Putnam
Convertible
Opportunities
and Income
Trust
SEMIANNUAL REPORT
August 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The first half of 1997 belonged to big companies, as the Dow and
S&P 500(registered trademark) significantly outperformed NASDAQ and the
Russell 2000. But in the past two months, small stocks have revived,
while big stocks have barely budged."
-- Barron's, September 1, 1997
* Given the positive economic background and the improvement in credit
ratings across the board, we currently believe the high-yield market
should continue to perform well in the near term.
-- Jennifer E. Leichter, co-manager,
Putnam Convertible Opportunities and Income Trust
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
31 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
In a market environment that is turning many investors increasingly cautious,
Putnam Convertible Opportunities and Income Trust's managers are well
satisfied with the results for the first half of fiscal 1998 and even more
sanguine about prospects for the second half.
Edward Shadek and Jennifer Leichter believe the long-awaited return to favor
of small-company stocks, which helped your fund's performance during the six
months ended August 31, 1997, will carry over into the months ahead. Because
the behavior of convertibles and high-yield bonds is closely related to the
stocks of the underlying companies, Ned and Jennifer expect the renewed
strength in small-company stocks to continue to carry over to these companies'
fixed-income holdings, which dominate your fund's portfolio.
In the following report, Ned and Jennifer provide greater detail about
first-half performance and discuss prospects for the remainder of fiscal 1998.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
October 15, 1997
Report from the Fund Managers
Edward T. Shadek, Jr., lead manager
Jennifer E. Leichter
Over the past six months, the stock market's strength has generally meant blue
skies and sunny days for the convertible and high-yield bond markets. While
this strength has contributed to positive results for the first half of Putnam
Convertible Opportunities and Income Trust's 1998 fiscal year, we believe that
the renewed vigor of small-capitalization stocks that we have seen recently is
a harbinger of even more pleasant weather ahead. Convertible securities issued
by such companies make up the majority of your fund's holdings, and their
rising stock prices should also be reflected in the value of their
convertibles.
For the six months ended August 31, 1997, your fund provided total returns of
9.94% at net asset value and 10.27% at market price. Please refer to the
tables on pages 9 and 10 for complete performance information.
* INVESTORS' FAVOR SHIFTS TOWARD SMALL CAPS
As we mentioned in your fund's most recent annual report, we believed the
persistent underperformance of small-capitalization relative to
large-capitalization issuers had created tremendous value in the
small-capitalization sector of the convertible market. While there can be no
assurances, we believe that all the pieces are now in place for the stocks of
smaller high-growth companies to embark on a sustained recovery. Your fund's
focus on convertible securities issued by small-capitalization companies has
already enabled us to realize significant gains.
* CHANGING CONVERTIBLE MARKET OFFERS INCREASED GROWTH POTENTIAL
Changes that took place in the convertible securities market in 1996 have had
a continuing effect on the market in 1997. During 1996, $29 billion of
convertible securities were called or redeemed, while $28 billion of new
convertible securities were issued. This new issuance equates to roughly 20%
of the convertible market. In general, we believe the convertible market has
become more small- to mid-capitalization oriented. As the convertibles issued
by many cyclical and mature companies have been called away, this market has
also become more growth oriented. Although the convertible market is currently
more equity sensitive than its historical average, we believe that convertible
securities are now fairly valued relative to both stocks and bonds.
Your fund usually invests approximately 50% of its assets in convertible
securities and 50% in high-yielding securities, with the exact mix determined
by the relative attractiveness of each asset class. The convertible portion of
the fund focuses primarily on securities issued by small-capitalization
companies. We look for convertible securities issued by fundamentally
attractive, undervalued companies. Over the past six months, your fund
benefited from holdings in many sectors, including technology and consumer
products.
[GRAPHIC OMITTED: TOP FIVE CONVERTIBLE HOLDINGS]
TOP FIVE CONVERTIBLE HOLDINGS
Sovereign Bancorp Inc. $3.13 convertible preferred
Banking
Safeguard Scientifics, Inc. 6% 144A convertible, 2006
Computers
Softkey International, Inc. 5.5% 144A convertible, 2000
Computer software
Thermo Electron Corp. 4.25% 144A convertible, 2003
Electronic and electrical equipment
Stone Container Corp. 8.875% convertible, 2000
Paper and forest products
TOP FIVE CORPORATE HIGH-YIELD HOLDINGS
Adelphia Communications Corp. 9.50% PIK, 2004
Cable television
Midland Funding Corp. Series A 11.75%, 2005
Finance subsidiary of electric utility
Transamerican Energy 144A 0%-13% stepped-coupon, 2002
Oil and gas
PMI Holdings Corp. Series B 0%-11.5% stepped-coupon, 2005
Agriculture
Advanta Corp. Series B 7%, 2001
Financial services
Footnote reads:
Top holdings are as of 8/31/97 and represent 7.8% of the fund's net assets.
Top holdings will vary over time.
In the technology sector, we took advantage of continued acquisition and
merger activity as well as the continuing trend by computer manufacturers to
outsource production to electronic contract manufacturers. SCI Systems, Inc.,
the world's largest provider of electronic manufacturing services, is one such
contract manufacturer. Headquartered in Huntsville, Alabama, this diversified
electronic manufacturer supplies products and systems to a variety of
aerospace, commercial, and industrial customers. The company recently signed
an agreement with Ericsson Telecom AB under which SCI intends to take over
Ericsson's printed board assembly operations in Leganes, Spain, near Madrid.
SCI's fiscal year 1997 sales increased 26.8% from the previous year to $5.76
billion, while net income increased 39.3% to $112.7 million.
In the retail industry of the consumer products sector, Rite Aid Corp. and
Pier 1 Imports, Inc. performed well for your fund during the period. Pier 1
Imports is North America's largest specialty retailer of imported decorative
home furnishings, gifts, and related items with stores in 47 states, Puerto
Rico, Canada, the United Kingdom, Japan, and Mexico. The company continues to
produce robust sales gains, driven by a broadening consumer acceptance of the
company's unique, fashionable decorative home furnishings. For the six-month
period ended August 30, 1997, sales were 11.7% better than last year's figures
as Pier 1 made the American Express Top 100 Specialty Stores list, compiled by
the National Retail Federation's Stores magazine.
During the period, Rite Aid Corp. entered into an agreement to merge with
Harco Inc. and K&B, Inc. Before the merger, Rite Aid Corp. operated one of the
nation's largest retail drugstore chains, with over 3,600 drugstores in 27
states and the District of Columbia. The merger will create a chain of 3,963
drugstores spanning 31 states and boost Rite Aid's annual revenues from $11
billion to an estimated $11.9 billion.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (8/31/97)]
PORTFOLIO COMPOSITION
Common stocks
(including warrants) -- 1.4%
Corporate high-yield
bonds -- 41.7%
Other -- 7.5%
Convertible
securities -- 49.4%
Footnote reads:
Based on total market value of assets. Composition will vary over time.
* HIGH-YIELD BONDS CONTINUE TO BENEFIT FROM STRONG ECONOMY
Your fund looks for high-yield securities issued by companies with strong cash
flows and stable or improving credit profiles. In general, we believe the
high-yield market continues to benefit from the strong economy in two key
ways. First, given the overall power of the economy, the credit strength of
many issuers has improved, making high-yield bonds an attractive investment.
Second, cash flow continues to pour into this market, aided by the newfound
confidence of many investors. A well-balanced ratio between supply and demand
can enhance performance.
Although the high-yield market in general has performed very well during the
period, security selection has played a key role in your fund's performance.
One example of a high-yield holding that contributed to the positive momentum
during the period was NEXTEL Communications, Inc. NEXTEL is the largest
specialized mobile radio service provider in the United States. It provides
cellular and dispatch-type services in over 200 cities. During the first six
months of 1997, NEXTEL's number of digital subscribers more than doubled from
1996 to about 624,000. The company's digital mobile network, which provides
subscribers with push-to-talk instant conferencing features and cellular,
paging, and advanced text messaging services, is operational in about 20 major
metropolitan areas, covering 50% of the U.S. population. As a result of its
accelerated network buildup, NEXTEL is expected to cover 85% of the U.S.
population by the end of 1998. We believe the company's strong growth in
subscribers may make it a continued standout in the portfolio.
* OPTIMISTIC OUTLOOK FOR BOTH CONVERTS AND HIGH-YIELD MARKETS
We remain continually optimistic regarding the overall convertible market and
continue to find fundamentally sound, attractively valued convertible
securities in many sectors of the market. Our outlook for the convertibles of
small-cap stocks that your fund focuses on appears more favorable than it has
been for some time. Valuations and earnings growth potential are quite
attractive compared to those of larger-capitalization stocks. While there can
be no assurances, we believe the potential for small companies to deliver
better-than-expected earnings may benefit several of the securities your fund
holds.
Given the positive economic background and the improvement in credit ratings
across the board, we currently believe the high-yield market should continue
to perform well in the near term. The economy continues to expand, inflation
appears under control, and merger and acquisition activity is proceeding at
record levels. Earnings are solid across most industries and demand for
high-yield bonds remains robust. Ratings upgrades far outweigh ratings
downgrades, and defaults continue at extremely low levels. We believe the
constructive outlooks for both the convertible securities market, particularly
the convertibles of small-cap companies, and the high-yield market, should
bode well for your fund's performance in the months ahead.
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 8/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam 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.
TOTAL RETURN FOR PERIODS ENDED 8/31/97
Merrill Lynch First Boston Consumer
Market All-Convertible High Yield Price
NAV price Index Bond Index Index
- -----------------------------------------------------------------------
6 months 9.94% 10.27% 12.88% 5.91% 0.75%
- -----------------------------------------------------------------------
1 year 20.56 30.64 21.92 15.43 2.23
- -----------------------------------------------------------------------
Life of fund
(since 6/29/95) 41.29 30.06 42.18 29.47 5.44
Annual average 17.18 12.81 17.60 12.63 2.47
- -----------------------------------------------------------------------
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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 8/31/97
- -------------------------------------------------------------------------
Distributions (number) 6
- -------------------------------------------------------------------------
Income $0.93
- -------------------------------------------------------------------------
Capital gains --
- -------------------------------------------------------------------------
Total $0.93
- -------------------------------------------------------------------------
Share value NAV Market price
- -------------------------------------------------------------------------
2/28/97 $26.40 $24.375
- -------------------------------------------------------------------------
8/31/97 27.94 25.875
- -------------------------------------------------------------------------
Current return NAV Market price
- -------------------------------------------------------------------------
End of period
- -------------------------------------------------------------------------
Current dividend rate1 6.66% 7.19%
- -------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Market
NAV price
- -------------------------------------------------------------------------
6 months 16.88% 14.78%
- -------------------------------------------------------------------------
1 year 21.22 27.00
- -------------------------------------------------------------------------
Life of fund
(since 6/29/95) 46.78 32.08
Annual average 18.51 13.10
- -------------------------------------------------------------------------
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.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding common 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.
Portfolio of investments owned
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (41.5%) *
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Advertising (0.2%)
- ------------------------------------------------------------------------------------------------------------
$ 90,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $ 94,725
100,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 99,000
--------------
193,725
Aerospace and Defense (0.3%)
- ------------------------------------------------------------------------------------------------------------
60,000 L-3 Communications Corp. 144A sr. sub. notes 10 3/8s, 2007 64,050
50,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 52,500
100,000 Sequa Corp. med. term notes 10s, 2001 103,425
65,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 66,300
--------------
286,275
Agriculture (1.0%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon Ser. B,
zero % (11 1/2s, 9/1/00), 2005 ++ 770,000
255,740 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 283,871
--------------
1,053,871
Apparel (0.2%)
- ------------------------------------------------------------------------------------------------------------
140,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 148,400
65,000 William Carter Holdings Co. 144A sr. sub. notes 12s, 2008 69,550
--------------
217,950
Automotive Parts (0.6%)
- ------------------------------------------------------------------------------------------------------------
90,000 A.P.S. Inc. company guaranty 11 7/8s, 2006 79,200
188,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 208,680
35,000 Cambridge Industries Inc. 144A sr. sub. notes 10 1/4s, 2007 36,400
100,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 (In Default) + 42,000
55,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 55,825
195,000 Lear Corp. sub. notes 9 1/2s, 2006 212,550
--------------
634,655
Banks (0.9%)
- ------------------------------------------------------------------------------------------------------------
70,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 69,300
100,000 Dime Capital Trust I bank guarantyd Ser. A, 9.33s, 2027 105,804
200,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 206,000
100,000 Greenpoint Capital Trust I 144A company guaranty 9.1s, 2027 103,500
60,000 North Fork Capital Trust I company guaranty 8.7s, 2026 61,438
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 26,063
80,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 88,600
50,000 Ocwen Financial Corp. notes 11 7/8s, 2003 55,750
70,000 Provident Capital Trust company guaranty 8.6s, 2026 70,238
40,000 Riggs Capital Trust 144A bonds 8 5/8s, 2006 40,204
60,000 Sovereign Capital Trust 144A company guaranty 9s, 2027 61,140
50,000 Webster Capital Trust I 144A bonds 9.36s, 2027 52,621
--------------
940,658
Broadcasting (3.3%)
- ------------------------------------------------------------------------------------------------------------
65,000 Antenna TV S.A. 144A sr. notes 9s, 2007 (Greece) 63,050
50,000 Azteca Holdings 144A sr. notes 11s, 2002 52,250
500,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 ++ 320,000
205,000 Capstar Broadcasting 144A sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 ++ 135,300
85,000 Capstar Broadcasting 144A sr. sub. notes 9 1/4s, 2007 84,575
75,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 75,188
40,000 Chancellor Radio Broadcasting Corp. sr. sub. notes 9 3/8s, 2004 41,400
4,370 Citadel Broadcasting Co. 144A sr. notes 10 1/4s, 2007 4,665
75,000 Citadel Broadcasting Co. 144A sr. sub. notes 10 1/4s, 2007 80,062
350,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s,
(13 1/4s, 5/1/98), 2003 ++ 386,750
270,000 Fox/Liberty Networks LLC 144A sr. notes 8 7/8s, 2007 266,625
95,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 99,275
500,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 530,000
195,000 Jacor Communications, Co. 144A company guaranty
8 3/4s, 2007 195,975
45,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 47,250
175,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 191,625
414,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 397,440
110,000 Radio One Inc. 144A sr. sub. notes stepped-coupon 7s,
(12s, 5/1/00), 2004 ++ 105,600
250,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 270,000
35,000 TV Azteca S.A. de C.V. 144A sr. notes 10 1/2s, 2007 (Mexico) 36,750
--------------
3,383,780
Building and Construction (1.0%)
- ------------------------------------------------------------------------------------------------------------
85,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2006 87,975
60,000 Continental Homes Holding Corp. sr. notes 10s, 2006 63,000
200,000 GS Superhighway Holdings 144A sr. notes 10 1/4s, 2007 200,500
300,000 Presley Cos. sr. notes 12 1/2s, 2001 279,000
30,000 Roller Bearing Co. 144A sr. sub. notes 9 5/8s, 2007 30,600
300,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 341,250
40,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 40,800
--------------
1,043,125
Building Products (1.0%)
- ------------------------------------------------------------------------------------------------------------
160,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 190,000
150,000 Consumers International 144A sr. notes 10 1/4s, 2005 161,625
275,000 Johns Manville International Group sr. notes 10 7/8s, 2004 307,656
250,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 252,500
150,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 ++ 128,250
--------------
1,040,031
Business Equipment and Services (0.2%)
- ------------------------------------------------------------------------------------------------------------
50,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 54,875
49,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 55,125
50,000 Williams Scoutman Inc. 144A sr.notes 9 7/8s, 2007 50,375
--------------
160,375
Cable Television (3.3%)
- ------------------------------------------------------------------------------------------------------------
1,065,679 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 1,031,044
250,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 82,500
250,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 191,250
300,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 214,125
295,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 181,794
217,572 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 228,451
50,000 Heartland Wireless Communications, Inc. sr. notes Ser. B,
14s, 2004 22,000
100,000 Heartland Wireless Communications, Inc. sr. notes 13s, 2003 38,000
250,000 International Cabletel Inc. sr. notes stepped-coupon Ser. A,
zero % (12 3/4s, 4/15/200), 2005 ++ 197,500
375,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 271,875
250,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 270,000
180,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 159,750
170,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 177,650
435,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 5/15/01), 2006 (Australia) ++ 287,100
140,000 Wireless One, Inc. sr. notes 13s, 2003 74,200
--------------
3,427,239
Cellular Communications (2.8%)
- ------------------------------------------------------------------------------------------------------------
575,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 ++ 484,438
40,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 43,050
100,000 Dobson Communications Corp. 144A 11 3/4s, 2007 98,000
20,000 Intercel, Inc. 144A sr. notes 11 1/8s, 2007 20,450
440,000 Intercel, Inc. sr. disc. notes stepped-coupon zero % (12s, 5/1/01),
2006 ++ 281,600
85,000 International Wireless Communications, Inc. sr. disc. notes
zero %, 2001 49,725
650,000 McCaw International Ltd. 144A sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 347,750
305,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 229,131
500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 ++ 413,750
200,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 195,000
75,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 73,125
500,000 Pricellular Wire sr. disc. notes stepped-coupon Ser. B, zero %
(14s, 11/15/97), 2001 ++ 541,875
100,000 Sprint Spectrum L.P. sr. notes 11s, 2006 111,000
--------------
2,888,894
Chemicals (1.7%)
- ------------------------------------------------------------------------------------------------------------
350,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 357,875
235,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 242,050
180,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 188,100
90,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 92,700
500,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 537,500
40,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 39,900
145,000 Polytama International notes 11 1/4s, 2007 137,750
105,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 105,000
75,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 51,000
--------------
1,751,875
Computer Equipment (0.2%)
- ------------------------------------------------------------------------------------------------------------
230,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 201,825
Computer Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
45,000 DecisionOne Corp. sr. sub. notes 9 3/4s, 2007 46,125
200,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 90,000
235,000 Unisys Corp. sr. notes 11 3/4s, 2004 259,675
--------------
395,800
Consumer Durable Goods (0.6%)
- ------------------------------------------------------------------------------------------------------------
55,000 Coleman Escrow Corp. 144A sr. disc. notes zero %, 2001 36,025
40,000 Coleman Escrow Corp. 144A sr. disc. notes zero %, 2001 23,700
130,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 11/15/01), 2006 ++ 70,200
515,000 International Semi-Tech. Corp. sr. disc. notes stepped-coupon
zero % (11 1/2s, 8/15/00), 2003 (Canada) ++ 324,450
150,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 123,750
--------------
578,125
Consumer Non Durable Goods (0.1%)
- ------------------------------------------------------------------------------------------------------------
95,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 97,850
Consumer Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
75,000 Affinity Group Holdings 144A sr. notes 11s, 2007 80,062
311,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 344,433
--------------
424,495
Cosmetics (0.4%)
- ------------------------------------------------------------------------------------------------------------
35,000 French Fragrances, Inc. sr. notes Ser. B., 10 3/8s, 2007 36,138
480,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 339,000
--------------
375,138
Electric Utilities (1.4%)
- ------------------------------------------------------------------------------------------------------------
95,000 Espirto Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 97,375
236,000 First PV Funding deb. 10.15s, 2016 252,138
750,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 880,830
128,494 Northeast Utilities System notes Ser. A, 8.58s, 2006 127,255
92,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 91,109
--------------
1,448,707
Electronic Components (0.1%)
- ------------------------------------------------------------------------------------------------------------
50,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 53,250
40,000 Therma-Wave Inc. 144A sr. notes 10 5/8s, 2004 42,900
--------------
96,150
Electronics (0.4%)
- ------------------------------------------------------------------------------------------------------------
55,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (India) 59,125
61,251 Cirent Semiconductor sr. sub. notes 10.22s, 2002 62,399
65,003 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 66,303
75,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 80,062
85,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 88,825
25,000 Wavetek Corp. 144A sr. sub. notes 10 1/8s, 2007 25,750
--------------
382,464
Energy-Related (0.5%)
- ------------------------------------------------------------------------------------------------------------
50,000 AES Corp. 144A sr. sub. notes 8 3/8s, 2007 49,625
100,000 Calpine Corp. sr. notes 9 1/4s, 2004 102,250
40,000 Pacalta Resources Ltd. 144A sr. notes 10 3/4s, 2004 (Cananda) 40,800
290,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 2004 281,300
--------------
473,975
Entertainment (0.9%)
- ------------------------------------------------------------------------------------------------------------
261,100 Cinemark Mexico notes 13s, 2003 (Mexico) [2 DBL. DAGGERS] 261,100
160,000 Cinemark USA, Inc. notes 9 5/8s, 2008 161,600
500,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 557,500
--------------
980,200
Environmental Control (0.2%)
- ------------------------------------------------------------------------------------------------------------
90,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 98,100
170,000 Allied Waste Industries, Inc. 144A sr. disc. notes
stepped-coupon zero % (11.3s, 6/1/02), 2007 ++ 114,750
--------------
212,850
Financial Services (1.1%)
- ------------------------------------------------------------------------------------------------------------
60,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 60,600
750,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 738,690
40,000 Colonial Capital II 144A company guaranty 8.92s, 2027 40,063
105,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 108,150
45,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 48,150
75,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 75,188
45,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 44,775
75,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 77,625
--------------
1,193,241
Food and Beverages (0.6%)
- ------------------------------------------------------------------------------------------------------------
115,000 Ameriserve Food Co. 144A sr. sub. notes 10 1/8s, 2007 118,450
25,000 Aurora Foods Inc. 144A sr. sub notes Ser. C, 9 7/8s, 2007 25,375
30,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 30,300
30,000 Del Monte Corp. sr. sub. notes Ser. B, 12 1/4s, 2007 31,950
200,000 Doane Products Co. sr. notes 10 5/8s, 2006 212,000
115,000 Fleming Companies, Inc. 144A sr. sub. notes 10 1/2s, 2004 116,150
30,000 Nebco Evans Holding Co. 144A sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 ++ 18,000
50,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 50,313
20,000 Windy Hill Pet Food Co. 144A sr.sub.notes 9 3/4s, 2007 20,400
--------------
622,938
Food Chains (0.8%)
- ------------------------------------------------------------------------------------------------------------
40,000 Shoppers Food Warehouse 144A sr. notes 9 3/4s, 2004 41,100
500,000 Southland Corp. 1st priority sr. sub. deb 5s, 2003 437,500
275,000 Stater Brothers sr. notes 11s, 2001 301,813
--------------
780,413
Gaming (1.5%)
- ------------------------------------------------------------------------------------------------------------
100,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 100,000
75,000 Casino America, Inc. sr. notes 12 1/2s, 2003 78,750
158,700 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 171,396
100,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 106,500
350,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 376,250
60,000 Isle of Capri Black Hawk LLC 144A 1st mortgage 13s, 2004 60,600
350,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 350,000
216,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 218,160
175,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 141,313
--------------
1,602,969
Gas Utilities (0.1%)
- ------------------------------------------------------------------------------------------------------------
95,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 96,604
Health Care (0.7%)
- ------------------------------------------------------------------------------------------------------------
120,000 Genesis Eldercare 144A sr. sub. notes 9s, 2007 120,600
275,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 279,813
145,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 148,625
160,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 164,800
--------------
713,838
Lodging (0.2%)
- ------------------------------------------------------------------------------------------------------------
100,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 101,250
120,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 127,200
--------------
228,450
Medical Supplies and Devices (0.8%)
- ------------------------------------------------------------------------------------------------------------
150,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 168,938
100,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 112,250
125,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 129,063
25,000 Leiner Health Products 144A sr. sub. notes 9 5/8s, 2007 25,875
250,000 Urohealth Systems, Inc. 144A sr. sub. notes 12 1/2s, 2004 241,250
150,000 Wright Medical Technology, Inc. sr. secd. notes 10 3/4s, 2000 152,250
--------------
829,626
Metals and Mining (0.5%)
- ------------------------------------------------------------------------------------------------------------
30,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 31,800
80,000 AK Steel Corp. sr. notes 9 1/8s, 2006 84,200
85,000 Altos Hornos de Mexico 144A bonds 11 3/8s, 2002 (Mexico) 91,375
80,000 Continental Global Group 144A sr. notes Ser. A, 11s, 2007 84,000
70,000 Murrin Murrin Holdings 144A sr. notes 9 3/8s, 2007 (Australia) 70,700
50,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 54,875
70,000 Royal Oak Mines, Inc. company guaranty Ser. B, 11s, 2006
(Canada) 63,000
--------------
479,950
Motion Picture Distribution (0.1%)
- ------------------------------------------------------------------------------------------------------------
130,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 2009 130,650
Networking (0.4%)
- ------------------------------------------------------------------------------------------------------------
600,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/00), 2005 ++ 424,500
Office Supplies (0.3%)
- ------------------------------------------------------------------------------------------------------------
250,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 283,750
Oil and Gas (2.8%)
- ------------------------------------------------------------------------------------------------------------
70,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 77,525
250,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 258,750
200,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 201,000
50,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 53,500
30,000 Dailey Petroleum Services Corp. 144A company guaranty
9 3/4s, 2007 30,525
50,000 DI Industries Inc. sr. notes 8 7/8s, 2007 49,500
45,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 47,588
25,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 25,938
250,000 Maxus Energy Corp. med. term notes 10.83s, 2004 282,788
55,000 Mesa Operating Co. company guaranty zero % (11 5/8s, 7/1/01),
2006 ++ 43,175
175,000 Ocean Energy, Inc. 144A sr. sub. notes 8 7/8s, 2007 177,188
75,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 79,500
20,000 Pogo Producing Co. 144A notes 8 3/4s, 2007 20,250
60,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 63,000
1,095,000 Transamerican Energy 144A sr. disc. notes stepped-coupon
zero % (13s 6/15/00), 2002 ++ 829,463
435,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 421,950
186,000 TransTexas Gas Corp. sr. sub. notes 13.3/4s, 2001 211,110
40,000 Wiser Oil Co. 144A sr. sub. notes 9 1/2s, 2007 38,700
--------------
2,911,450
Packaging and Containers (0.5%)
- ------------------------------------------------------------------------------------------------------------
100,000 Innova S De R.L. 144A sr. notes 12 7/8s, 2007 (Mexico) 105,700
60,000 Printpack, Inc. sr. notes Ser. B, 9 7/8s, 2004 63,000
40,000 Radnor Holdings Inc. sr.notes 10s, 2003 41,300
80,000 Riverwood International Corp. company guranty 10 7/8s, 2008 76,200
105,000 Riverwood International Corp. 144A sr. notes 10 5/8s, 2007 106,050
140,000 Vicap SA. 144A company guaranty 10 1/4s, 2002 (Mexico) 147,350
--------------
539,600
Paging (0.6%)
- ------------------------------------------------------------------------------------------------------------
375,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 409,688
300,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 233,250
--------------
642,938
Paper and Forest Products (1.4%)
- ------------------------------------------------------------------------------------------------------------
100,000 APP Finance II Mauritius Ltd. bonds 12s, 2049 (Indonesia) 98,250
100,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 105,250
75,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 81,000
230,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 248,400
200,000 Indah Kiat Financial Mauritius 144A 10s, 2007 (Indonesia) 191,000
170,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty 10s,
2004 (Indonesia) 164,050
300,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 284,250
100,000 Stone Container Corp. sr. notes 11 7/8s, 2016 109,000
130,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006 135,200
--------------
1,416,400
Pharmaceuticals and Biotechnology (0.1%)
- ------------------------------------------------------------------------------------------------------------
110,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 112,475
Publishing (0.3%)
- ------------------------------------------------------------------------------------------------------------
250,000 Affinity Group sr. sub. notes 11 1/2s, 2003 268,125
40,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 42,000
--------------
310,125
REIT's (Real Estate Investment Trust) (0.4%)
- ------------------------------------------------------------------------------------------------------------
150,000 HMH Properties, Inc. 144A sr. notes 8 7/8s, 2007 (Canada) 153,000
250,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 257,150
--------------
410,150
Railroads (0.1%)
- ------------------------------------------------------------------------------------------------------------
30,000 TFM SA DE CV 144A company guaranty 10 1/4s, 2007
(Mexico) 31,200
155,000 TFM SA DE CV 144A company guaranty zero %
(11 3/4s, 6/15/02), 2009 (Mexico) ++ 95,713
--------------
126,913
Restaurants (0.1%)
- ------------------------------------------------------------------------------------------------------------
100,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 107,000
Retail (0.8%)
- ------------------------------------------------------------------------------------------------------------
120,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 132,000
350,000 K mart Corp. med. term notes 7.85s, 2002 341,250
100,000 K mart Corp. deb. 7 3/4s, 2012 91,500
200,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 208,000
55,000 Specialty Retailers 144A company guaranty 8 1/2s, 2005 56,100
--------------
828,850
Satellite Services (0.8%)
- ------------------------------------------------------------------------------------------------------------
135,000 Echostar DBS Corp. 144A company guaranty 12 1/2s, 2002 137,700
90,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 56,700
315,000 Iridium LLC/Capital Corp. 144A sr. notes 14s, 2005 335,475
120,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 123,900
110,000 Pratama Datakom Asia BV 144A company guaranty 12 3/4s,
2005 (Indonesia) 106,700
80,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 82,400
--------------
842,875
School Buses (0.3%)
- ------------------------------------------------------------------------------------------------------------
335,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 ++ 304,013
Shipping (0.1%)
- ------------------------------------------------------------------------------------------------------------
90,000 Johnstown America Industries, Inc. 144A sr. sub. notes
11 3/4s, 2005 94,950
Supermarkets (0.3%)
- ------------------------------------------------------------------------------------------------------------
30,000 Marsh Supermarkets, Inc. 144A sr. sub. notes 8 7/8s, 2007 29,700
300,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 327,000
--------------
356,700
Telecommunication (3.4%)
- ------------------------------------------------------------------------------------------------------------
175,000 Advanced Radio Telecom Corp. sr. notes 14s, 2007 148,750
340,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 201,450
75,000 America Communication Services, Inc. 144A sr. notes
13 3/4s, 2007 79,688
135,000 Brooks Fiber Properties, Inc. 144A sr. notes 10s, 2007 142,425
496,000 GST USA, Inc. company guaranty stepped-coupon zero %
(13 7/8s, 12/15/00), 2005 ++ 334,800
80,000 Hermes Europe Railtel 144a sr. notes 11 1/2s, 2007
(Netherlands) 84,200
300,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 189,750
170,000 Hyperion Telecommunications, Inc. 144A sr. notes
12 1/4s, 2004 174,250
930,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 713,775
105,000 ITC Deltacom, Inc. 144A sr. notes 11s, 2007 110,775
250,000 Intermedia Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (11 1/4s, 7/15/02), 2007 ++ 157,500
160,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 105,200
300,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 297,000
200,000 Nextlink Communications sr. notes 12 1/2s, 2006 220,500
135,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 141,750
125,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 93,125
80,000 Winstar Equipment Corp. 144A company guaranty
12 1/2s, 2004 81,600
450,000 Winstar Communications, Inc. 144A sr disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 281,250
--------------
3,557,788
Textiles (0.3%)
- ------------------------------------------------------------------------------------------------------------
40,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 42,500
100,000 Polymer Group, Inc. 144A sr. sub. notes 9s, 2007 100,000
135,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 147,825
--------------
290,325
--------------
Total Corporate Bonds and Notes (cost $39,820,610) $ 42,929,513
CONVERTIBLE BONDS AND NOTES (30.8%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.4%)
- ------------------------------------------------------------------------------------------------------------
$ 310,000 DRS Technologies, Inc. cv. sr. sub. deb 9s, 2003 $ 461,900
Airlines (0.8%)
- ------------------------------------------------------------------------------------------------------------
220,000 Atlantic Coast Airlines 144A cv. sub. notes 7s, 2004 259,600
558,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 530,100
--------------
789,700
Automotive (1.1%)
- ------------------------------------------------------------------------------------------------------------
500,000 Magna International cv. sub. deb. 5s, 2002 628,750
JPY 40,000,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 540,182
--------------
1,168,932
Banks (0.5%)
- ------------------------------------------------------------------------------------------------------------
$ 480,000 MBL International Finance Bermuda Trust c.v. bank
guaranteed 3s, 2002 (Bermuda) 528,000
Broadcasting (0.6%)
- ------------------------------------------------------------------------------------------------------------
900,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 572,625
Business Equipment and Services (1.4%)
- ------------------------------------------------------------------------------------------------------------
460,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 421,475
440,000 Staples, Inc. 144A cv. sub. deb. 4 1/2s, 2000 534,050
540,000 U.S. Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 500,175
--------------
1,455,700
Cable Television (1.0%)
- ------------------------------------------------------------------------------------------------------------
955,000 Comcast Corp. cv. notes 1 1/8s, 2007 574,194
445,000 International Cabletel Inc. 144A cv. deb. 7 1/4s, 2005 447,225
--------------
1,021,419
Computer Equipment (0.9%)
- ------------------------------------------------------------------------------------------------------------
470,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 431,225
460,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s, 2003 466,900
--------------
898,125
Computers (1.5%)
- ------------------------------------------------------------------------------------------------------------
765,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 840,544
805,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 724,500
--------------
1,565,044
Conglomerates (0.4%)
- ------------------------------------------------------------------------------------------------------------
240,000 Hexcel Corp. cv. sub. notes 7s, 2003 447,000
Consumer Non Durables (0.5%)
- ------------------------------------------------------------------------------------------------------------
550,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 + 497,750
Consumer Services (1.5%)
- ------------------------------------------------------------------------------------------------------------
1,450,000 Hollinger, Inc. cv. LYON (Liquid Yield Option Notes)
zero %, 2013 554,625
350,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 402,938
555,000 WMS Industries, Inc. cv. deb. 5 3/4s, 2002 592,462
--------------
1,550,025
Electronics and Electrical Equipment (4.4%)
- ------------------------------------------------------------------------------------------------------------
228,000 Dovatron International cv. sub. notes 6s, 2002 358,245
340,000 Lernout & Hauspie Speech Products N.V. 144A cv. sub. notes
8s, 2001 (Belgium) 448,800
670,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 592,950
215,000 Photronics, Inc. cv. sub. notes 6s, 2004 268,750
500,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 530,000
365,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 652,894
590,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 696,200
395,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 454,250
450,000 Thermo Quest Corp. 144A company guaranty cv. 5s, 2000 504,563
--------------
4,506,652
Environmental Control (1.1%)
- ------------------------------------------------------------------------------------------------------------
250,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 256,250
460,000 U.S. Filter Corp. cv. sub. notes 4 1/2s, 2001 510,600
355,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 324,825
--------------
1,091,675
Food (0.5%)
- ------------------------------------------------------------------------------------------------------------
460,000 Chock Full O'Nuts Corp. cv. sub. deb. 8s, 2006 478,400
Health Care (1.0%)
- ------------------------------------------------------------------------------------------------------------
80,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 90,900
340,000 Renal Treatment Centers, Inc. 144A cv. sub. notes 5 5/8s, 2006 386,325
465,000 Rotech Medical Corp. 144A cv. sub. deb. 5 1/4s, 2003 452,794
95,000 Rotech Medical Corp. cv. sub. deb. 5 1/4s, 2003 92,506
--------------
1,022,525
Hospital Management and Medical Services (1.3%)
- ------------------------------------------------------------------------------------------------------------
420,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 460,950
475,000 Sun Healthcare Group Inc. 144A cv. sub. notes 6s, 2004 513,594
365,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 390,550
--------------
1,365,094
Insurance and Finance (1.5%)
- ------------------------------------------------------------------------------------------------------------
125,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 120,000
470,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 521,700
300,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 492,000
550,000 USF&G Corp. cv. sub. notes zero %, 2009 374,000
--------------
1,507,700
Lodging (0.3%)
- ------------------------------------------------------------------------------------------------------------
315,000 HFS, Inc. cv. sr. notes 4 3/4s, 2003 350,044
Medical Supplies and Devices (0.9%)
- ------------------------------------------------------------------------------------------------------------
350,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 + 105,000
415,000 Thermo Cardiosystems, Inc. 144A cv. company guaranty
4 3/4s, 2004 433,675
670,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 415,400
--------------
954,075
Metals and Mining (0.5%)
- ------------------------------------------------------------------------------------------------------------
440,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 510,400
Oil and Gas (0.8%)
- ------------------------------------------------------------------------------------------------------------
500,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 548,125
225,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 231,469
--------------
779,594
Paper and Forest Products (0.7%)
- ------------------------------------------------------------------------------------------------------------
445,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 695,869
Pharmaceuticals (1.9%)
- ------------------------------------------------------------------------------------------------------------
1,145,000 Alza Corp. cv. sub. LYON zero %, 2014 495,213
150,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 126,563
390,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 334,425
715,000 Pharmaceutical Marketing Services Inc. 144A cv. deb.
6 1/4s, 2003 629,200
745,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010
(Switzerland) 372,500
--------------
1,957,901
Publishing (0.3%)
- ------------------------------------------------------------------------------------------------------------
325,000 Graphic Industries cv. sub. deb. 7s, 2006 337,594
REIT's (0.3%)
- ------------------------------------------------------------------------------------------------------------
305,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 349,225
Restaurants (0.3%)
- ------------------------------------------------------------------------------------------------------------
430,000 Einstein/Noah Bagel Corp. 144A cv. sub. deb. 7 1/4s, 2004 361,738
Retail (2.6%)
- ------------------------------------------------------------------------------------------------------------
740,000 Baker (J.), Inc. cv. deb. 7s, 2002 658,600
440,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 510,400
585,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 551,363
300,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 452,625
675,000 Rite Aid Corp. cv. deb. zero %, 2006 541,688
--------------
2,714,676
Satellite Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
330,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s,
2004 (Israel) 330,000
Semiconductors (0.9%)
- ------------------------------------------------------------------------------------------------------------
640,000 Plasma & Materials Technologies, Inc. 144A cv. notes
7 1/8s, 2001 518,400
410,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 462,275
--------------
980,675
Telecommunications (0.6%)
- ------------------------------------------------------------------------------------------------------------
62,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 ++ 55,800
465,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003 390,600
225,000 Winstar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 145,125
--------------
591,525
--------------
Total Convertible Bonds and Notes (cost $30,428,588) $ 31,841,582
CONVERTIBLE PREFERRED STOCKS (18.4%) *
NUMBER OF SHARES VALUE
Automotive (0.5%)
- ------------------------------------------------------------------------------------------------------------
3,790 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. cum. pfd. $ 541,970
Banks (1.6%)
- ------------------------------------------------------------------------------------------------------------
7,740 Matewan Bancshares, Inc. Ser. A, $1.875 cv. pfd. 207,045
9,250 Sovereign Bancorp Inc. $3.125 cv. cum. pfd. 871,813
9,040 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 583,059
--------------
1,661,917
Basic Industrial Product (1.0%)
- ------------------------------------------------------------------------------------------------------------
3,595 Case Corp. $4.50 cv. pfd. 573,403
10,000 Greenfield Industries, Inc. 144A $3.00 cv. pfd. 460,000
--------------
1,033,403
Broadcasting (1.3%)
- ------------------------------------------------------------------------------------------------------------
7,725 Chancellor Broadcasting Corp. 144A $3.50 cv. pfd. 576,478
350 SFX Broadcasting, Inc. Ser. D, $3.25 cv. cum. pfd. 28,613
6,630 SFX Broadcasting, Inc. 144A $3.25 cv. pfd. 542,003
32,400 Triathlon Broadcasting Co. $0.945 cv. pfd. 279,450
--------------
1,426,544
Building Products (--%)
- ------------------------------------------------------------------------------------------------------------
1,000 Greenfield Capital Trust $3.00 cv. pfd. 46,000
Cable Television (0.3%)
- ------------------------------------------------------------------------------------------------------------
2,450 Cablevision Systems Corp. Ser. H, $11.75 cv. pfd. [2 DBL. DAGGERS] 275,625
71 Cablevision Systems Corp. Ser. I, $8.50 cv. pfd. 1,913
--------------
277,538
Computer Products (0.6%)
- ------------------------------------------------------------------------------------------------------------
13,450 Vanstar Corp. 144A $3.375 cv. pfd. 578,350
Computer Services (0.5%)
- ------------------------------------------------------------------------------------------------------------
11,100 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 549,450
Conglomerates (0.4%)
- ------------------------------------------------------------------------------------------------------------
5,390 Corning Delaware (L.P.) $3.00 cv. pfd. 447,370
Financial Services (1.4%)
- ------------------------------------------------------------------------------------------------------------
7,950 Finova Finance Trust $2.75 cv. cum. pfd. 492,900
9,390 Penncorp Financial Group, Inc. 144A $3.50 cv. cum. pfd. 524,666
14,000 Walbro Captial Trust $2.00 cv. pfd. 406,000
--------------
1,423,566
Food (0.4%)
- ------------------------------------------------------------------------------------------------------------
7,270 Chiquita Brands International, Inc. Ser. B, $3.75 cv. pfd. 415,299
Insurance (0.9%)
- ------------------------------------------------------------------------------------------------------------
5,900 Aetna Inc. $6.25 cv. pfd. 519,200
6,200 American Heritage Life Investment Corp. $4.25 cv. pfd. 368,900
--------------
888,100
Insurance and Finance (2.4%)
- ------------------------------------------------------------------------------------------------------------
6,450 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 684,506
5,300 American Bankers Insurance Group, Inc. Ser. B, $3.125 cv. pfd. 398,825
9,150 American General Delaware Corp. $3.00 cv. cum. pfd. 593,034
6,300 Neuvo Financing I Ser. A, $2.875 cv. pfd. 343,350
6,430 St. Paul Capital LLC $3.00 cv. cum. pfd. 434,025
--------------
2,453,740
Metals and Mining (1.4%)
- ------------------------------------------------------------------------------------------------------------
15,120 Freeport-McMoRan Copper Co., Inc. $1.75 cv. cum. pfd. 412,020
11,970 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 478,800
10,195 Timet Capital Trust I 144A $3.312 cv. pfd. 576,018
--------------
1,466,838
Non-Ferrous Metals (0.4%)
- ------------------------------------------------------------------------------------------------------------
7,020 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 375,570
Oil and Gas (1.9%)
- ------------------------------------------------------------------------------------------------------------
6,075 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 337,922
9,205 Tejas Gas Corp. $2.625 cv. cum. pfd. 522,384
10,200 Tosco Financing Trust 144A $2.875 cv. pfd. 613,275
9,200 Unocal Capital Trust $3.125 cv. cum. pfd. 530,150
--------------
2,003,731
Paper and Forest Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
8,600 International Paper Co. $2.625 cv. pfd. 478,375
Real Estate (0.5%)
- ------------------------------------------------------------------------------------------------------------
10,680 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 512,640
Recreation (0.4%)
- ------------------------------------------------------------------------------------------------------------
10,330 Station Casinos, Inc. $3.50 cv. pfd. 446,773
Retail (0.7%)
- ------------------------------------------------------------------------------------------------------------
11,650 K mart Financing I $3.875 cv. cum. pfd. 686,622
Telecommunication (0.6%)
- ------------------------------------------------------------------------------------------------------------
10,970 AirTouch Communications, Inc. Ser. C, $2.125 cv. pfd. 599,922
Transportation (0.2%)
- ------------------------------------------------------------------------------------------------------------
3,000 Hvide Capital Trust 144A $3.25 cv. pfd. 187,500
Utilities (0.5%)
- ------------------------------------------------------------------------------------------------------------
7,970 CalEnergy Capital Trust 144A $3.75 cv. cum. pfd. 502,110
--------------
Total Convertible Preferred Stocks (cost $16,068,547) $ 19,003,328
PREFERRED STOCKS (4.9%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
2,232 Alliance Gaming Corp. Ser. B, $15.00 pfd. [2 DBL. DAGGERS] $ 228,780
2,000 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 56,000
6,254 Cablevision Systems Corp. Ser. M, $11.125 dep. shs.
cum. pfd. [2 DBL. DAGGERS] 684,813
3,000 California Federal Bankcorp Inc. Ser. B, $11.50 pfd. 337,500
1,000 California Federal Bank Ser. B, $10.625 exch. pfd. 110,000
600 Capstar Broadcasting Inc. 144A $12.00 pfd. 63,000
1,217 Chancellor Radio Broadcasting 144A $12.00 pfd. 136,304
2,970 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 158,895
1,000 Citadel Broadcasting Co. 144A $13.25 pfd. [2 DBL. DAGGERS] 107,750
3,755 Diva Systems Corp. Ser. C, $6.00 pfd. 42,713
2,357 El Paso Electric Co. $11.40 cum pfd [2 DBL. DAGGERS] 260,449
125 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 129,688
135 Intermedia Communication Ser. B, 13.50% pfd. 153,225
175 IXC Communications, Inc. 144A $12.50 pfd. [2 DBL. DAGGERS] 185,281
500 Nextel Communications Inc. 144A $13.00 pfd. [2 DBL. DAGGERS] 546,250
2,705 Nextlink Communications, Inc. Ser. 144A $7.00 cum. pfd. 156,890
141 NTL Inc. 144A 13.00% pfd. [2 DBL. DAGGERS] 158,625
5,000 Pantry Pride Inc. Ser. B, $14.875 pfd. 505,000
250 Paxson Communications Corp. 12.5% pfd. [2 DBL. DAGGERS] 275,000
5,950 SFX Broadcasting, Inc. Ser. E, $12.625 cum pfd. [2 DBL. DAGGERS] 663,425
100 Spanish Broadcasting Systems 144A 14.25% cum. pfd. [2 DBL. DAGGERS] 109,500
950 Von Hoffman Corp. 144 13.50% pfd. 27,170
--------------
Total Preferred Stocks (cost $4,821,973) $ 5,096,258
UNITS (2.1%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
250 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (Australia) ++ $ 201,875
50 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 950,000
95 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 63,650
185 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2006 ++ 160,488
175 Fitzgerald Gaming Co. units 13s, 2002 161,000
20 Hedstrom Holdings, Inc. units stepped-coupon zero %
(12s, 6/01/02), 2009 ++ 12,600
175 Iridium LLC/Capital Corp. units 13s, 2005 195,563
55 Paging Network Do Brasil 144A units 13 1/2s, 2005 (Brazil) 53,694
90 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 52,425
80 Stone Container Corp. units sr. sub. 12 1/4s, 2002 82,400
200 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 204,000
600 XCL Ltd. units cum. pfd. 9.50 % 52,200
--------------
Total Units (cost $1,662,610) $ 2,189,895
COMMON STOCKS (1.3%) * +
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
3,541 Advanced Radio Telecom Corp. $ 27,000
50 AmeriKing, Inc. 2,500
4,800 CellNet Data Systems Inc. 57,600
22,025 PSF Holdings LLC Class A 583,663
1,800 Terex Corp. Rights 144A 36,000
5,429 Texas Instruments, Inc. 616,870
--------------
Total Common Stocks (cost $1,182,530) $ 1,323,633
FOREIGN GOVERNMENT BONDS AND NOTES (0.3%) * (cost $249,623)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 460,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan FRN,
Libor plus 13/16s, 2020 +##+++ $ 328,325
WARRANTS (0.2%) EXPIRATION
NUMBER OF WARRANTS * + DATE VALUE
- ------------------------------------------------------------------------------------------------------------
90 Esat Holdings (Ireland) 1/1/04 $ 1,800
250 Hyperion Telecommunications 144A 4/15/01 7,500
6,534 Intelcom Group 144A 9/15/05 94,743
200 Interact Systems Inc. 3/19/99 50
85 International Wireless Communications Holdings 8/15/01 1
650 McCaw International Ltd. 144A 4/15/07 163
2,525 Nextlink Communications, Inc. 144A 2/1/09 25
1,001 Petracom Holdings, Inc. 8/1/05 7,132
135 RSL Communications Ltd. 144A 11/15/06 6,750
2,200 SDW Holdings Corp. 144A 4/1/04 28,600
100 Spanish Broadcasting Systems 144A 6/30/99 14,500
75 Sterling Chemicals Holdings 8/15/08 2,625
250 Urohealth Systems Inc. 144A 4/10/04 1,250
--------------
Total Warrants (cost $149,181) $ 165,139
SHORT-TERM INVESTMENTS (0.1%) * (cost $140,065)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 140,000 Interest in $453,719,000 joint repurchase agreement dated
August 29, 1997 with SBC Warburg due September 2, 1997
with with respect to various U.S. Treasury obligations --
maturity value of $140, 086 for an effective yield of 5.55% $ 140,065
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $94,523,727) *** $ 103,017,738
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $103,494,152
*** The aggregate identified cost on a tax basis is $94,521,375, resulting in gross unrealized appreciation
and depreciation of $12,628,651 and $4,132,288, respectively, or net unrealized appreciation of
$8,496,363.
+ Non-income-producing security.
++ The interest and date shown parenthetically represent the new interest rate to be paid and the date the
fund will begin receiving interest at this rate.
+++ A portion of the income will be received in additional securities.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer.
## When-issued securities (Note 1).
144A after the name of a security represents those exempt from registration under Rule
144A of the Securities Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at August 31, 1997 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $ 342,599 $ 404,234 1/28/98 $ 61,635
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $94,523,727) (Note 1) $ 103,017,738
- ---------------------------------------------------------------------------------------------------
Cash 29,825
- ---------------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 1,195,684
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 601,187
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 61,635
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 558
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 20,691
- ---------------------------------------------------------------------------------------------------
Total assets 104,927,318
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 573,482
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 465,742
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 348,996
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 11,185
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,822
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,173
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 25,766
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,433,166
- ---------------------------------------------------------------------------------------------------
Net assets $ 103,494,152
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $ 92,004,703
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (864,717)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment and
foreign currency transactions (Note 1) 3,798,520
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 8,555,646
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 103,494,152
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($103,494,152 divided by 3,704,000 shares) $27.94
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended August 31, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends $ 696,782
- --------------------------------------------------------------------------------------------------
Interest income 3,335,183
- --------------------------------------------------------------------------------------------------
Total investment income 4,031,965
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 679,177
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 76,575
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,416
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,360
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,603
- --------------------------------------------------------------------------------------------------
Reports to shareholders 10,994
- --------------------------------------------------------------------------------------------------
Registration fees 75
- --------------------------------------------------------------------------------------------------
Auditing 19,817
- --------------------------------------------------------------------------------------------------
Legal 37,875
- --------------------------------------------------------------------------------------------------
Postage 7,427
- --------------------------------------------------------------------------------------------------
Exchange listing fees 10,780
- --------------------------------------------------------------------------------------------------
Other 363
- --------------------------------------------------------------------------------------------------
Total expenses 856,462
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (40,873)
- --------------------------------------------------------------------------------------------------
Net expenses 815,589
- --------------------------------------------------------------------------------------------------
Net investment income 3,216,376
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,180,284
- --------------------------------------------------------------------------------------------------
Net realized gain on forward currency transactions (Note 1) 463
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 10,760
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 3,740,386
- --------------------------------------------------------------------------------------------------
Net gain on investments 5,931,893
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $9,148,269
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
August 31 February 28
1997* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 3,216,376 $ 6,550,012
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 2,180,747 5,138,840
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 3,751,146 576,794
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 9,148,269 12,265,646
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (3,444,639) (6,781,670)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (4,938,258)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (636,454)
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 5,703,630 (90,736)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 97,790,522 97,881,258
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $864,717 and $636,454,
respectively) $103,494,152 $97,790,522
- ----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning and 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)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the Period
Per-share August 31 Year ended June 29, 1995+
operating performance (Unaudited) February 28 to February 29
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $26.40 $26.43 $24.85 (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .87 1.77 1.17
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.60 1.54 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.47 3.31 2.80
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.93) (1.83) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (1.34) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- (.17) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.93) (3.34) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $27.94 $26.40 $26.43
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $25.875 $24.375 $22.625
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 10.27 * 23.54 (4.53)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $103,494 $97,791 $97,881
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86 * 1.72 1.14 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.25 * 6.66 4.56 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 31.81 * 70.33 38.92 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0486 $.0539
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
(d) 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.
</TABLE>
Notes to financial statements
August 31, 1997 (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.
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, preferred stocks and 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.
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 discounts, stepped-coupon
bonds and payment in kind bonds are accreted according to the effective yield
method.
Securities purchased or sold on a (when-issued or forward commitment) or
delayed delivery basis may be settled a month or more after the trade date;
interest income is accrued based on the terms of the security. Losses may
arise due to changes in the market value of the underlying securities or if
the counterparty does not perform under the contract.
E) 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 appreciation and depreciation of
assets and liabilities in foreign currencies 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
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.
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 of 1.10% of average net assets.
The fund compensates Putnam Management for administrative services based on
quarterly net assets of the fund. Such administrative fees are based at an
annual rate of 0.25% of the average net assets of the fund.
The fund also reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended August 31, 1997, fund expenses were reduced by
$40,873 under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these credits.
The fund could have invested a portion of the assets utilized in connection
with the expense offset arrangements in an income producing asset if it had
not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,183 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended August 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $30,885,413 and
$31,444,661, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Edward T. Shadek, Jr.
Vice President and Fund Manager
Jennifer E. Leichter
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA019 36571 224 10/97
