, 1998 537,250
-----------
793,500
REIT's(Real Estate Investment Trust) (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 Tanger Properities Ltd. Partnership Gtd. notes 8 3/4s, 2001 243,950
Recreation (--%)
- -------------------------------------------------------------------------------------------------------------------------------
40,000 Cobblestone Golf Group 144A sr. notes 11 1/2s, 2003 40,400
Retail (1.5%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon zero %
(12s, 5/1/98), 2005 ++ 202,500
180,000 Guitar Center Management 144A sr. notes 11s, 2006 182,250
350,000 K Mart Corp. med. term notes Ser. C, 7.85s, 2002 306,359
130,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 135,525
100,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 106,250
500,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 500,000
-----------
1,432,884
School Buses (0.1%)
- -------------------------------------------------------------------------------------------------------------------------------
90,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 93,600
Specialty Consumer Products (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 257,500
300,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 316,500
-----------
574,000
Supermarkets (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
300,000 Ralphs Grocery sr. notes 10.45s, 2004 295,500
Telecommunication (4.3%)
- -------------------------------------------------------------------------------------------------------------------------------
620,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 313,100
496,000 GST USA,Inc. company guaranty stepped-coupon zero %
(13 7/8s, 12/15/00), 2005 ++ 262,880
250,000 Hyperion Communications 144A sr. disc. notes stepped coupon zero %
(13s, 4/15/01), 2003 ++ 135,625
1,980,000 ICG Holdings Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 1,237,500
475,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B, zero %
(11 1/2s, 2/01/01), 2006 ++ 280,250
250,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 191,250
500,000 MFS Communications sr. disc. notes stepped-coupon zero %
(8 7/8s, 1/1/01), 2006 ++ 338,125
200,000 Nextlink Communications, Inc. 144A sr. notes 12 1/2s, 2006 197,000
1,000,000 Pricellular Wire sr. disc. notes stepped-coupon Ser. B, zero %
(14s, 11/15/97), 2001 ++ 920,000
250,000 Teleport Communications Group Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 7/1/01), 2007 ++ 152,500
450,000 Winstar Communications, Inc. sr. disc. notes stepped-coupon zero %
(14s, 10/15/00), 2005 ++ 248,625
-----------
4,276,855
Telephone Services (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 Call-Net Enterprises sr. disc. notes stepped-coupon zero %
(13 1/4s, 12/1/99), 2004 ++ 190,000
Textiles (1.0%)
- -------------------------------------------------------------------------------------------------------------------------------
750,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 787,500
155,000 Polysindo International Finance company guaranty 11 3/8s, 2006 (Indonesia) 156,163
-----------
943,663
Tobacco (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
200,000 RJR Nabisco, Inc. notes 8 3/4s, 2007 $ 191,052
-----------
Total Corporate Bonds and Notes (cost $41,677,496) $41,374,727
CONVERTIBLE BONDS AND NOTES (33.6%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
$485,000 Diagnostic Retrieval System cv. sr. sub. ded. 9s, 2003 647,475
Automotive (1.6%)
- -------------------------------------------------------------------------------------------------------------------------------
845,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 502,775
540,000 Magna International cv. sub. deb. 5s, 2002 576,450
JPY 40,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 494,077
-----------
1,573,302
Banks (1.6%)
- -------------------------------------------------------------------------------------------------------------------------------
$ 509,000 Banamex 144A cv. jr. sub. notes 11s, 2003 510,273
435,00 Mitsubishi Bank Ltd. International Finance (Bermuda) cv.
trust guaranteed notes 3s, 2002 (Japan) 476,325
60,000 Sumitomo Bank Internattional Finance N.V. 144A cv. bonds 3/4s, 2001 (Japan) 586,831
-----------
1,573,429
Basic Industrial Products (2.3%)
- -------------------------------------------------------------------------------------------------------------------------------
515,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 618,000
480,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 513,600
380,000 Thermo Quest Corp. 144A company guaranty cv. 5s, 2000 402,800
340,000 Titan Wheel International Inc. cv. sub. deb. 4 3/4s, 2000 425,000
265,000 Trimas Corp. cv. sub. deb. 5s, 2003 291,500
-----------
2,250,900
Broadcasting (0.9%)
- -------------------------------------------------------------------------------------------------------------------------------
410,000 International Cabletel Inc. 144A cv. deb. 7 1/4s, 2005 434,600
945,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 477,225
-----------
911,825
Building and Construction (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
350,000 New World Infrastructure Ltd. 144A cv. bonds 5s, 2001 (Hong Kong) 357,000
Chemicals (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
260,000 Hexcel Corp. cv. sub. notes 7s, 2003 340,600
Computers (2.0%)
- -------------------------------------------------------------------------------------------------------------------------------
495,000 EMC Corp. cv. sub. notes 4 1/4s, 2001 537,075
550,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 621,500
1,030,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 824,000
-----------
1,982,575
Computer Equipment (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
390,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s, 2003 362,213
Consumer Durable Goods (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
1,300,000 Whirpool Corp. cv. Liquid Yield Option Notes (LYON) zero %, 2011 515,125
Consumer Non Durables (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
1,440,000 Coleman Worldwide Corp. cv. sr. sec. notes LYON zero %, 2013 433,800
Consumer Services (2.5%)
- -------------------------------------------------------------------------------------------------------------------------------
540,000 ADT Operations Inc. cv. sub. notes zero %, 2010 307,800
1,565,000 Boston Chicken, Inc. cv. notes zero %, 2015 485,150
950,000 Comcast Corp. cv. notes 1 1/8s, 2007 433,438
1,935,000 Hollinger, Inc. cv. LYON zero %, 2013 638,550
580,000 WMS Industries, Inc. cv. deb. 5 3/4s, 2002 561,875
-----------
2,426,813
Electronics and Electrical Equipment (2.1%)
- -------------------------------------------------------------------------------------------------------------------------------
350,000 General Signal Corp. cv. deb. 5 3/4s, 2002 376,688
780,000 Motorola Inc. cv. sub. deb. LYON zero %, 2013 573,300
445,000 Samina Corp. 144A cv. sub. notes 5 1/2s, 2002 618,550
450,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 522,000
-----------
2,090,538
Environmental Control (1.9%)
- -------------------------------------------------------------------------------------------------------------------------------
420,000 U.S. Filter Corp. 144A cv. sub. notes 6s, 2005 636,300
465,000 Thermo Terratech, Inc. 144A cv. sub. deb. 4 5/8s, 2003 451,050
825,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 746,625
-----------
1,833,975
Health Care (3.7%)
- -------------------------------------------------------------------------------------------------------------------------------
500,000 Emeritus Corp. 144A cv. sub. deb 6 1/4s, 2006 490,000
470,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 443,563
380,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 429,400
520,000 Rotech Medical Corp. 144A cv. sub. deb. 5 1/4s, 2003 452,400
500,000 Sun Healthcare Group Inc. 144A cv. sub. notes 6s, 2004 445,000
400,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 508,000
485,000 Theratx Inc. cv. sub. 8s, 2002 465,600
405,000 Vivra, Inc. 144A cv. sub. notes 5s, 2001 406,013
-----------
3,639,976
Insurance and Finance (1.6%)
- -------------------------------------------------------------------------------------------------------------------------------
490,000 Pioneer Financial Services cv. sub. notes 6 1/2s, 2003 504,700
430,000 Trenwick Group, Inc. cv. deb. 6s, 1999 484,825
950,000 USF&G Corp. cv. sub. notes zero %, 2009 564,063
-----------
1,553,588
Medical Supplies and Devices (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
350,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 287,000
Metals and Mining (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
515,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 498,906
Oil and Gas (1.4%)
- -------------------------------------------------------------------------------------------------------------------------------
555,000 Cross Timbers Oil Co. cv. deb. 5 1/4s, 2003 585,525
185,000 Pogo Producing Co. cv. sub. notes 5 1/2s, 2004 + 297,156
370,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 495,800
-----------
1,378,481
Paper and Forest Products (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
275,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 368,844
Pharmaceuticals (2.8%)
- -------------------------------------------------------------------------------------------------------------------------------
1,400,000 Alza Corp. cv. sub. notes. LYON zero %, 2014 579,250
435,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 426,300
415,000 North American Vaccine, Inc. 144A cv. sub. notes 6 1/2s, 2003 438,863
530,000 Pharmaceutical Marketing Services Inc. 144A cv. deb. 6 1/4s, 2003 376,963
900,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010 (Switzerland) 390,375
490,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s, 2002
(British Virgin Islands) 542,675
-----------
2,754,426
Publishing (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
360,000 Graphic Industries cv. sub. deb. 7s, 2006 332,100
REIT's(Real Estate Investment Trust) (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
250,000 Camden Property Trust cv. sub. deb. 7.33s, 2001 266,250
340,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 336,600
602,850
Retail (2.5%)
- -------------------------------------------------------------------------------------------------------------------------------
950,000 Baker (J.), Inc. cv. deb. 7s, 2002 769,500
320,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 314,400
655,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 510,900
800,000 Office Depot, Inc. cv. LYON zero %, 2007 456,000
475,000 Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 389,500
-----------
2,440,300
Semiconductors (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
390,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 372,450
Telecommunication (0.8%)
- -------------------------------------------------------------------------------------------------------------------------------
62,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon zero %
(13 7/8s, 15/15/00), 2005 ++ 57,660
520,000 Midcom Communications , Inc. 144A cv. sub. deb. 8 1/4s, 2003 592,800
225,000 Winstar Communications. Inc. 144A cv sr. disc. notes zero %, 2005 141,750
-----------
792,210
Tobacco (0.8%)
- -------------------------------------------------------------------------------------------------------------------------------
1,025,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 + $ 773,875
-----------
Total Convertible Bonds and Notes (cost $31,635,591) $33,094,576
CONVERTIBLE PREFERRED STOCKS (17.6%) *
NUMBER OF SHARES VALUE
Automotive (1.2%)
- -------------------------------------------------------------------------------------------------------------------------------
10,550 Federal Mogul Corp. $3.875, cv. pfd. $ 580,250
5,600 Ford Motor Co. Ser. A, $4.20, dep. shs. cv. pfd. 607,600
-----------
1,187,850
Banks (2.1%)
- -------------------------------------------------------------------------------------------------------------------------------
8,600 Matewan Bancshares, Inc. Ser. A, $ 3.75, cv. pfd. 221,450
9,000 Roosevelt Financial Group $3.25, cv. pfd. 585,000
12,000 Sovereign Bancorp Inc. $3.13, cv. pfd. 703,500
14,600 Union Planters Corp. Ser. E, $2.00, cv. pfd. 598,600
-----------
2,108,550
Broadcasting (0.9%)
- -------------------------------------------------------------------------------------------------------------------------------
9,800 SFX Broadcasting, Inc. 144A Ser. D, $3.25 cv. pfd. 531,650
36,000 Triathlon Broadcasting Co. $0.945, cv. pfd. 360,000
-----------
891,650
Building Products (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
11,950 Greenfield Industries, Inc. 144A $3.00, cv. pfd. 561,650
Business Equipment and Services (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
3,000 Alco Standard Corp. $5.03, cv. pfd. 255,375
Cable Television (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
4,371 Cablevision Systems Corp. Ser. H, $11.75, cv. pfd. 427,265
Computers (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
13,200 Wang Laboratories, Inc. 144A Ser. B, $3.25, cv. pfd. 594,000
Conglomerates (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
9,100 Corning Deleware(L.P.) $3.00, cv. pfd. 505,050
Consumer Non Durables (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
7,350 Fieldcrest Cannon Ser. A, $3.00, cv. pfd. 316,050
Consumer Services (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
6,610 Service Corp. International $3.125, cv. pfd. 634,560
Food and Beverage (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
11,800 Chiquita Brands International, Inc. Ser. B, $3.75 cv. pfd. 618,025
HMOs (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
15,800 FHP International Corp. Ser. A, $1.25, cv. pfd. 475,975
Insurance and Finance (2.3%)
- -------------------------------------------------------------------------------------------------------------------------------
10,400 Ahmanson (H.F.) & Co. $3.00, cv. pfd. 613,600
11,000 American General Delaware Corp. $3.00, cv. pfd. 577,500
12,100 Penncorp Financial Group, Inc. 144A $3.50 cv. pfd. 653,400
8,600 St. Paul Capital LLC $3.00, cv. pfd. 453,650
-----------
2,298,150
Metals and Mining (2.2%)
- -------------------------------------------------------------------------------------------------------------------------------
2,080 Alumax, Inc. Ser. A, $4.00, cv. pfd. 284,960
7,800 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 408,525
5,900 Cyprus Amax Minerals Ser. A, $4.00, cv. pfd. 309,750
24,500 Freeport-McMoRan Copper & Gold Co., Inc. $1.75 cv. pfd. 646,188
13,300 Pittston Mineral Corp. 144A $3.125, dep. shs. cv. pfd. 498,750
-----------
2,148,173
Oil and Gas (1.8%)
- -------------------------------------------------------------------------------------------------------------------------------
4,750 Diamond Shamrock, Inc. 144A $2.50 cv. pfd. 274,313
7,525 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 421,400
6,025 Noram Energy Corp. $3.125 cv. pfd. 373,550
13,150 Tejas Gas Corp. $2.65 cv. pfd. 652,569
-----------
1,721,832
REIT's (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
8,325 Catellus Development Corp. 144A Ser. B, $3.625 cv. pfd. 432,900
Recreation (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
9,880 Station Casinos, Inc. $3.50, cv. pfd. 501,410
Retail (0.7%)
- -------------------------------------------------------------------------------------------------------------------------------
12,950 K mart Financing I $3.875 cv. pfd. 652,356
Utilities (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
10,000 Calenergy Capital Trust 144A $3.125 cv. pfd. 577,500
Wireless Communication (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
10,300 Airtouch Communications, Inc. Ser. C, $2.125 cv. pfd. $ 490,538
-----------
Total Convertible Preferred Stocks (cost $16,501,466) $17,398,859
PREFERRED STOCKS (2.9%) *
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
2,917 Cablevision Systems Ser. M, $11.125 dep. shs pfd. $ 273,469
4,000 California Federal Bank Ser. B, $10.625, exch. pfd. 418,000
3,755 Diva Systems Corp. Ser. C, $6.00, pfd. 32,856
2,000 El Paso Electric Co. $11.40, pfd (2 double daggers) 220,000
3,000 First Nationwide Bank $11.50, pfd. 324,000
5,000 Pantry Pride Inc. Ser. B, $14.875, pfd. 500,000
22,000 SDW Hldgs. Corp. 144A $3.50, pfd. 638,000
460 Time Warner, Inc. 144A Ser. K, $10.25 pfd. 466,900
-----------
Total Preferred Stocks (cost $2,795,300) $ 2,873,225
UNITS (2.1%) *
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
50 Celcaribe S.A. 144A units stepped-coupon zero % (13 1/2s, 3/15/98), 2004 ++ $ 540,000
600 Cellnet Data Systems Inc. units stepped-coupon zero % (13s, 6/15/00), 2005 ++ 456,000
75 Cobblestone Holdings, Inc. 144A units zero %, 2004 28,688
185 Diva Systems Corp. 144A units stepped-coupon zero % (13s, 5/15/01), 2006 ++ 101,288
200 Fitzgerald Gaming Co. units 13s, 2002 148,000
200 Interact Systems, Inc. 144A units stepped-coupon zero % (14s, 8/1/99), 2003 ++ 133,500
85 International Wireless Communications 144A units zero % , 2001 43,775
60 Ionica PLC units 13 1/2s, 2006 (United Kingdom) 60,300
75 Sterling Chemical Holdings units stepped-coupon zero % (13 1/2s, 8/15/01), 2008 ++ 42,000
450 Terex Corp. 144A units 13 3/4s, 2002 471,375
-----------
Total Units (cost $1,742,203) $ 2,024,926
COMMON STOCKS (0.2%) *
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
20,000 Grand Union Co. (acquired 6/30/95, cost $282,500)(double dagger)+ $ 116,250
3,000 Total Renal Care Holdings, Inc. (acquired 6/29/95, cost $5,751) (double dagger)+ 123,375
-----------
Total Common Stocks (cost $288,251) $ 239,625
WARRANTS (0.1%) *
NUMBER OF WARRANTS Date VALUE
- -------------------------------------------------------------------------------------------------------------------------------
250 Hyperion Telecommunciations 144A 4/15/01 $ 2,500
6,534 Intelcom Group 144A 10/15/05 101,277
1,001 Petracom Holdings, Inc. 144A 8/1/00 7,132
2,200 SDW Hldgs Corp. Senior B Warrant 144A 4/1/04 28,600
4 Telemedia Broadcasting Corp. 144A 4/1/04 3,371
-----------
Total Warrants (cost $78,819) $ 142,880
SHORT-TERM INVESTMENTS (1.4%) *(cost $1,364,399)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
$1,364,000 Interest in $883,204,000 joint repurchase agreement dated August 30, 1996
with Goldman, Sachs & Co. due September 3, 1996 with respect to various U.S.
Treasury obligations -- maturity value of $1,364,797 for an effective yield of 5.26%. $ 1,364,399
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $96,083,525) *** $98,513,217
- -------------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $98,610,424.
*** The aggregate identified cost on a tax basis is
$94,598,406, resulting in gross unrealized appreciation and
depreciation of $9,137,471 and $5,222,660, respectively,
or net unrealized appreciation of $3,914,811.
+ 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.
(double dagger) Restricted, excluding 144A securities, as to public resale.
The total market value of restricted securities held at
August 31, 1996 $785,825 or 0.8% of net assets.
(2 double daggers) 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.
<CAPTION>
Forward Currency Contracts to Sell at August 31, 1996
(Aggregate Face Value $413,526)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $399,251 $404,234 1/28/98 $4,983
Japanese Yen 4,630 4,696 7/28/97 66
Japanese Yen 4,502 4,596 1/28/97 94
- -----------------------------------------------------------------------------------------------
$5,143
- -----------------------------------------------------------------------------------------------
The accompanying notes are an itegral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
<S> <C>
August 31, 1996 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $96,083,525) (Note 1) $98,513,217
- -------------------------------------------------------------------------------------------------------------------
Cash 145,845
- -------------------------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,248,884
- -------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 528,844
- -------------------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 5,143
- -------------------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 27,858
- -------------------------------------------------------------------------------------------------------------------
Total assets 100,469,791
Liabilities
- -------------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 522,023
- -------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 345,344
- -------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 333,155
- -------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 12,848
- -------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 258
- -------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 878
- -------------------------------------------------------------------------------------------------------------------
Payable for organizational expenses (Note 1) 604,010
- -------------------------------------------------------------------------------------------------------------------
Other accrued expenses 40,851
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 1,859,367
- -------------------------------------------------------------------------------------------------------------------
Net assets $98,610,424
Represented by
- -------------------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) 92,014,814
- -------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 392,904
- -------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions (Note 1) 3,767,874
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 2,434,832
- -------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $98,610,424
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------------------------------
Net asset value per share ($98,610,424 divided by 3,704,000 shares) $26.62
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended August 31, 1996 (Unaudited)
<S> <C>
Investment Income:
- -------------------------------------------------------------------------------------------------------------------
Interest $3,593,998
- -------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $219) 522,686
- -------------------------------------------------------------------------------------------------------------------
Total investment income 4,116,684
Expenses:
- -------------------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 669,468
- -------------------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 62,708
- -------------------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,316
- -------------------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,631
- -------------------------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,564
- -------------------------------------------------------------------------------------------------------------------
Reports to shareholders 13,232
- -------------------------------------------------------------------------------------------------------------------
Registration fees 308
- -------------------------------------------------------------------------------------------------------------------
Auditing 18,096
- -------------------------------------------------------------------------------------------------------------------
Legal 4,167
- -------------------------------------------------------------------------------------------------------------------
Postage 6,052
- -------------------------------------------------------------------------------------------------------------------
Other 181
- -------------------------------------------------------------------------------------------------------------------
Total expenses 785,723
- -------------------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (15,144)
- -------------------------------------------------------------------------------------------------------------------
Net expenses 770,579
- -------------------------------------------------------------------------------------------------------------------
Net investment income 3,346,105
- -------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,253,946
- -------------------------------------------------------------------------------------------------------------------
Net realized loss on forward currency translation (Note 1) (13)
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and foreign
currency translation during the period 5,140
- -------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (1,798,014)
- -------------------------------------------------------------------------------------------------------------------
Net gain on investments 461,059
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,807,164
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
June 29, 1995
(commencement of
Six months ended operations) to
August 31 February 28
1996* 1996
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
- ------------------------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income $3,346,105 $4,340,467
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 2,253,933 1,791,739
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and assets and liabilities (1,792,874) 4,227,706
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,807,164 10,359,912
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income (3,077,998) (4,259,594)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (251,871)
- ------------------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions -- 91,932,811
- ------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 729,166 97,781,258
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of period 97,881,258 100,000
- ------------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$392,904 and $124,797, respectively) $98,610,424 $97,881,258
- ------------------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 3,704,000 4,000
- ------------------------------------------------------------------------------------------------------------------------------
Shares issued in connection with public offering -- 3,700,000
- ------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 3,704,000 3,704,000
- ------------------------------------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout the period)
For the Period
June 29, 1995
Six months (commencement
ended of operations)
August 31 to February 29
1996 1996
<S> <C> <C>
Net asset value, beginning of period $26.43 $24.85*
- --------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------
Net investment income .90 1.17
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments .12 1.63
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 1.02 2.80
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net investment income (.83) (1.15)
- --------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.07)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.83) (1.22)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.62 $26.43
- --------------------------------------------------------------------------------------------------------------
Market value, end of period $22.750 $22.625
- --------------------------------------------------------------------------------------------------------------
Total investment return at market value (%) (b) 4.28(a) (4.53)(a)
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $98,610 $97,881
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (c) .80(a) 1.14(a)
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 3.40(a) 4.56(a)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.37(a) 38.92(a)
- --------------------------------------------------------------------------------------------------------------
Average commission rate paid (d) $.0541 --
- --------------------------------------------------------------------------------------------------------------
+ Unaudited
* 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 assumed dividend reinvestment and does
not reflect the effect of sales charge.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Average commission rate paid is required for fiscal periods beginning on or after
September 1, 1995.
</TABLE>
Notes to financial statements
August 31, 1996 (Unaudited)
Note 1
Significant accounting policies
Putnam Convertible Opportunities and Income Trust (the "fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company. The fund seeks
current income and capital appreciation by investing primarily in a
diversified portfolio of convertible securities and non-convertible,
higher risk, high yield securities with capital appreciation as a
secondary objective.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are reported -- as
in the case of some securities traded over-the-counter -- the last
reported bid price. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Market
quotations are not considered to be readily available for long-term
corporate bonds and notes and certain preferred stocks or certain
foreign securities. These investments are stated 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 remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value,
and other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of
other registered investment companies and certain other accounts
managed by Putnam Investment Management, Inc. ("Putnam Management"),
the fund's Manager, a wholly-owned subsidiary of Putnam Investments,
Inc. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account,
through its custodian, receives delivery of the underlying securities,
the market value of which at the time of purchase is required to be in
an amount at least equal to the resale price, including accrued
interest. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to
the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue,
stepped-coupon bonds and payment in kind bonds are accreted according
to the effective yield method.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based
on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when accrued or
incurred. The fund does not isolate that portion of realized or
unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in
the market prices of the securities. Such fluctuations are included
with the net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent
net exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the
amount of investment income and foreign withholding taxes recorded on
the fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized gains and losses on foreign currency
transactions arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a
decline in value relative to the U.S. dollar of the currencies in
which its portfolio securities are denominated or quoted (or an
increase in the value of a currency in which securities a fund intends
to buy are denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate
with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records
a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed. The fund could be exposed to risk if the value of the
currency changes unfavorably, if the counterparties to the contracts
are unable to meet the terms of their contracts or if the fund is
unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Internal Revenue Code of 1986. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held and for excise tax on
income and capital gains.
H) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the
fund may pay distributions at a level rate even though, as a result of
market conditions or investment decisions, the fund may not achieve
projected investment results for a given period. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations.
I) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering 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 payment of these expenses.
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 rate: 1.10% of
average net assets of the fund subject, under current law, to
reduction in any year by the amount of certain brokerage commissions
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 services 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 Trustees fee of $800 and an
additional fee for each Trustee's meeting attended. Trustees who are
not interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in 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 six months ended August 31, 1996, fund expenses were reduced
by $15,144 under expense offset arrangements with PFTC and brokerage
service arrangements. 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.
Note 3
Purchase and sales of securities
During the six months ended August 31, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$32,188,639 and $33,772,640, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
<TABLE>
<CAPTION>
Selected Quarterly Data
(Unaudited)
Net realized and Net increase
Investment Net investment unrealized gain in net assets
income* income* (loss) on investments* from operations*
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Per Per Per
Quarter Common Common Common Common
Ended Total Share Total Share Total Share Total Share
- -------------------------------------------------------------------------------------------------
8/31/95** $1,399,921 $.38 $1,115,739 $.30 $1,471,411 $.40 $2,587,150 $.70
- -------------------------------------------------------------------------------------------------
11/30/95 1,985,698 .53 1,594,563 .43 1,176,622 .32 2,771,185 .75
- -------------------------------------------------------------------------------------------------
2/29/96 2,000,859 .54 1,630,165 .44 3,371,412 .91 5,001,577 1.35
- -------------------------------------------------------------------------------------------------
5/31/96 2,068,924 .56 1,687,369 .46 2,106,190 .56 3,793,559 1.02
- -------------------------------------------------------------------------------------------------
8/31/96 2,047,760 .55 1,658,736 .44 (1,645,131) (.44) 13,605 --
- -------------------------------------------------------------------------------------------------
* Available to common shareholders.
**For the period 6/29/95 (commencement of operations) to 8/31/95.
</TABLE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Hugh H. Mullin
Vice President and Fund Manager
Jennifer E. Leichter
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for
up-to-date information about the fund's NAV.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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27664-224 10/96
