Putnam
Convertible
Opportunities
and Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-98
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
From time to time, it seems the world's economic and political events
conspire to rattle the investment markets. So far in 1998, investors have
responded to earnings disappointments, an inventory correction among
small-cap issuers, slowing overseas economies, and a rash of political
instability in places like Russia and Japan. Putnam Convertible
Opportunities and Income Trust's recent performance reflects this
unfavorable environment. Your fund returned -10.53% at net asset value and
- -13.12% at market price for the six months ended August 31, 1998. You can
find additional performance information on pages 5 and 6.
In its pursuit of capital appreciation and current income, your fund
invests primarily in the convertible bonds of small and midsize companies
with strong prospects for earnings growth. These companies generally
lagged their large-capitalization counterparts this year as investors
weighed the potential impact of Asia's recession on U.S. earnings. Large
companies were perceived to be less vulnerable to earnings
disappointments, since multinationals can often shift production and sales
from one region of the world to another.
Within the small-cap group, some sectors fared better than others. For
instance, companies supplying basic materials suffered as nervous
investors sold off securities sensitive to an economic slowdown.
Technology companies -- roughly a quarter of all convertible bond issuers
- -- were hurt by falling Asian currencies, which afford a price advantage
to Asian competitors. They were also affected by lower semiconductor
prices. Holdings that performed relatively well during this period
included convertible bonds from the retail, home construction, financial,
and communications sectors. Strong consumer spending helped lift the
fortunes of companies such as Ann Taylor, thanks to an exceptional job
market and lower prices for global commodities. The fund's performance was
also helped by corporate bond holdings in the telecommunications,
broadcasting, and cable television sectors.
Few alterations were made to the portfolio during the period. When
opportunities arose, your fund's managers, Charles G. Pohl and Jeffrey J.
Kobylarz, cautiously employed strategies aimed at improving portfolio
quality and minimizing volatility. For example, they sought to dampen the
portfolio's equity sensitivity by purchasing bonds with higher yields,
particularly in the technology and energy sectors, in which falling prices
had boosted some yields substantially. Where possible, they also traded
lower-quality names for more conservatively managed companies such as Park
Electrochemical and Kent Electronics, whose bonds were selling at
discounts due to the recent volatility.
Market setbacks are never easy in the short run. However, small companies
have proved their ability to bounce back over time. According to Ibbotson
Associates, an investment consulting and education service, the stocks of
small companies have demonstrated the strongest performance of any asset
class since 1926, although with correspondingly higher swings in
short-term performance.* Convertible bonds offer a less volatile way to
participate in the long-term performance of small companies because the
interest these bonds pay can help cushion performance during market
downturns. This year provides an excellent example. Within the Merrill
Lynch All Convertible Bond Index, the convertible bonds of companies with
market capitalizations under $1 billion returned -9.78% for the eight
months ended August 31, compared with -26.70% for the underlying common
stocks.
*Source: Ibbotson Associates, Stocks, Bonds, Bills, and Inflation 1998
Yearbook.
[GRAPHIC OMITTED: pie chart of PORTFOLIO COMPOSITION]
PORTFOLIO COMPOSITION*
Common stocks,
including warrants -- 1.6%
Preferred stocks -- 4.1%
Other -- 4.2%
Convertible securities -- 46.4%
Footnote reads:
*Based on total market value of assets as of 8/31/98. Holdings will vary
over time.
[GRAPHIC OMITTED: TOP FIVE CONVERTBLE HOLDINGS]
TOP FIVE CONVERTIBLE HOLDINGS*
Berkshire Hathaway, Inc., 1% convertible, 2001
Insurance and finance
Pharmaceutical Marketing Services Inc., 6.25% 144A convertible, 2003
Pharmaceuticals and biotechnology
Home Depot, Inc., 3.25% convertible, 2001
Retail
Corporate Express, Inc. 4.5% 144A convertible, 2000
Business equipment and services
Staples, Inc., 4.5% 144A convertible, 2000
Business equipment and services
[GRAPHIC OMITTED: TOP FIVE HIGH-YIELD HOLDINGS]
TOP FIVE HIGH-YIELD HOLDINGS*
Advanta Corp., Series B 7.0%, 2001
Financial services
Transamerican Energy, stepped-coupon zeroes, 2002
Oil and gas
Midland Funding Corp., Series A 11.75%, 2005
Electric utilities
Adelphia Communications Corp., 9.5%, 2004
Cable television
NEXTEL Communications, Inc., stepped-coupon zeroes, 2007
Cellular communications
*These combined holdings represent 6.9% of the fund's net assets as of
8/31/98. Portfolio holdings will vary over time.
Given the severity of this summer's correction, we are optimistic that
small-company convertibles and high-yield bonds are now poised for a
rebound. Although Asia's problems are not yet behind us, the Federal
Reserve Board has signaled its willingness to lower interest rates,
setting the stage for an improvement in bond prices. Meanwhile, your
fund's managers will continue to look for opportunities to improve the
portfolio with holdings that reflect quality management and visible
earnings growth at reasonable prices.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 21, 1998
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 8/31/98, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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 8/31/98
Merrill Lynch First Boston Consumer
Market All-Convertible High Yield Price
NAV price Index Bond Index Index
- ----------------------------------------------------------------------
6 months -10.53% -13.12% -10.36% -4.48% 0.93%
- ----------------------------------------------------------------------
1 year -4.40 -0.70 -3.35 1.46 1.62
- ----------------------------------------------------------------------
Life of fund
(since 6/29/95) 35.07 29.16 37.41 31.36 7.15
Annual average 9.95 8.41 10.54 8.98 2.20
- ----------------------------------------------------------------------
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 8/31/98
- ----------------------------------------------------------------------
Distributions
- ----------------------------------------------------------------------
Number 6
- ----------------------------------------------------------------------
Income $0.93
- ----------------------------------------------------------------------
Capital gains --
- ----------------------------------------------------------------------
Total $0.93
- ----------------------------------------------------------------------
Share value NAV Market price
- ----------------------------------------------------------------------
2/28/98 $27.57 $27.312
- ----------------------------------------------------------------------
8/31/98 23.78 22.875
- ----------------------------------------------------------------------
Current return (end of period)
- ----------------------------------------------------------------------
Current dividend rate1 7.82% 8.13%
- ----------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 9/30/98
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------------
6 months -12.59% -11.31%
- ------------------------------------------------------------------------------
1 year -7.91 -0.98
- ------------------------------------------------------------------------------
Life of fund (since 6/29/95) 35.16 30.79
Annual average 9.68 8.58
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
Merrill Lynch All-Convertible Index* is an unmanaged list of convertible
securities commonly used as a measure of performance for the convertible
market.
First Boston High-Yield Bond Index* is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's(R)
and Moody's. The average quality of bonds included in the index may be
lower than the average quality of those bonds in which the fund
customarily invests.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1998 (Unaudited)
CORPORATE BONDS AND NOTES (43.3%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 90,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 95,400
90,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 93,600
65,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 65,000
100,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 102,000
--------------
356,000
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 46,250
120,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 113,400
60,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 58,200
50,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 49,250
100,000 Sequa Corp. med. term notes 10s, 2001 105,655
60,000 United Defense Industries Inc. company guaranty
8 3/4s, 2007 58,800
--------------
431,555
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
255,740 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 269,805
Airlines (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Calair LLC 144A company guaranty 8 1/8s, 2008 74,000
75,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 69,750
130,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) 122,850
160,000 Cathay International Ltd. 144A sr. notes 13s, 2008 80,000
65,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 66,300
180,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 166,500
--------------
579,400
Apparel (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 149,100
65,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 66,300
--------------
215,400
Automotive Parts (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
188,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 195,520
35,000 Cambridge Industries, Inc. company guaranty Ser. B,
10 1/4s, 2007 32,550
55,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 55,550
200,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 194,000
250,000 Oxford Automotive, Inc. company guaranty 10 1/8s, 2007 248,750
170,000 Talon Automotive Group 144A sr. sub. notes 9 5/8s, 2008 153,000
--------------
879,370
Banks (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 56,000
100,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 110,243
95,000 Espirto Santo Centrais sr. notes 10s, 2007 (Brazil) 54,150
200,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 218,500
40,000 Fuji JGB Inv. LLC 144A FLIRB 9.87s, 2049 30,800
100,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 112,464
150,000 Korea Developmental Bank bonds 7 1/8s, 2001 121,791
60,000 North Fork Capital Trust I company guaranty 8.7s, 2026 69,624
100,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 83,000
70,000 Provident Capital Trust company guaranty 8.6s, 2026 76,513
40,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 44,560
60,000 Sovereign Capital Trust company guaranty 9s, 2027 67,364
50,000 Webster Capital Trust I 144A bonds 9.36s, 2027 54,615
--------------
1,099,624
Basic Industrial Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Axia, Inc. 144A sr. sub. notes 10 3/4s, 2008 113,400
90,000 Insilco Holding Co. 144A sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 42,300
30,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 29,100
--------------
184,800
Broadcasting (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Affinity Group Holdings sr. notes 11s, 2007 72,750
50,000 Australis Holdings Ltd. sr. disc. notes stepped-coupon
zero % (15s, 11/01/00), 2002 (In Default) (Australia) (STP) (NON) 6,875
500,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 375,000
85,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 84,150
205,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 145,550
75,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s,
2004 67,500
79,370 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 87,307
250,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 202,500
250,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 (STP) 212,500
265,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 235,850
240,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 132,000
160,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 148,000
80,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 76,400
300,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 315,000
250,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 280,000
447,000 PHI Holdings, Inc. sr. disc. notes Ser. A 16s, 2001 336,815
110,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 104,500
50,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002
(Mexico) 41,500
35,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 26,950
--------------
2,951,147
Building and Construction (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 47,000
85,000 Atrium Companies, Inc. 144A sr. sub. notes 10 1/2s, 2006 80,325
70,000 Beazer Homes USA company guaranty 8 7/8s, 2008 65,450
60,000 Brand Scaffold Services 144A sr. notes 10 1/4s, 2008 55,200
180,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 118,800
70,000 Presley Cos. sr. notes 12 1/2s, 2001 62,650
30,000 Republic Group Inc. 144A sr. sub. notes 9 1/2s, 2008 27,900
--------------
457,325
Building Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
85,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 80,750
150,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 (STP) 140,250
--------------
221,000
Business Equipment and Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Corporate Express Holdings, Inc. 144A sr. sub. notes 9 5/8s,
2008 81,000
110,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 106,150
50,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 48,000
49,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 52,430
110,000 U.S. Office Products Co. 144A sr. sub notes 9 3/4s, 2008 92,400
--------------
379,980
Cable Television (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
95,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 73,150
565,679 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 557,194
300,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 225,000
295,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 215,350
180,000 Lenfest Communications, Inc. 144A sr. sub. notes 8 1/4s, 2008 176,850
170,000 RCN Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (9.8s, 2/15/03), 2008 (STP) 90,950
130,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 57,200
--------------
1,395,694
Cellular Communications (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 182,400
505,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 (STP) 505,000
200,000 Interact Systems, Inc. 144A sr. disc. notes stepped-coupon
zero % (14s, 8/1/99), 2003 (STP) 24,000
440,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 (STP) 325,600
450,000 McCaw International Ltd sr. disc. notes stepped-
coupon zero % (13s, 4/15/02), 2007 (STP) 243,000
180,000 MetroNet Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (9.95s, 6/15/03), 2008 (STP) 93,600
305,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 213,500
930,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (10.65s, 9/15/02), 2007 (STP) 553,350
320,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9.95s, 2/15/03), 2008 (STP) 180,800
120,000 Price Communications Wireless Inc. 144A sr. notes 9 1/8s,
2006 108,000
--------------
2,429,250
Chemicals (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 332,500
60,000 Geo Specialty Chemicals 144A sr. sub. notes 10 1/8s, 2008 54,000
90,000 Huntsman Corp. 144A sr. sub. notes FRN 9.031s, 2007 85,500
80,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 73,600
30,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 27,300
145,000 Polytama International notes 11 1/4s, 2007 (Indonesia) 46,400
75,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 36,750
--------------
656,050
Computer Services and Software (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 28,500
210,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 140,700
115,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 108,675
235,000 Unisys Corp. sr. notes 11 3/4s, 2004 264,375
--------------
542,250
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-
coupon zero % (12s, 6/1/02), 2009 (STP) 12,000
130,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/01), 2006 (STP) 6,500
45,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 41,850
--------------
60,350
Consumer Non Durables (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 23,000
250,000 Packaged Ice, Inc. company guaranty Ser. B, 9 3/4s, 2005 247,500
10,000 Samsonite Corp. 144A sr. sub. notes 10 3/4s, 2008 7,200
55,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 52,250
--------------
329,950
Consumer Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
346,000 Coinmach Corp. sr. notes 11 3/4s, 2005 377,140
Cosmetics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 48,750
30,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s,
2007 29,400
35,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 36,750
480,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 348,000
--------------
462,900
Electric Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 AES Corp. sr. sub. notes 8 3/8s, 2007 45,000
500,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 608,075
120,361 Northeast Utilities System notes Ser. A, 8.58s, 2006 127,386
80,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 82,204
100,000 York Power Funding 144A notes 12s, 2007 99,000
--------------
961,665
Electronics and Electrical Equipment (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 37,100
56,279 Cirent Semiconductor sr. sub. notes 10.22s, 2002 55,716
59,714 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 59,117
125,000 Details Inc. sr. disc. notes stepped-coupon Ser. B,
zero %, (12 1/2s, 11/15/02), 2007 (STP) 68,750
100,000 Dobson Communications Corp. 11 3/4s, 2007 102,000
80,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 71,200
90,248 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 103,334
375,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 322,500
80,000 Flextronics International Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 73,600
50,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 50,000
50,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 52,000
70,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 70,350
50,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 38,500
25,000 Wavetek Corp. company guaranty 10 1/8s, 2007 23,750
160,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 80,000
--------------
1,207,917
Energy-Related (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Calpine Corp. sr. notes 9 1/4s, 2004 101,000
70,000 Gothic Production Corp. company guaranty Ser. B,
11 1/8s, 2005 56,000
70,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 71,511
60,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 61,422
290,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 203,000
60,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 55,200
--------------
548,133
Entertainment (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 94,000
75,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 70,500
100,000 Silver Cinemas Intl.144A sr. sub. notes 10 1/2s, 2005 93,000
200,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 202,000
80,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 74,400
--------------
533,900
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Allied Waste Industries, Inc. company guaranty 10 1/4s,
2006 96,863
170,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/02), 2007 (STP) 123,250
45,000 ATC Group Services Inc. company guaranty 12s, 2008 36,450
--------------
256,563
Financial Services (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 56,400
750,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 714,390
100,000 Colonial Capital II 144A company guaranty 8.92s, 2027 108,891
105,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 105,757
50,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007
(Mexico) 36,000
45,000 Dollar Financial Group, Inc. sr. notes Ser. A, 10 7/8s, 2006 46,350
400,000 DTI Holdings Inc. 144A sr. disc. notes stepped-coupon
zero % (12 1/2s, 3/1/03), 2008 (STP) 164,000
75,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 72,000
45,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 43,650
40,000 Nationwide Credit Inc. 144A sr. notes 10 1/4s, 2008 38,000
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 25,750
80,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 86,400
50,000 Ocwen Financial Corp. notes 11 7/8s, 2003 54,000
150,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 67,500
110,000 Purina Mills, Inc. sr. sub. notes 9s, 2010 110,000
--------------
1,729,088
Food and Beverages (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 88,000
25,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 25,750
110,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 113,300
30,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 30,000
200,000 Doane Products Co. sr. notes 10 5/8s, 2006 226,000
25,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 23,750
115,000 Fleming Companies, Inc. company guaranty Ser. B,
10 1/2s, 2004 115,000
30,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 (STP) 15,900
150,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 139,500
50,000 Southern Foods Group sr. sub. notes 9 7/8s, 2007 50,750
20,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 20,100
--------------
848,050
Health Care (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
65,000 Conmed Corp. company guaranty 9s, 2008 55,250
135,000 Fresenius Medical Capital Trust II company guaranty
7 7/8s, 2008 (Germany) 121,500
125,000 Fresenius Medical Care AG pfd. Ser. D, 9s, 2006 (Germany) 128,125
120,000 Global Health Sciences 144A sr. notes 11s, 2008 104,400
100,000 Hudson Respiratory Care, Inc. 144A sr. sub. notes 9 1/8s,
2008 90,000
90,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 84,150
140,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 128,800
150,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-
coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 88,500
185,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 145,623
255,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 234,600
50,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 36,500
80,000 PharMerica, Inc. company guaranty 8 3/8s, 2008 70,400
--------------
1,287,848
Industrial (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Consumers International 144A sr. notes 10 1/4s, 2005 153,750
310,000 Grove Holdings LLC 144A deb. stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 136,400
--------------
290,150
Lodging (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Epic Resorts LLP 144A sr. notes 13s, 2005 65,800
210,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 198,450
100,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 96,000
80,000 Raintree Resorts International, Inc. sr. notes Ser. B, 13s, 2004 70,400
--------------
430,650
Media (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,044 Australis Media, Ltd. sr. disc. notes stepped-coupon 1 3/4s,
(15 3/4s 5/15/00), 2003 (In default) (Australia) (NON) (STP) (PIK) 36
130,000 Viacom International, Inc. sub. deb. 8s, 2006 130,000
--------------
130,036
Medical Supplies and Devices (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s,
2006 118,750
100,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 107,000
20,000 Imagyn Medical Technologies, Inc. company guaranty
12 1/2s, 2004 5,600
25,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 25,750
120,000 Mediq, Inc. 144A sr. sub. notes 11s, 2008 114,000
150,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 139,875
--------------
510,975
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 21,900
80,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 54,400
80,000 Continental Global Group sr. notes Ser. B, 11s, 2007 74,400
70,000 Lodestar Holding, Inc. 144A sr. notes 11 1/2s, 2005 57,400
50,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 54,250
70,000 WHX Corp. sr. notes 10 1/2s, 2005 62,300
--------------
324,650
Motion Picture Distribution (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 117,600
35,000 Panavision Inc. 144A sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 19,250
--------------
136,850
Nursing Homes (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
145,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 137,750
Oil and Gas (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Abraxas Petroleum Corp. 144A 11 1/2s, 2004 88,000
160,000 American Eco. Corp. 144A company guaranty 9 5/8s, 2008 140,800
10,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 8,500
150,000 Chesapeake Energy Corp. 144A sr. notes 9 5/8s, 2005 124,500
70,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 63,000
80,000 Dailey Petroleum Services Corp. company guaranty
9 1/2s, 2008 62,800
70,000 Eagle Geophysical, Inc. 144A sr. notes 10 3/4s, 2008 63,700
25,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 23,250
20,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (14 1/8s, 5/1/03), 2006 (STP) 9,600
270,000 Michael Petroleum Corp. 144A sr. notes 11 1/2s, 2005 237,600
80,000 Northern Offshore 144A company guaranty 10s, 2005 68,400
45,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 35,550
55,000 Seven Seas Petroleum 144A sub. notes 12 1/2s, 2005 46,200
60,000 Southwest Royalties, Inc. company guaranty 10 1/2s, 2004 39,900
30,000 Tokai Corp. 144A FRB Ser. A, 9.98s, 2049 18,000
1,405,000 Transamerican Energy sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/99), 2002 (STP) 702,500
186,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 186,000
--------------
1,918,300
Packaging and Containers (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 47,000
60,000 Printpack, Inc. sr. notes Ser. B, 9 7/8s, 2004 60,000
40,000 Radnor Holdings Inc. sr. notes 10s, 2003 39,600
--------------
146,600
Paging (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s,
2007 64,800
50,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 48,875
40,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 (STP) 36,000
55,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 24,750
--------------
174,425
Paper and Forest Products (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
325,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 162,500
10,000 APP International Finance Co. company guaranty 11 3/4s,
2005 (Netherlands) 5,300
80,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 76,000
200,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 93,000
170,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004
(Indonesia) 76,500
150,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 130,500
45,000 Repap New Brunswick 144A sr. notes 9s, 2004 (Canada) 40,950
160,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 140,800
160,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 144,000
100,000 Stone Container Corp. sr. notes 12.58s, 2016 110,000
--------------
979,550
Pharmaceuticals (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
225,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 229,500
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 173,250
50,000 Perry-Judd company guaranty 10 5/8s, 2007 48,000
40,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 38,400
--------------
259,650
Railroads (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007
(Mexico) 27,900
155,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 93,000
--------------
120,900
Real Estate (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Bluegreen Corp. company guaranty Ser. B, 10 1/2s, 2008 18,800
120,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 120,000
--------------
138,800
Recreation (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
105,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 105,000
75,000 Casino America, Inc. sr. notes 12 1/2s, 2003 79,500
158,700 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 168,619
160,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 118,400
100,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 106,000
60,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 60,000
216,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 216,000
180,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 167,400
175,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 125,563
180,000 Trump A.C. 1st mtge. company guaranty 11 1/4s, 2006 154,800
--------------
1,301,282
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 106,000
Retail (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Amazon.com Inc. 144A sr. disc. notes stepped-coupon
zero % (10s, 5/1/03), 2008 (STP) 106,000
50,000 Color Spot Nurseries sr. sub. notes 10 1/2s, 2007 22,500
120,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 120,000
40,000 Home Interiors & Gifts, Inc. 144A sr. sub. notes
10 1/8s, 2008 39,200
100,000 K mart Corp. deb. 7 3/4s, 2012 98,000
200,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 211,000
45,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 43,088
160,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 150,400
20,000 Service Merchandise Co., Inc. sr. sub. deb. 9s, 2004 12,000
100,000 United Stationer 144A sr. sub. notes 8 3/8s, 2008 96,000
100,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 96,000
--------------
994,188
Satellite Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) (STP) 61,200
110,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 107,525
730,000 ICG Services, Inc. 144A sr. disc. notes stepped-coupon
zero % (9 7/8s, 5/1/03), 2008 (STP) 386,900
75,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s,
2005 65,250
25,000 Iridium LLC company guaranty Ser. A, 13s, 2005 22,000
60,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 45,600
90,000 TCI Satellite Entertainment Inc. sr. sub. notes 10 7/8s, 2007 84,600
90,000 TCI Satellite Entertainment, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 2/1/02), 2007 (STP) 54,000
--------------
827,075
School Buses (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
335,000 MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 (STP) 284,750
Shipping (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 31,600
90,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 93,375
--------------
124,975
Specialty Consumer Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Decora Industries, Inc. 144A sr. sec. notes 11s, 2005 94,000
80,000 Eye Care Centers of America 144A sr. sub. notes
9 1/8s, 2008 76,400
--------------
170,400
Steel (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 17,100
Telecommunications (5.0%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 9,500
300,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 135,000
70,000 Caprock Communications Corp. 144A sr. notes 12s, 2008 66,500
50,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 (STP) 41,500
40,000 Consorcio Ecuatoriano notes 14s, 2002 (Ecuador) 24,000
285,000 Covad Communications Group 144A sr. disc. notes
stepped-coupon zero % (13 1/2s, 3/15/03), 2008 (STP) 125,400
230,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 125,350
60,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 58,200
190,000 Focal Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 2/15/03), 2008 (STP) 95,000
450,000 Global Crossing Holdings 144A sr. notes 9 5/8s, 2008 427,500
50,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 23,000
496,000 GST USA, Inc. company guaranty stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 (STP) 357,120
80,000 Hermes Europe Railtel sr. notes 11 1/2s, 2007
(Netherlands) 82,400
140,000 Hyperion Telecommunications Corp. sr. notes Ser. B,
12 1/4s, 2004 133,000
60,000 Hyperion Telecommunications Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 40,200
140,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (STP) 107,800
215,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s,
2007 206,400
230,000 Intermedia Communications, Inc. sr. notes Ser. B,
8.6s, 2008 217,350
250,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 172,500
375,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 303,750
120,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 109,200
200,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 112,000
235,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 125,725
55,000 MetroNet Communications Corp. sr. disc. notes stepped-
coupon zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 31,075
65,000 Microcell Telecommunications sr. disc. notes stepped-
coupon Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 43,550
40,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 33,600
20,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/02), 2007 (Poland) (STP) 11,000
120,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 115,200
250,000 Primus Telecom Group sr. notes 11 3/4s, 2004 242,500
135,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 98,550
60,000 Telecom Tech, Inc. 144A sr. sub. notes 9 3/4s, 2008 54,600
205,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 196,288
85,000 Versatel Telecom sr. notes 13 1/4s, 2008 83,300
45,000 Vialog Corp. company guaranty 12 3/4s, 2001 40,500
250,000 WinStar Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 160,000
100,000 WinStar Communications, Inc. sr. sub. notes 15s, 2007 110,000
80,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 77,600
--------------
4,396,158
Telephone Services (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 120,900
40,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 22,800
95,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 76,475
155,000 E. Spire Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 3/4s, 4/1/01), 2006 (STP) 103,850
75,000 E. Spire Communications, Inc. sr. notes 13 3/4s, 2007 80,250
65,000 Facilicom International sr. notes Ser. B., 10 1/2s, 2008 58,500
130,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 120,900
95,000 Globo Communicadoes 144A company guaranty 10 1/2s,
2006 (Brazil) 57,950
250,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) (STP) 18,750
68,000 ITC Deltacom, Inc. sr. notes 11s, 2007 74,800
30,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 26,850
40,000 MJD Communications Inc. 144A FRN 10s, 2008 39,300
30,000 MJD Communications, Inc. 144A sr. sub. notes 9 1/2s, 2008 29,700
170,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 166,600
80,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 76,800
260,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 145,600
95,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 104,500
60,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 50,400
90,000 RSL Communications, Ltd. company guaranty, stepped-
coupon zero % (10 1/8s, 3/1/03), 2008 (STP) 48,600
45,000 Transtel S.A. 144A pass-through certificates 12 1/2s, 2007
(Colombia) 26,100
60,000 US Xchange LLC 144A sr. notes 15s, 2008 60,900
--------------
1,510,525
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
135,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 122,850
40,000 Glenoit Corp. company guaranty 11s, 2007 38,000
--------------
160,850
Transportation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Kitty Hawk, Inc. sr. notes 9.95s, 2004 140,000
Wireless Communications (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 88,200
100,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (Ecuador) 60,000
60,000 CTI Holdings S.A. 144A sr. notes stepped-coupon zero %,
(11 1/2s, 4/15/03), 2008 (STP) 24,000
160,000 Dobson Wireline Co. 144A sr. notes 12 1/4s, 2008 153,600
75,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 69,000
90,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 92,700
55,000 Telesystem International Wireless, Inc. sr. disc. notes
stepped-coupon Ser. C, zero %, (10 1/2s, 11/1/02),
2007 (STP) 26,400
--------------
513,900
--------------
Total Corporate Bonds and Notes (cost $41,394,595) $ 38,128,143
CONVERTIBLE BONDS AND NOTES (28.8%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
$ 170,000 Omnicom Group, Inc. cv. sub. deb. 2 1/4s, 2013 $ 207,400
Aerospace and Defense (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 Diagnostic Retrieval Systems, Inc. cv. sr. sub. deb. 9s, 2003 344,100
450,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 447,750
--------------
791,850
Airlines (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 Atlantic Coast Airlines 144A cv. sub. notes 7s, 2004 467,469
458,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 229,000
--------------
696,469
Automotive (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Magna International cv. sub. deb. 5s, 2002 425,156
380,000 Tower Automotive Inc. cv. sub. notes 5s, 2004 374,775
--------------
799,931
Broadcasting (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
560,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 451,500
210,000 Scandinavian Broadcasting System S.A. 144A cv. sub.
notes 7s, 2004 (Luxembourg) 217,350
--------------
668,850
Business Equipment and Services (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 535,500
165,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 147,263
125,000 Personnel Group of America cv. sub. notes 5 3/4s, 2004 116,563
268,000 Staples, Inc. 144A cv. sub. deb. 4 1/2s, 2000 514,895
235,000 World Color Press Inc. cv. sub. notes 6s, 2007 227,950
--------------
1,542,171
Computer Equipment (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
149,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 308,989
470,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 353,088
120,000 Intevac, Inc. cv. sub. notes 6 1/2s, 2004 90,150
460,000 Synoptics Communications Inc. 144A cv. sub. deb.
5 1/4s, 2003 457,700
1,945,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 410,881
--------------
1,620,808
Computer Services and Software (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 America Online, Inc. 144A cv. sub. notes 4s, 2002 299,838
500,000 Network Associates, Inc. 144A cv. sub. deb. zero %, 2018 181,250
573,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 363,139
--------------
844,227
Computers (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
435,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 431,194
Conglomerates (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
417,000 Hexcel Corp. cv. sub. notes 7s, 2003 388,331
250,000 Thermo Electron Corp. 144A cv. sub. notes 4 1/4s, 2003 216,250
--------------
604,581
Consumer Durable Goods (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,380,000 Sunbeam Corp. 144A cv. sr. sub. notes zero %, 2018 244,950
Consumer Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 429,300
Electronics and Electrical Equipment (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
388,000 Dovatron International cv. sub. notes 6s, 2002 371,995
605,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 405,350
120,000 Lernout & Hauspie Speech Products N.V. 144A cv. sub.
notes 8s, 2001 (Belgium) 357,600
494,000 Motorola, Inc. cv. Liquid Yield Option Notes
(LYON) zero %, 2013 351,975
580,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 423,400
215,000 Photronics, Inc. cv. sub. notes 6s, 2004 194,038
250,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 160,000
250,000 S3, Inc. cv. sub. notes 5 3/4s, 2003 173,125
365,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 397,850
120,000 Solectron Corp. 144A cv. sub. notes 6s, 2006 163,500
395,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 354,513
450,000 Thermo Quest Corp. cv. company guaranty 5s, 2000 420,750
--------------
3,774,096
Environmental Control (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 245,000
300,000 U.S.A. United Waste Systems, Inc. cv. sub. notes
4 1/2s, 2001 454,500
460,000 U.S. Filter Corp. cv. sub. notes 4 1/2s, 2001 414,575
440,000 Waste Management Inc. cv. sub. notes 4s, 2002 510,400
--------------
1,624,475
Health Care Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 227,188
80,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 77,400
150,000 Renal Treatment Centers, Inc. 144A cv. sub. notes
5 5/8s, 2006 145,125
--------------
449,713
Insurance and Finance (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
270,000 APP Global Finance Ltd. 144A cv. company guaranty
3 1/2s, 2003 124,200
125,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 72,500
470,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 680,913
600,000 Mutual Risk Management 144A cv. sub. deb. zero %, 2015 394,500
--------------
1,272,113
Medical Supplies and Devices (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
450,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 126,000
350,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000
(In default) (NON) 3,500
415,000 Thermo Cardiosystems, Inc. 144A cv. company guaranty
4 3/4s, 2004 391,656
300,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 229,500
--------------
750,656
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 419,100
Oil and Gas (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 249,150
357,000 Pennzoil Co. cv. deb. 4.95s, 2008 344,505
252,000 Pennzoil Co. cv. deb. 4 3/4s, 2003 320,119
380,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 305,900
--------------
1,219,674
Pharmaceuticals and Biotechnology (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
685,000 Alza Corp. cv. sub. notes LYON zero %, 2014 362,194
204,000 Centocor, Inc. cv. deb. 4 3/4s, 2005 194,055
385,000 Centocor, Inc. 144A cv. sub. notes 4 3/4s, 2005 366,231
715,000 Pharmaceutical Marketing Services Inc. 144A cv. deb.
6 1/4s, 2003 611,325
435,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010
(Switzerland) 250,397
390,000 Sepracor, Inc. 144A cv. sub. deb. 6 1/4s, 2005 505,538
--------------
2,289,740
REIT's (Real Estate Investment Trust) (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
305,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 312,244
Restaurants (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
340,000 CKE Restaurants, Inc. 144A cv. sub. notes 4 1/4s, 2004 310,250
141,000 CKE Restaurants, Inc. cv. sub. notes 4 1/4s, 2004 123,375
--------------
433,625
Retail (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
340,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 579,700
230,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 215,338
111,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 148,601
235,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 283,175
280,000 Saks Holdings cv. sub. notes 5 1/2s, 2006 266,350
--------------
1,493,164
Satellite Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s,
2004 (Israel) 331,650
Semiconductors (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Advanced Micro Devices cv. sub. notes 6s, 2005 174,688
550,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s,
2002 419,375
149,000 LAM Research Corp. 144A cv. sub. notes 5s, 2002 113,985
260,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 235,950
210,000 Xilinx, Inc. cv. sub. notes 5 1/4s, 2002 189,788
--------------
1,133,786
Telecommunications (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
62,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero %, (13 7/8s, 12/15/00), 2005 (STP) 80,600
470,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 368,363
465,000 MIDCOM Communications, Inc. 144A cv. sub. deb.
8 1/4s, 2003 (In default) (NON) 60,450
225,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 292,500
--------------
801,913
Tobacco (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
270,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 212,625
--------------
Total Convertible Bonds and Notes (cost $27,074,940) $ 25,400,305
CONVERTIBLE PREFERRED STOCKS (16.9%) (a)
NUMBER OF SHARES VALUE
Apparel (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,750 Ann Taylor Finance Trust $4.25 cv. cum. pfd. $ 251,719
Banks (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,880 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 312,743
Broadcasting (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
600 Chancellor Media Corp. $3.00 cum. pfd. 45,000
3,625 Chancellor Media Corp. $3.50 cv. pfd. 373,828
3,800 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 178,125
32,400 Triathlon Broadcasting Co. $0.945 cv. pfd. 332,100
--------------
929,053
Cable Television (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
10,470 Mediaone Group, Inc. Ser. D, $2.25 cv. pfd. 889,950
Computer Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
13,450 Vanstar Financial Trust Corp. 144A $3.375 cv. cum. pfd. 349,700
12,826 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 602,822
--------------
952,522
Conglomerates (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
24,859 Cooper Industries, Inc. $0.81 cv. pfd. 320,060
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,800 Cendant Corp. $0.65 cv. pfd. 163,800
Electric Utilities (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,520 El Paso Energy Capital Trust $2.375 cv. pfd. 319,600
Electrical Equipment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,440 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 169,650
Electronic Components (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,000 Lernout & Hauspie Speech Products N.V. 144A
$2.375 cv. pfd 337,500
Entertainment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,930 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 202,215
Financial Services (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,743 Devon Financing Trust $3.25 cv. pfd. 297,200
5,850 Finova Finance Trust $2.75 cv. cum. pfd. 386,831
6,700 Newell Financial Trust 144A $2.625 cv. cum. pfd. 382,738
4,090 Penncorp Financial Group, Inc. 144A $3.50 cv. cum. pfd. 34,765
10,195 Timet Capital Trust I 144A $3.312 cv. pfd. 305,850
14,000 Walbro Captial Trust $2.00 cv. pfd. 243,250
--------------
1,650,634
Health Care (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,360 MedPartners, Inc. $6.50 cv. pfd. 120,888
Insurance and Finance (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,566 American General Delaware Corp. L.L.C. Ser. A, $3.00
cv. cum. pfd. 702,412
7,295 American Heritage Life Investment Corp. $4.25 cv. cum. pfd. 426,758
16,300 Lincoln National Corp. 1.85% cv. cum. pfd. 336,188
4,800 Protective Life Corp. $3.25 cv. cum. pfd. 265,200
5,300 Suiza Capital Trust 144A $2.25 cv. pfd. 229,225
4,130 St. Paul Capital LLC $3.00 cv. cum. pfd. 243,670
--------------
2,203,453
Machinery (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,625 Case Corp. $4.50 cv. cum. pfd. 308,141
Medical Supplies and Devices (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,925 Mckesson Corp. $2.50 cv. pfd. 307,856
8,500 Owens & Minor, Inc. 144A $5.375 cv. pfd. 337,875
--------------
645,731
Metals and Mining (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
11,970 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 263,340
Oil and Gas (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
560 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 12,320
10,200 Tosco Financing Trust 144A $2.875 cv. pfd. 470,475
12,390 Unocal Capital Trust $3.125 cv. cum. pfd. 614,854
54 XCL Ltd $8.075 cv. pfd. 5,427
--------------
1,103,076
Packaging and Containers (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,540 Owens-Illinois, Inc. $2.375 cv. pfd. 298,773
Paper and Forest Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
8,234 International Paper Co. $2.625 cv. pfd. 374,647
Railroads (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
9,636 Union Pacific 144A $3.125 cv. cum. pfd. 427,598
REIT's (Real Estate Investment Trust) (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
16,640 Equity Residential Property Ser. E, $1.75 cv. pfd. 396,240
Restaurants (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
10,620 Wendy's Financing Ser. A, $2.50 cv. pfd. 531,000
Retail (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
9,160 K mart Financing I $3.875 cum. cv. pfd. 480,328
Telecommunications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,723 Airtouch Communications Ser. C, $2.13 cv. cum. pfd. 454,979
Tobacco (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,900 DIMON, Inc. 8.50% cv. pfd. 93,450
Transportation (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
6,000 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 302,250
6,000 Hvide Capital Trust 144A $3.25 cv. pfd. 180,000
--------------
482,250
Utilities (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,530 Calenergy Capital Trust 144A $3.75 cv. cum. pfd. 223,103
--------------
Total Convertible Preferred Stocks (cost $17,640,991) $ 14,906,443
PREFERRED STOCKS (4.0%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
267 21st Century Telecom Group 144A $13.75 cum. pfd. (PIK) $ 226,950
2,419 AmeriKing, Inc. $3.25 pfd. (PIK) 60,475
676 Capstar Broadcasting Inc. 144A $12.00 pfd. (PIK) 75,036
2,970 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 147,015
1,135 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 119,743
50 Concentric Network Corp. 144A $13.50 pfd. (PIK) 45,000
1 CSC Holdings, Inc. Ser. H, $11.75 cum. pfd. (PIK) 115
2,909 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 322,899
3,755 Diva Systems Corp. Ser. C, $6.00 pfd. 41,305
94 Dobson Communications 144A 12.25% pfd. (PIK) 95,880
43 E. Spire Communications, Inc. $12.75 pfd. (PIK) 38,700
32 Echostar Communications, Inc. 12.125% pfd. 32,000
43 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 38,700
151 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 174,405
190 IXC Communications, Inc. Ser. B, 12.50% cum. pfd. (PIK) 200,450
2,247 Lady Luck Gaming Corp. $11.25 pfd. 96,621
821 Nebco Evans Holding Co. 144A $11.25 pfd. 57,470
565 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 598,900
3,000 Nextlink Communications, Inc. 144A $7.00 pfd. 153,000
17 Paxson Communications Corp. 144A $13.25 pfd. (PIK) 161,500
3,362 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. (PIK) 393,354
153 Spanish Broadcasting Systems 14.25% cum. pfd. 163,710
22,261 Trikon Technologies, Inc. Ser. H, $8.125 pfd. (PIK) 89,044
228 Trikon Technologies, Inc. Ser. I, $8.125 pfd. 49,020
950 Von Hoffman Corp. 144A $13.50 pfd. 29,450
150 WinStar Communications, Inc. Ser. C, 14.25% cum. pfd. 156,000
--------------
Total Preferred Stocks (cost $3,810,496) $ 3,566,742
UNITS (3.0%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
250 Australis Media, Ltd. units stepped-coupon zero %,
(15 3/4s, 5/15/00), 2003 (In Default) (Australia) (STP) (NON) $ 4,356
80 Bestel S.A.de C.V. units, stepped-coupon zero %
(12 3/4s,5/15/03), 2005 (STP) 51,200
70 Birch Telecom, Inc. 144A units 14s, 2008 61,600
50 Celcaribe S.A. 144A units 13 1/2s, 2004 (Columbia) 1,000,000
293 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/1/03), 2008 (STP) 96,690
320 Firstworld Communication units stepped-coupon zero %,
(13s, 4/15/03), 2008 (STP) 108,800
120 ICO Global Communications (Holdings) Ltd. units 15s,
2005 106,800
210 Long Distance International, Inc. 144A units 12 1/4s, 2008 201,600
85 Mediq 144A units, stepped-coupon zero % (13s, 6/1/03),
2009 (STP) 42,500
45 Onepoint Communications, Inc. units 14 1/2s, 2008 36,000
150 Pathnet, Inc. 144A units 12 1/4s, 2008 135,000
210 Rhythms Netcon 144A units stepped-coupon zero %
(13 1/2s, 5/15/03), 2008 (STP) 86,100
80 Startec Global Communications Corp. units 12s, 2008 72,000
40 Telehub Communications Corp. units stepped-coupon
zero %, (13 7/8s, 7/31/02), 2005 (STP) 22,800
130 Transamerica Refinance, Inc. 144A units 16s, 2003 110,500
190 Viatel, Inc. 144A units 11 1/4s, 2008 188,100
600 XCL Ltd. 144A units cum. pfd. 9.50%, 2006 60,300
200 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 216,000
--------------
Total Units (cost $2,546,962) $ 2,600,346
COMMON STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
6,698 Ahmanson (H. F.) & Company $ 357,087
50 AmeriKing, Inc. (NON) 2,500
4,800 CellNet Data Systems, Inc. (NON) 26,400
1,213 Hedstrom Holdings, Inc. 144A 1,516
58 Mothers Work, Inc. (NON) 428
1,664 NEXTEL Communications, Inc. Class A (NON) 30,056
55 Paging Do Brazil Holdings Co., LLC 144A Class B (NON) 1
22,025 PSF Holdings LLC 385,878
537 RSL Communications, Ltd. Class A (NON) 12,284
287 Sensormatic Electronics Corp. 2,185
12,987 Stone Container Corp. 135,607
176,643 Trikon Technologies, Inc. (NON) 27,600
--------------
Total Common Stocks (cost $1,634,465) $ 981,542
WARRANTS (0.5%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
250 21st Century Telecom Group 144A 2/15/10 $ 13,750
220 Allegiance Telecom, Inc. 2/3/08 3,520
690 Cellnet Data Systems, Inc. 9/15/07 27,600
80 Club Regina, Inc. 144A 12/1/04 1,600
95 Colt Telecommunications Group PLC 12/31/06 28,500
30 Concentric Network Corp. 12/15/07 2,100
1,350 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 506
285 Covad Communications Group 144A 3/15/08 11,400
185 Diva Systems Corp. 5/15/06 51,800
2,000 DTI Holdings Inc. 3/1/08 4,000
70 Epic Resorts 6/15/05 1
90 Esat Holdings, Inc. (Ireland) 9/9/99 3,173
1,378 Fitzgeralds Gaming Co. 12/19/98 14
250 Hyperion Telecommunications 144A 4/15/01 22,500
6,534 Intelcom Group 144A 10/15/05 176,418
200 Interact Systems, Inc. 8/1/03 2
85 International Wireless Communications
Holdings 144A 8/15/01 9
175 Iridium World Com 144A 7/15/05 19,250
200 KMC Telecom Holdings, Inc. 4/15/08 3,200
235 Knology Holdings, Inc. 144A 10/15/07 353
650 McCaw International Ltd. 4/5/07 2,600
285 MGC Communications, Inc. 144A 10/1/04 15,675
90 Orbital Imaging Corp. 144A 3/1/05 3,600
100 Spanish Broadcasting Systems 144A 6/30/99 20,500
75 Sterling Chemicals Holdings 8/15/08 1,800
435 UIH Australia/Pacific, Inc. 144A 5/15/06 2,175
85 Versatel 144A 5/15/08 850
45 Vialog Corp. 11/15/01 1,575
--------------
Total Warrants (cost $186,703) $ 418,471
FOREIGN GOVERNMENT BONDS AND NOTES (0.2%) (a) (cost $187,489)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 190,000 Korea (Republic of) unsub. 8 7/8s, 2008 $ 133,238
SHORT-TERM INVESTMENTS (0.9%) (a) (cost $754,121)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 754,000 Interest in $750,000,000 joint repurchase agreement
dated August 31, 1998 with Goldman, Sachs & Co.
due September 1, 1998 with respect to various
U.S. Treasury obligations -- maturity value of
$754,121 for an effective yield of 5.78% $ 754,121
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $95,230,762) (b) $ 86,889,351
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $88,097,465.
(b) The aggregate identified cost on a tax basis is $95,361,870, resulting in gross unrealized appreciation and
depreciation of $5,032,992 and $13,505,511, respectively, or net unrealized depreciation of $8,472,519.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the
fund will begin receiving interest at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates
shown at August 31, 1998, which are subject to change based on terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $95,230,762) (Note 1) $86,889,351
- -----------------------------------------------------------------------------------------------
Cash 600,982
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,278,902
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 1,065,545
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 13,266
- -----------------------------------------------------------------------------------------------
Total assets 89,848,046
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 573,605
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 772,715
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 344,926
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 15,985
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,941
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,286
- -----------------------------------------------------------------------------------------------
Other accrued expenses 38,123
- -----------------------------------------------------------------------------------------------
Total liabilities 1,750,581
- -----------------------------------------------------------------------------------------------
Net assets $88,097,465
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $92,057,647
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (163,299)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 4,544,528
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (8,341,411)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $88,097,465
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($88,097,465 divided by 3,704,000 shares) $23.78
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended August 31, 1998 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income $ 3,837,932
- -----------------------------------------------------------------------------------------------
Dividends 706,155
- -----------------------------------------------------------------------------------------------
Total investment income 4,544,087
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 700,087
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 94,648
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,469
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,663
- -----------------------------------------------------------------------------------------------
Reports to shareholders 7,977
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 19,857
- -----------------------------------------------------------------------------------------------
Legal 58,097
- -----------------------------------------------------------------------------------------------
Postage 2,754
- -----------------------------------------------------------------------------------------------
Exchange listing fees 13,475
- -----------------------------------------------------------------------------------------------
Other 2,050
- -----------------------------------------------------------------------------------------------
Total expenses 908,152
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (12,259)
- -----------------------------------------------------------------------------------------------
Net expenses 895,893
- -----------------------------------------------------------------------------------------------
Net investment income 3,648,194
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,224,824
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (16,442,721)
- -----------------------------------------------------------------------------------------------
Net loss on investments (14,217,897)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(10,569,703)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months For the year
ended ended
August 31 February 28
1998* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 3,648,194 $ 6,505,941
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 2,224,824 5,915,359
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (16,442,721) 3,296,810
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (10,569,703) 15,718,110
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (3,444,585) (6,530,769)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (4,866,110)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (14,014,288) 4,321,231
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 102,111,753 97,790,522
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $163,299 and
$366,908, respectively) $ 88,097,465 $102,111,753
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at the 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $27.57 $26.40 $26.43 $24.85(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .98 1.76 1.77 1.17
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (3.84) 2.49 1.54 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (2.86) 4.25 3.31 2.80
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.93) (1.77) (1.83) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (1.31) (1.34) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- -- (.17) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.93) (3.08) (3.34) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $23.78 $27.57 $26.40 $26.43
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $22.875 $27.312 $24.375 $22.625
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) (13.12)* 26.03 23.54 (4.53)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $88,097 $102,112 $97,791 $97,881
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89* 1.71 1.72 1.14*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.59* 6.45 6.66 4.56*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.42* 60.69 70.33 38.92*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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, 1998 (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 sales 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, and other
investments, including restricted securities, are stated at fair value
following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). 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 discount bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the yield-to-maturity basis. Any premium resulting
from the purchase of stepped-coupon bonds is amortized on a
yield-to-maturity basis.
E) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
F) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. The amount and character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations.
G) 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
projected net asset levels 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 rates: 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.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended August 31, 1998, fund expenses were reduced by
$12,259 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $550 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
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, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$32,996,790 and $33,900,442, 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.
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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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Charles G. Pohl
Vice President and Fund Manager
Jeffrey J. Kobylarz
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our website (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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U.S. Postage
PAID
Putnam
Investments
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SA019-45962 10/98
