Putnam
Convertible
Opportunities
and Income
Trust
ANNUAL REPORT
February 28, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "We continue to find attractive growth and value situations in the
secondary market for convertible and high-yield corporate bonds.
Healthy economic activity in the United States, coupled with
relatively low yields on U.S. Treasuries, should provide an
excellent underpinning for both types of securities."
-- Charles Pohl, lead manager,
Putnam Convertible Opportunities and Income Trust
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
31 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Convertible Opportunities and Income Trust acquitted itself well during
the fiscal year that ended on February 28, 1998, with performance that struck
a balance between high current income and capital appreciation. It achieved
this result by delivering a double-digit total return that fell directly
between its two benchmark indexes.
In the pursuit of its dual objectives, the fund invests mainly in the
convertibles and high-yield bonds of small and midsize companies with strong
earnings growth prospects. Your fund's management team, backed by Putnam's
excellent credit research capability, had its hands full analyzing the record
number of new issues that came to market during the period.
I am pleased to announce the addition of Jeffrey Kobylarz to your fund's
management team. Jeffrey has been a member of Putnam's High-Yield Bond group
since 1993. Before joining Putnam, he was with Dean Witter InterCapital and
W.R. Huff Asset Management. He has 11 years of investment industry experience.
In the following report, your fund's managers review fiscal 1998 performance
and offer their insights on prospects for the fiscal year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 15, 1998
Report from the Fund Managers
Charles G. Pohl, lead manager
Jeffrey J. Kobylarz
Putnam Convertible Opportunities and Income Trust provided a strong 17.46%
total return at net asset value and 26.03% at market price for the 12 months
ended February 28, 1998. These results outperformed the First Boston High
Yield Index, which returned 12.48% over the period, but lagged the 21.70%
returned by the Merrill Lynch All Convertible Index. Nevertheless, your fund's
combination of convertibles and high-yield corporate bonds enabled it to
participate substantially in the convertible market's strength over this
period. We believe the dual-asset nature of the fund's investment strategy is
a valuable advantage, enabling it to seek the benefits of both markets without
the degree of volatility inherent in either market. Please see pages 9 and 10
for more performance information.
* CONVERTIBLE MARKET OFFERS WEALTH OF OPPORTUNITY
In its pursuit of capital appreciation and current income, your fund focuses
mainly on the convertible bonds of small and midsize companies with strong
prospects for earnings growth. We like companies with innovative products,
clever management, and healthy balance sheets. In addition, we look for
opportunities to take advantage of those that have temporarily fallen on hard
times and whose securities are selling at discounted prices as a result.
Banking and technology were two key sectors in the convertible market this
year. As interest rates have come down over the past few years, we have found
the interest-rate sensitive financial sector particularly attractive. Within
this sector, many banks have sought higher profits and greater economies of
scale through mergers and acquisitions. Sovereign Bancorp is a good example.
Headquartered in Pennsylvania, Sovereign began as a well-run community bank
but over the past year spread its reach considerably through acquisitions. The
September purchase of Main Line Bank of Philadelphia brought Sovereign's total
assets to nearly $20 billion with 190 community banking offices serving
eastern Pennsylvania, northern Delaware, and New Jersey. While this holding,
along with others discussed in this report, was viewed favorably at the end of
the fiscal period, all portfolio holdings are subject to review and adjustment
in accordance with the fund's investment strategy and may vary in the future.
Technology-related companies are among the largest issuers of convertible
securities (roughly one fifth of the total). So, when the prices of many
technology stocks declined in response to investor concerns regarding the
Asian financial crisis, we took advantage of the opportunity to acquire the
related convertibles at lower prices. Two companies that helped boost
performance during the year were Lernout & Hauspie and SCI Systems.
Lernout & Hauspie (L&H) is a global leader in the development of advanced
speech technology. This Belgian company has now signed licensing contracts
with more than 100 companies to use its various technologies, ranging from
computer voice recognition systems to Internet language translation. With a
mere 400 employees, the company signed a record-breaking 121 contracts in its
1997 fiscal year and saw a 220% increase in revenues from the year before.
Alabama-based SCI Systems is a diversified electronics manufacturer whose
products and systems are supplied to a variety of aerospace, commercial, and
industrial customers. During the year, SCI benefited from the accelerated
trend of outsourced manufacturing and lists Hewlett-Packard as one of its
biggest clients.
[GRAPHIC OMITTED: pie chart PORTFOLIO COMPOSITION (2/28/98)]
PORTFOLIO COMPOSITION (2/28/98)
Other 4.3%
Convertible securities 48.2%
Corporate high yield bonds 41.8%
Preferred stocks 4.6%
Common stocks (including warrants) 1.1%
Footnote reads:
Based on total market value of assets as of 2/28/98. Holdings will vary
over time.
* STRENGTH OF HIGH-YIELD CORPORATES CONTINUES
Your fund's corporate bond holdings delivered solid performance against a
backdrop of low inflation and strong earnings gains. A record-breaking supply
of new issues came to market but was easily absorbed by investors seeking
higher yields than those available through government paper and
investment-grade corporate bonds. Although merger and acquisition activity
soared, the percentage of new high-yield issues used for acquisition financing
actually declined. Indeed, the typical high-yield issuer today has less debt
on the books and is much less likely to default on payments of principal and
interest than in the junk-bond heyday of the late 1980s and early 1990s. (The
average default rate among high-yield issuers was 1.5% in 1997 versus more
than 10% in 1992.)
Three areas of the high-yield market that helped drive fund performance during
the year were telecommunications, broadcasting, and cable TV. Many of the
fund's telecom holdings were in the midst of launching personal communications
systems in major U.S. metropolitan markets at the start of the fiscal year.
During the infrastructure development stage, these often fledgling companies
represent the greatest business risk, and their bonds are priced accordingly,
with relatively high yields to attract investors. In particular, the fund
benefited from recent investments in competitive local exchange carriers, such
as WinStar Communications. These companies use wireless and fiber-optic
technologies to compete with local phone companies and enjoyed considerable
success over the past year.
In the broadcasting industry, companies have made the most of recent
legislation that effectively eases ownership restrictions within the largest
metropolitan areas. This deregulation sparked a wave of merger and acquisition
activity during the year as companies sought to spread the cost of
administration and sales across several stations and thereby improve profit
margins. Fund holdings that participated in this industry consolidation
include SFX Broadcasting, Jacor Communications, and Citadel Broadcasting.
[GRAPHIC OMITTED: TOP FIVE CONVERTIBLE HOLDINGS]
TOP FIVE CONVERTIBLE HOLDINGS*
Lernout & Hauspie Speech Products N.V., 8.0% 144A
convertible, 2001
Electronics and electrical equipment
Sovereign Bancorp, Inc., $3.13 convertible preferred
Banking
Safeguard Scientifics, Inc., 6.0% 144A convertible, 2006
Computers
H.F. Ahmanson & Co. $3.00 convertible preferred
Insurance and finance
Berkshire Hathaway, Inc. 1% convertible, 2001
Financial
[GRAPHIC OMITTED: TOP FIVE HIGH-YIELD HOLDINGS]
TOP FIVE HIGH-YIELD HOLDINGS*
Transamerican Energy, stepped-coupon zeros, 2002
Oil and gas
ICG Holdings, Inc., stepped-coupon zeros, 2005
Telecommunications
NEXTEL Communications, Inc., stepped-coupon zeros, 2007
Cellular communications
Advanta Corp., Series B 7.0%, 2001
Financial services
Midland Funding Corp., Series A 11.75%, 2005
Electric utilities (finance subsidiary)
Footnote reads:
*These combined holdings represent 8.3% of the fund's net assets as of 2/28/98.
Portfolio holdings will vary over time.
In recent years, the securities of cable companies have languished as
investors weighed the prospects of increased competition from satellite TV and
industry deregulation. Lately, however, cable operators have begun working
together to manage their subscriber bases, introduce new products, and upgrade
networks. Of particular interest is the delivery of Internet technology
through conventional cable systems. In June, Microsoft announced that it would
invest $1 billion in Philadelphia cable operator Comcast Corp. for an 11.5%
stake in the company. Given that Microsoft wishes to promote its own online
service, the investment suggests Microsoft believes cable can be a viable
distribution network for Internet technology in the future.
* OUTLOOK REMAINS FAVORABLE
The outlook for small-capitalization convertibles and high-yielding corporate
bonds remains favorable in our view. Healthy economic activity in the United
States, coupled with relatively low yields on U.S. Treasuries, should provide
an excellent underpinning for both types of securities. While the economic
crisis in Asia may yet claim more corporate victims in the United States --
providing the occasional opportunity for an undervalued convertible --
companies in the high-yield corporate market tend to have relatively few
global operations and are less likely to be affected.
On a more cautious note, the general reduction of yields on
below-investment-grade debt over the past year suggests that the market may
now be fairly valued and that price appreciation may be less of a contributor
to performance going forward. In the convertible market, the burgeoning
popularity of these securities has meant that many of the new issues we've
seen have been priced too high in our opinion, forcing us to focus our sights
on the secondary market. In the coming months, we intend to remain diligent on
credit selection, seeking overlooked issues and undervalued situations that
offer the potential for price appreciation and income.
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 2/28/98, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Convertible Opportunities and Income Trust is designed
for investors aggressively seeking capital appreciation and current income
through a diversified portfolio of lower-grade and nonrated convertible
securities and nonconvertible high-yielding securities.
TOTAL RETURN FOR PERIODS ENDED 2/28/98
Merrill Lynch First Boston Consumer
Market All-Convertible High Yield Price
NAV price Index Bond Index Index
- -------------------------------------------------------------------------
1 year 17.46% 26.03% 21.70% 12.48% 1.44%
- -------------------------------------------------------------------------
Life of fund
(since 6/29/95) 50.95 48.66 53.29 37.52 6.16
Annual average 16.68 16.01 17.37 12.69 2.27
- -------------------------------------------------------------------------
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
12 months ended 2/28/98
- -------------------------------------------------------------------------
Distributions
- -------------------------------------------------------------------------
Number 12
- -------------------------------------------------------------------------
Income $1.770
- -------------------------------------------------------------------------
Capital gains
- -------------------------------------------------------------------------
Long-term 1.307
- -------------------------------------------------------------------------
Short-term --
- -------------------------------------------------------------------------
Total $3.077
- -------------------------------------------------------------------------
Share value NAV Market price
- -------------------------------------------------------------------------
2/28/97 $26.40 $24.38
- -------------------------------------------------------------------------
2/28/98 27.57 27.312
- -------------------------------------------------------------------------
Current return (end of period): NAV Market price
- -------------------------------------------------------------------------
Current dividend rate1 6.75% 6.81%
- -------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
(most recent calendar quarter)
Market
NAV price
- -------------------------------------------------------------------------
1 year 23.13% 28.14%
- -------------------------------------------------------------------------
Life of fund
(since 6/29/95) 54.62 47.46
Annual average 17.17 15.17
- -------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value,
and market price will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding 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(registered trademark) and Moody's. The average quality of bonds
included in the index may be lower than the average quality of those
bonds in which the fund customarily invests.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the
fund will differ. It is not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended February 28, 1998
To the Trustees and Shareholders of
Putnam Convertible Opportunities and Income Trust
We have audited the accompanying statement of assets and liabilities of Putnam
Convertible Opportunities and Income Trust, including the portfolio of
investments owned, as of February 28, 1998, and the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of February 28, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Convertible Opportunities and Income Trust as of February 28, 1998, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 15, 1998
Portfolio of investments owned
February 28, 1998
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (41.4%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.4%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 90,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $ 97,425
165,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 170,775
100,000 Outdoor Comunications Inc. sr. sub. notes 9 1/4s, 2007 104,250
--------------
372,450
Aerospace and Defense (0.6%)
- ------------------------------------------------------------------------------------------------------------
50,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 51,125
100,000 Aviation Sales Co. 144A sr. sub. notes 8 1/8s, 2008 99,250
60,000 BE Aerospace, Inc. 144A sr. sub. notes 8s, 2008 59,700
50,000 K & F Industries, Inc.144A sr. sub. notes 9 1/4s, 2007 52,250
50,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 54,500
100,000 Sequa Corp. med. term notes 10s, 2001 104,657
65,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 67,113
60,000 United Defense Industries Inc. 144A sr. sub. notes 8 3/4s, 2007 61,200
--------------
549,795
Agriculture (0.3%)
- ------------------------------------------------------------------------------------------------------------
255,740 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 276,199
Airlines (0.2%)
- ------------------------------------------------------------------------------------------------------------
65,000 Trans World Airlines, Inc. 144A sr. notes 11 1/2s, 2004 68,738
80,000 Trans World Airlines, Inc. 144A notes 11 3/8s, 2006 80,400
--------------
149,138
Apparel (0.2%)
- ------------------------------------------------------------------------------------------------------------
140,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 148,400
65,000 William Carter Co. 144A sr. sub. notes 12s, 2008 69,550
--------------
217,950
Automotive Parts (0.8%)
- ------------------------------------------------------------------------------------------------------------
188,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 209,150
35,000 Cambridge Industries Inc. company guaranty Ser. B, 10 1/4s,
2007 36,050
55,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 58,369
195,000 Lear Corp. sub. notes 9 1/2s, 2006 216,938
330,000 Navistar International Corp. 144A sr. sub.notes 8s, 2008 331,238
--------------
851,745
Banks (1.2%)
- ------------------------------------------------------------------------------------------------------------
70,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 68,250
100,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 112,780
200,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 213,000
100,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 110,016
150,000 Korea Developmental Bank 7 1/8s, 2001 140,145
60,000 North Fork Capital Trust I company guaranty 8.7s, 2026 65,543
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 27,750
80,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 88,800
50,000 Ocwen Financial Corp. notes 11 7/8s, 2003 56,750
70,000 Provident Capital Trust company guaranty 8.6s, 2026 74,172
40,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 42,524
60,000 Sovereign Capital Trust company guaranty 9s, 2027 65,327
135,000 Sumitomo Bank Treasury Co. 144A bonds Ser. A, FRB 9.4s,
2049 (Japan) 138,375
50,000 Webster Capital Trust I 144A bonds 9.36s, 2027 55,001
--------------
1,258,433
Basic Industrial Products (--%)
- ------------------------------------------------------------------------------------------------------------
30,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 31,050
Broadcasting (3.2%)
- ------------------------------------------------------------------------------------------------------------
95,000 Acme Television/Finance 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 ++ 75,763
75,000 Affinity Group Holdings sr. notes 11s, 2007 81,000
90,000 Allbritton Communications Co. 144A sr. sub. notes 8 7/8s, 2008 90,450
65,000 Antenna TV S.A. 144A sr. notes 9s, 2007 (Greece) 65,325
50,000 Australis Holdngs PTY Ltd. sr. disc, notes stepped-coupon
zero % (15s, 11/01/00), 2002 (Australia) 25,000
50,000 Azteca Holdings S.A. sr. notes 11s, 2002 (Mexico) 52,438
500,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 ++ 392,500
205,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 ++ 151,700
85,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 89,250
75,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 76,500
79,370 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 87,307
350,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s,
(13 1/4s, 5/1/98), 2003 ++ 392,000
270,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 279,450
95,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 94,406
500,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 535,000
110,000 Jacor Communications, Inc. sr. sub. notes 8s, 2010 109,725
414,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 407,790
110,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 ++ 111,100
75,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 75,281
35,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 37,450
--------------
3,229,435
Building and Construction (0.8%)
- ------------------------------------------------------------------------------------------------------------
50,000 American Architectural Products Corp. 144A sr. notes
11 3/4s, 2007 52,000
85,000 Atrium Companies Inc. sub. notes 10 1/2s, 2006 90,100
90,000 Brand Scaffold Services 144A sr. notes 10 1/4s, 2008 91,800
150,000 GS Superhighway Holdings 144A sr. notes 10 1/4s, 2007 127,500
70,000 Presley Cos. sr. notes 12 1/2s, 2001 67,375
300,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 348,000
--------------
776,775
Building Products (1.1%)
- ------------------------------------------------------------------------------------------------------------
160,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 195,200
150,000 Consumers International 144A sr. notes 10 1/4s, 2005 164,625
275,000 Johns Manville International Group sr. notes 10 7/8s, 2004 304,563
250,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 260,625
150,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 ++ 137,250
--------------
1,062,263
Business Equipment and Services (0.5%)
- ------------------------------------------------------------------------------------------------------------
45,000 ATC Group Services Inc. 144A sr. sub. notes 12s, 2008 45,563
250,000 Axiohm Transactions Solutions 144A sr. sub. notes 9 3/4s, 2007 255,000
110,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 113,713
50,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 53,625
49,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 56,044
--------------
523,945
Cable Television (3.3%)
- ------------------------------------------------------------------------------------------------------------
565,679 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 588,306
150,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 36,000
120,000 Century Communications Corp. 144A sr. disc. notes
zero %, 2008 51,000
250,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 206,250
300,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00),
2005 (United Kingdom) ++ 229,500
295,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 196,175
229,538 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 243,310
240,000 Fox Kids Worldwide Inc. 144A sr. discount notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 ++ 146,400
315,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 311,063
50,000 Heartland Wireless Communications, Inc. sr. notes Ser. B,
14s, 2004 18,875
100,000 Heartland Wireless Communications, Inc. sr. notes Ser. D,
13s, 2003 28,000
250,000 International Cabletel Inc. sr. notes stepped-coupon Ser. A,
zero % (12 3/4s, 4/15/200), 2005 ++ 213,750
375,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 300,000
180,000 Lenfest Communications, Inc. 144A sr. sub. notes 8 1/4s, 2008 181,575
30,000 Northland Cable Television 144A sr. sub. notes 10 1/4s, 2007 32,100
170,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 181,900
275,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 5/15/01), 2006 (Australia) ++ 187,000
210,000 United International Holdings 144A sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/03), 2008 ++ 127,313
140,000 Wireless One, Inc. sr. notes 13s, 2003 39,200
--------------
3,317,717
Cellular Communications (2.9%)
- ------------------------------------------------------------------------------------------------------------
690,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 ++ 353,625
505,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 ++ 487,325
100,000 Dobson Communications Corp. 144A 11 3/4s, 2007 108,500
200,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 76,000
440,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 335,500
195,000 International Wireless Communications, Inc. sr. disc. notes
zero %, 2001 62,400
450,000 McCaw International Ltd sr. discount notes stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 297,000
305,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 235,231
1,180,000 NEXTEL Communications sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 ++ 761,100
320,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (9.95s, 2/15/03), 2008 ++ 198,400
--------------
2,915,081
Chemicals (1.1%)
- ------------------------------------------------------------------------------------------------------------
350,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 358,750
180,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 186,750
90,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 90,900
50,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 51,875
100,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 101,500
100,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 102,000
30,000 Polymer Group, Inc. 144A sr. sub. notes 8 3/4s, 2008 30,000
145,000 Polytama International notes 11 1/4s, 2007 65,250
105,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 110,250
75,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 46,875
--------------
1,144,150
Computer Services (0.7%)
- ------------------------------------------------------------------------------------------------------------
235,000 Unisys Corp. sr. notes 11 3/4s, 2004 272,600
250,000 Unisys Corp. deb. notes 9 3/4s, 2016 258,125
205,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 215,250
--------------
745,975
Consumer Durable Goods (0.1%)
- ------------------------------------------------------------------------------------------------------------
20,000 Hedstrom Holdings, Inc. stepped-coupon zero %
(12s, 6/01/02), 2009 ++ 12,400
130,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/01), 2006 ++ 70,200
45,000 Sealy Mattress Co. 144A sr. sub. notes 9 7/8s, 2007 47,813
--------------
130,413
Consumer Non Durables (--%)
- ------------------------------------------------------------------------------------------------------------
25,000 Amscan Holdings, Inc. 144A sr. sub. notes 9 7/8s, 2007 26,000
10,000 Packaged Ice, Inc. 144A sr. notes 9 3/4s, 2005 10,225
--------------
36,225
Consumer Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
346,000 Coinmach Corp. sr. notes 11 3/4s, 2005 384,925
Cosmetics (0.6%)
- ------------------------------------------------------------------------------------------------------------
250,000 Carson, Inc. company guaranty Ser. B, 10 3/8s, 2007 250,000
35,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 37,450
480,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 354,000
--------------
641,450
Electric Utilities (1.1%)
- ------------------------------------------------------------------------------------------------------------
50,000 AES Corp. sr. sub. notes 8 3/8s, 2007 51,125
95,000 Espirito Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 91,200
187,000 First PV Funding deb. 10.15s, 2016 197,951
500,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 602,335
120,361 Northeast Utilities System notes Ser. A, 8.58s, 2006 120,649
92,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 93,943
--------------
1,157,203
Electronics and Electrical Equipment (1.2%)
- ------------------------------------------------------------------------------------------------------------
55,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 58,919
56,278 Cirent Semiconductor sr. sub. notes 10.22s, 2002 58,671
64,336 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 67,071
125,000 Details Holdings Corp. 144A sr. disc. notes stepped-coupon
zero % (12 1/2s, 11/15/02), 2007 ++ 79,375
80,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 80,800
85,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 94,350
375,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 392,813
80,000 Flextronics Internationsl Ltd. 144A sr. sub. notes 8 3/4s, 2007 81,000
50,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 51,750
70,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 75,600
40,000 Therma-Wave Inc. sr. notes Ser. B, 10 5/8s, 2004 41,600
25,000 Wavetek Corp. company guaranty 10 1/8s, 2007 26,000
150,000 Zilog Inc. 144A sr. notes 9 1/2s, 2005 149,063
--------------
1,257,012
Energy-Related (0.4%)
- ------------------------------------------------------------------------------------------------------------
100,000 Calpine Corp. sr. notes 9 1/4s, 2004 103,000
290,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 266,800
--------------
369,800
Entertainment (0.3%)
- ------------------------------------------------------------------------------------------------------------
130,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 135,850
160,000 Cinemark USA, Inc. notes 9 5/8s, 2008 169,600
--------------
305,450
Environmental Control (0.2%)
- ------------------------------------------------------------------------------------------------------------
90,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 100,350
170,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/07), 2007 ++ 124,100
--------------
224,450
Financial Services (1.3%)
- ------------------------------------------------------------------------------------------------------------
60,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 60,000
750,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 707,808
100,000 Colonial Capital I 144A company guaranty 8.92s, 2027 107,609
105,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 107,625
50,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007
(Luxembourg) 48,250
45,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 49,050
75,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 74,438
45,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 44,100
75,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006 78,750
40,000 Nationwide Credit Inc. 144A sr. notes 10 1/4s, 2008 41,200
--------------
1,318,830
Food and Beverages (0.7%)
- ------------------------------------------------------------------------------------------------------------
100,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 103,500
25,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 26,750
30,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 31,050
200,000 Doane Products Co. sr. notes 10 5/8s, 2006 220,000
25,000 Eagle Family Foods 144A sr. sub. notes 8 3/4s, 2008 25,125
115,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 123,625
100,000 Jitney-Jungle Stores company guaranty 10 3/8s, 2007 102,250
30,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 ++ 20,550
50,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 53,250
20,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 21,200
--------------
727,300
Health Care (0.8%)
- ------------------------------------------------------------------------------------------------------------
120,000 Genesis Eldercare 144A sr. sub. notes 9s, 2007 122,400
190,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 198,075
75,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 71,438
290,000 Paragon Health Networks, Inc. 144A sr. sub. notes 9 1/2s, 2007 298,700
145,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 151,525
--------------
842,138
Lodging (0.2%)
- ------------------------------------------------------------------------------------------------------------
100,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 102,000
120,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 129,900
--------------
231,900
Medical Supplies and Devices (0.6%)
- ------------------------------------------------------------------------------------------------------------
125,000 ALARIS Medical Inc.company guaranty 9 3/4s, 2006 133,125
65,000 Conmed Corp. 144A sr. sub. notes 9s, 2008 65,650
135,000 Fresenius Medical Care AG 144A company guaranty
7 7/8s, 2008 (Germany) 134,325
100,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 112,500
20,000 Imagyn Medical Technologies, Inc. company guaranty
12 1/2s, 2004 12,000
25,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 27,250
150,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 149,250
--------------
634,100
Metals and Mining (0.3%)
- ------------------------------------------------------------------------------------------------------------
30,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 31,238
80,000 Anker Coal Group, Inc. 144A sr. notes 9 3/4s, 2007 82,400
80,000 Continental Global Group sr. notes Ser. B, 11s, 2007 85,600
50,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 55,625
--------------
254,863
Motion Picture Distribution (--%)
- ------------------------------------------------------------------------------------------------------------
45,000 Panavision Inc. 144A sr. disc. notes stepped-coupon
zero % (9 5/8s, 2/1/02), 2006 ++ 31,500
Oil and Gas (2.2%)
- ------------------------------------------------------------------------------------------------------------
70,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 73,850
10,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 10,250
70,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 70,000
80,000 Dailey International Inc. 144A sr. notes 9 1/2s, 2008 81,200
50,000 DI Industries Inc. sr. notes 8 7/8s, 2007 51,250
45,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 49,388
70,000 Market Hub Partners 144A sr. notes 8 1/4s, 2008 70,525
30,000 Newpark Resources, Inc. 144A sr. sub. notes 8 5/8s, 2007 30,675
175,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 185,063
45,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 45,000
60,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 64,500
60,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 59,700
50,000 Southwest Royalties, Inc. 144A company guaranty 10 1/2s, 2004 45,000
1,405,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 ++ 1,180,200
186,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 208,320
40,000 Wiser Oil Co. company guaranty 9 1/2s, 2007 39,800
--------------
2,264,721
Packaging and Containers (0.4%)
- ------------------------------------------------------------------------------------------------------------
50,000 AEP Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 53,000
80,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 81,600
100,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 106,750
60,000 Printpack, Inc. sr. notes Ser. B, 9 7/8s, 2004 64,800
40,000 Radnor Holdings Inc. sr. notes 10s, 2003 42,400
65,000 Radnor Holdings Corp. 144A sr. notes Ser. B, 10s, 2003 68,250
--------------
416,800
Paging (0.3%)
- ------------------------------------------------------------------------------------------------------------
60,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 66,150
165,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 192,225
40,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 35,600
55,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 54,725
--------------
348,700
Paper and Forest Products (1.5%)
- ------------------------------------------------------------------------------------------------------------
225,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s
(16s, 2/15/07), 2049 (Indonesia) ++ 169,875
100,000 APP International Finance Co. notes 11 3/4s,
2005 (Netherlands) 90,000
190,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 203,300
200,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 160,000
150,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 119,250
170,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty
10s, 2004 (Indonesia) 130,900
325,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 320,125
70,000 Riverwood International Corp. company guranty 10 7/8s,
2008 70,088
160,000 Riverwood International Corp. company guaranty 10 1/4s,
2006 166,400
100,000 Stone Container Corp. sr. notes 11 7/8s, 2016 108,000
--------------
1,537,938
Pharmaceuticals (0.3%)
- ------------------------------------------------------------------------------------------------------------
225,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 238,219
45,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 46,238
--------------
284,457
Publishing (0.3%)
- ------------------------------------------------------------------------------------------------------------
180,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 184,500
50,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 52,375
40,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 43,000
--------------
279,875
REIT's (Real Estate Investment Trust) (0.2%)
- ------------------------------------------------------------------------------------------------------------
150,000 HMH Properties, Inc. company guaranty Ser. B, 8 7/8s, 2007 158,625
Railroads (0.2%)
- ------------------------------------------------------------------------------------------------------------
80,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 90,200
30,000 TFM S.A. de C.V. 144A company guaranty 10 1/4s,
2007 (Mexico) 31,200
155,000 TFM S.A. de C.V. 144A company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) ++ 102,300
--------------
223,700
Recreation (1.6%)
- ------------------------------------------------------------------------------------------------------------
105,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 113,925
75,000 Casino America, Inc. sr. notes 12 1/2s, 2003 83,063
40,000 CLN Holdings, Inc. sr. disc. notes zero %, 2001 26,000
158,700 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 172,190
160,000 Fitzgeralds Gaming Corp. 144A company guaranty
12 1/4s, 2004 161,600
100,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 108,250
60,000 Isle of Capri Black Hawk LLC 1st mortgage Ser. B, 13s, 2004 61,050
350,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 359,625
216,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 218,160
30,000 Penn National Gaming, Inc. 144A sr. notes 10 5/8s, 2004 31,425
175,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 131,250
180,000 Trump A.C. company guaranty 11 1/4s, 2006 185,175
--------------
1,651,713
Restaurants (0.3%)
- ------------------------------------------------------------------------------------------------------------
100,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 108,750
200,000 Perkins Family Restaurants L.P. 144A sr. notes 10 1/8s, 2007 207,500
--------------
316,250
Retail (0.9%)
- ------------------------------------------------------------------------------------------------------------
50,000 Color Spot Nurseries sr. sub. notes 10 1/2s, 2007 49,500
120,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 133,200
350,000 K mart Corp. med. term notes 7.85s, 2002 354,403
100,000 K mart Corp. deb. 7 3/4s, 2012 97,500
200,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 214,000
100,000 Zale Corp. 144A sr. notes 8 1/2s, 2007 102,250
--------------
950,853
Satellite Services (1.1%)
- ------------------------------------------------------------------------------------------------------------
135,000 Echostar DBS Corp. company guaranty 12 1/2s, 2002 149,850
250,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 ++ 221,250
90,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 66,600
215,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 244,563
175,000 Iridium LLC company gauranty Ser. A, 13s, 2005 190,531
10,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 10,250
120,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 135,600
25,000 Pegasus Communications Corp. sr. notes Ser. B, 9 5/8s, 2005 26,375
80,000 Pratama Datakom Asia BV 144A company guaranty 12 3/4s,
2005 (Indonesia) 43,200
80,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 81,600
--------------
1,169,819
School Buses (0.3%)
- ------------------------------------------------------------------------------------------------------------
335,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 ++ 306,525
Shipping (0.1%)
- ------------------------------------------------------------------------------------------------------------
40,000 International Shipholding Corp. 144A sr. notes 7 3/4s, 2007 39,400
70,000 Trico Marine Services, Inc. 144A company guaranty Ser. C,
8 1/2s, 2005 70,438
--------------
109,838
Steel (0.2%)
- ------------------------------------------------------------------------------------------------------------
170,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 171,700
Telecommunication (4.3%)
- ------------------------------------------------------------------------------------------------------------
340,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 269,450
40,000 Consorcio Ecuatoriano notes 14s, 2002 (Ecuador) 41,600
60,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 65,250
65,000 Facilicom International 144A sr. notes 10 1/2s, 2008 65,163
60,000 Focal Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 2/15/03), 2008 ++ 33,000
270,000 FrontierVision Holdings LP sr. disc. notes stepped-coupon
zero % (11 7/8s, 9/15/01), 2007 ++ 207,900
496,000 GST USA, Inc. company guaranty stepped-coupon zero %
(13 7/8s, 12/15/00), 2005 ++ 399,280
80,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 59,200
170,000 Hyperion Telecommunications , Inc. sr. notes Ser. B, 12 1/4s,
2004 192,100
930,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 771,900
250,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) ++ 100,000
250,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 ++ 183,750
215,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s, 2007 227,363
200,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 205,000
55,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) ++ 35,750
285,000 MGC Communications, Inc. 144A sr. notes 13s, 2004 286,425
65,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) ++ 45,500
40,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 40,400
20,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/02), 2007 (Poland) 13,300
80,000 Nextlink Communications sr. notes 12 1/2s, 2006 92,000
135,000 Qwest Communications International Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 ++ 93,488
170,000 RCN Corp. 144A sr. disc. notes stepped-coupon zero %
(9.8s, 2/15/03), 2008 ++ 103,275
260,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 ++ 169,000
55,000 Vialog Corp. 144A company guaranty 12 3/4s, 2001 56,100
450,000 WinStar Communications, Inc. 144A sr disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 369,000
100,000 WinStar Communications. Inc. 144A sr. sub. notes
15s, 2007 134,000
80,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 92,000
--------------
4,351,194
Telephone Services (1.1%)
- ------------------------------------------------------------------------------------------------------------
75,000 America Communication Services, Inc. sr. notes 13 3/4s, 2007 90,750
130,000 BTI Telecom Corp. 144A sr. notes 10 1/2s, 2007 137,800
220,000 Econophone Inc. 144A sr. disc. notes stepped-coupon zero %
(11s, 2/15/03), 2008 ++ 129,800
130,000 Flag Limited 144A sr. notes 8 1/4s, 2008 (Bermuda) 132,275
105,000 ITC Deltacom, Inc. sr. notes 11s, 2007 117,075
160,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 121,200
135,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 153,900
90,000 RSL Communications, Ltd. 144A sr. disc. notes stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 ++ 54,788
60,000 RSL Communications, Ltd. 144A sr. notes 9 1/8s, 2008 59,700
45,000 Transtel S.A. 144A pass through Certificates 12 1/2s,
2007 (Colombia) 42,469
85,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(15s, 1/15/00), 2005 ++ 73,313
--------------
1,113,070
Textiles (0.1%)
- ------------------------------------------------------------------------------------------------------------
40,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 43,600
135,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 82,350
--------------
125,950
Transportation (0.2%)
- ------------------------------------------------------------------------------------------------------------
90,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 100,350
140,000 Kitty Hawk, Inc. 144A sr. notes 9.95s, 2004 146,300
--------------
246,650
Wireless Communications (0.3%)
- ------------------------------------------------------------------------------------------------------------
75,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 81,938
150,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 164,250
20,000 Powertel, Inc. sr. notes 11 1/8s, 2007 21,800
55,000 Telesystem International Wireless Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 11/1/02), 2007
(Canada) ++ 33,550
--------------
301,538
--------------
Total Corporate Bonds and Notes (cost $41,025,264) $ 42,299,576
CONVERTIBLE BONDS AND NOTES (30.4%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.9%)
- ------------------------------------------------------------------------------------------------------------
$ 310,000 Diagnostic Retrieval Systems, Inc. cv. sr. sub. deb 9s, 2003 $ 438,650
450,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 450,000
--------------
888,650
Airlines (0.9%)
- ------------------------------------------------------------------------------------------------------------
220,000 Atlantic Coast Airlines144A cv. sub. notes 7s, 2004 525,800
458,000 World Airways, Inc. 144A cv. sub. deb. 8s, 2004 352,660
--------------
878,460
Automotive (0.6%)
- ------------------------------------------------------------------------------------------------------------
500,000 Magna International cv. sub. deb. 5s, 2002 575,000
Banks (0.3%)
- ------------------------------------------------------------------------------------------------------------
280,000 Mitsubishi Bank Ltd. International Finance cv. trust gtd.
notes 3s, 2002 (Japan) 301,000
Broadcasting (1.0%)
- ------------------------------------------------------------------------------------------------------------
450,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 351,000
620,000 Scandinavian Broadcasting System S.A. 144A cv. sub. 7s,
2004 (Luxembourg) 663,400
--------------
1,014,400
Business Equipment and Services (2.0%)
- ------------------------------------------------------------------------------------------------------------
315,000 Cendant Corp. cv. sr. notes 4 3/4s, 2003 437,456
600,000 Corporate Express, Inc. 144A cv. notes 4 1/2s, 2000 535,500
440,000 Staples, Inc. 144A cv. sub. deb. 4 1/2s, 2000 643,500
540,000 U.S. Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 465,075
--------------
2,081,531
Cable Television (0.5%)
- ------------------------------------------------------------------------------------------------------------
655,000 Comcast Corp. cv. notes 1 1/8s, 2007 454,406
Computer Equipment (0.9%)
- ------------------------------------------------------------------------------------------------------------
470,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 366,600
120,000 Intevac, Inc. cv. sub. notes 6 1/2s, 2004 92,400
460,000 Synoptics Communications Inc. 144A cv. sub.
deb. 5 1/4s, 2003 501,400
--------------
960,400
Computer Software (1.4%)
- ------------------------------------------------------------------------------------------------------------
149,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 262,799
573,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 469,860
1,945,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 702,631
--------------
1,435,290
Computers (0.9%)
- ------------------------------------------------------------------------------------------------------------
765,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 947,644
Conglomerates (0.5%)
- ------------------------------------------------------------------------------------------------------------
297,000 Hexcel Corp. cv. sub. notes 7s, 2003 523,834
Consumer Non Durables (0.5%)
- ------------------------------------------------------------------------------------------------------------
550,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 + 506,000
Consumer Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
540,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 340,200
Electronics and Electrical Equipment (5.0%)
- ------------------------------------------------------------------------------------------------------------
228,000 Dovatron International cv. sub. notes 6s, 2002 344,280
300,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 252,000
255,000 Lernout & Hauspie Speech Products N.V. 144A cv. sub.
notes 8s, 2001 (Belgium) 961,350
670,000 Motorola, Inc. cv. sub. deb. LYON (Liquid Yield Option Notes)
zero %, 2013 504,175
100,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 99,000
215,000 Photronics, Inc. cv. sub. notes 6s, 2004 274,394
250,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 177,188
250,000 S3, Inc. cv. sub. notes 5 3/4s, 2003 177,500
365,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 706,275
590,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 702,100
395,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 440,919
450,000 Thermo Quest Corp. 144A company guaranty cv. 5s, 2000 468,563
--------------
5,107,744
Environmental Control (1.5%)
- ------------------------------------------------------------------------------------------------------------
250,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 297,813
300,000 USA United Waste Systems, Inc. cv. sub. notes 4 1/2s, 2001 419,438
460,000 U.S. Filter Corp. cv. sub. notes 4 1/2s, 2001 506,000
355,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 287,550
--------------
1,510,801
Health Care (0.5%)
- ------------------------------------------------------------------------------------------------------------
80,000 Renal Treatment Centers, Inc. cv. sub. notes
5 5/8s, 2006 105,000
340,000 Renal Treatment Centers, Inc. 144A cv. sub.
notes 5 5/8s, 2006 446,250
--------------
551,250
Hospital Management and Medical Services (0.9%)
- ------------------------------------------------------------------------------------------------------------
420,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 462,000
475,000 Sun Healthcare Group Inc. 144A cv. sub. notes 6s, 2004 497,563
--------------
959,563
Insurance and Finance (1.4%)
- ------------------------------------------------------------------------------------------------------------
125,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 115,000
470,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 781,963
300,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 515,250
--------------
1,412,213
Medical Supplies and Devices (1.5%)
- ------------------------------------------------------------------------------------------------------------
450,000 Complete Management, Inc. cv. sub. deb. 8s, 2003 416,250
350,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 +
(In default) 42,000
415,000 Thermo Cardiosystems, Inc. 144A cv. company guaranty
4 3/4s, 2004 440,419
300,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 334,125
670,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 322,856
--------------
1,555,650
Metals and Mining (0.5%)
- ------------------------------------------------------------------------------------------------------------
440,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 477,950
Oil and Gas (0.5%)
- ------------------------------------------------------------------------------------------------------------
500,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 543,750
Paper and Forest Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
445,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 503,406
Pharmaceuticals and Biotechnology (2.6%)
- ------------------------------------------------------------------------------------------------------------
1,145,000 Alza Corp. cv. sub. LYON zero %, 2014 585,381
150,000 Centocor, Inc. 144A cv. sub. notes 4 3/4s, 2005 151,500
640,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 420,800
715,000 Pharmaceutical Marketing Services Inc. 144A cv. deb. 6 1/4s,
2003 614,900
745,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %,
2010 (Switzerland) 452,588
390,000 Sepracor, Inc. 144A cv. sub. deb. 6 1/4s, 2005 427,050
--------------
2,652,219
REIT's (Real Estate Investment Trust) (0.4%)
- ------------------------------------------------------------------------------------------------------------
305,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 386,588
Restaurants (0.3%)
- ------------------------------------------------------------------------------------------------------------
430,000 Einstein/Noah Bagel Corp. 144A cv. sub. deb. 7 1/4s, 2004 269,825
Retail (1.6%)
- ------------------------------------------------------------------------------------------------------------
340,000 Baker (J.), Inc. cv. deb. 7s, 2002 270,300
340,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 499,800
585,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 622,294
111,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 243,923
--------------
1,636,317
Satellite Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
330,000 Gilat Satellite Networks Ltd. cv. sub. notes 6 1/2s, 2004 (Israel) 332,888
Semiconductors (1.4%)
- ------------------------------------------------------------------------------------------------------------
299,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 251,908
535,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 521,625
640,000 Plasma & Materials Technologies, Inc. 144A cv. notes 7 1/8s,
2001 225,600
410,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 435,625
--------------
1,434,758
Telecommunications (0.8%)
- ------------------------------------------------------------------------------------------------------------
62,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 ++ 84,940
300,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 308,063
465,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003 93,000
225,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 308,250
--------------
794,253
--------------
Total Convertible Bonds and Notes (cost $28,022,692) $ 31,035,990
CONVERTIBLE PREFERRED STOCKS (17.5%) *
NUMBER OF SHARES VALUE
Banks (1.6%)
- ------------------------------------------------------------------------------------------------------------
8,250 Sovereign Bancorp Inc. $3.125 cv. cum. pfd. $ 952,875
9,040 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 675,740
--------------
1,628,615
Basic Industrial Product (0.5%)
- ------------------------------------------------------------------------------------------------------------
3,595 Case Corp. $4.50 cv. pfd. 542,845
Broadcasting (1.3%)
- ------------------------------------------------------------------------------------------------------------
3,625 Chancellor Media Corp. $3.50 cv. pfd. 462,188
7,100 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 476,588
32,400 Triathlon Broadcasting Co. $0.945 cv. pfd. 340,200
--------------
1,278,976
Cable Television (--%)
- ------------------------------------------------------------------------------------------------------------
1 Cablevision Systems Corp. Ser. H, $11.75 cv. pfd. [2 DBL. DAGGERS] 117
Computer Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
13,450 Vanstar Corp. 144A $3.375 cv. pfd. 538,000
Computer Services (0.7%)
- ------------------------------------------------------------------------------------------------------------
12,300 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 724,163
Conglomerates (0.4%)
- ------------------------------------------------------------------------------------------------------------
24,859 Cooper Industries, Inc. $0.81 cv. pfd. 436,586
Entertainment (0.6%)
- ------------------------------------------------------------------------------------------------------------
11,100 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 571,650
Financial Services (1.6%)
- ------------------------------------------------------------------------------------------------------------
5,850 Finova Finance Trust $2.75 cv. cum. pfd. 447,525
6,700 Newell Financial Trust 144A $2.625 cv. cum. pfd. 364,313
9,390 Penncorp Financial Group, Inc. 144A $3.50 cv. cum. pfd. 534,056
14,000 Walbro Captial Trust $2.00 cv. pfd. 320,250
--------------
1,666,144
Food (0.3%)
- ------------------------------------------------------------------------------------------------------------
4,770 Chiquita Brands International, Inc. Ser. B, $3.75 cv. pfd. 262,946
Health Care (0.4%)
- ------------------------------------------------------------------------------------------------------------
25,860 MedPartners, Inc. $6.50 cv. pfd. 370,121
Insurance and Finance (3.2%)
- ------------------------------------------------------------------------------------------------------------
7,050 Aetna Inc. $6.25 cv. pfd. 587,794
6,450 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 825,600
9,150 American General Delaware Corp. $3.00 cv. cum. pfd. 667,950
6,200 American Heritage Life Investment Corp. $4.25 cv. pfd. 372,388
4,800 Protective Life Corp. $3.25 cv. cum. pfd. 298,800
6,430 St. Paul Capital LLC $3.00 cv. cum. pfd. 492,699
--------------
3,245,231
Metals and Mining (0.9%)
- ------------------------------------------------------------------------------------------------------------
11,970 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 430,920
10,195 Timet Capital Trust I 144A $3.312 cv. pfd. 517,396
--------------
948,316
Oil and Gas (1.5%)
- ------------------------------------------------------------------------------------------------------------
6,075 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 338,681
10,200 Tosco Financing Trust 144A $2.875 cv. pfd. 645,150
9,200 Unocal Capital Trust $3.125 cv. cum. pfd. 507,150
25 XCL Ltd $8.075 cv. pfd. 3,250
--------------
1,494,231
Paper and Forest Products (0.4%)
- ------------------------------------------------------------------------------------------------------------
8,600 International Paper Co. $2.625 cv. pfd. 438,600
Real Estate (1.1%)
- ------------------------------------------------------------------------------------------------------------
16,640 Equity Residential Property Ser. E, $1.75 cv. pfd. (R) 457,600
10,680 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 628,785
--------------
1,086,385
Retail (0.6%)
- ------------------------------------------------------------------------------------------------------------
11,650 K mart Financing $3.875 cv. pfd. 652,400
Telecommunication (0.5%)
- ------------------------------------------------------------------------------------------------------------
8,090 AirTouch Communications, Inc. Ser. C, $2.125 cv. pfd. 544,053
Tobacco (0.4%)
- ------------------------------------------------------------------------------------------------------------
19,600 DIMON, Inc. $8.50 cv. pfd. 352,800
Transportation (0.6%)
- ------------------------------------------------------------------------------------------------------------
6,000 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 354,000
6,000 Hvide Capital Trust 144A $3.25 cv. pfd. 292,500
--------------
646,500
Utilities (0.4%)
- ------------------------------------------------------------------------------------------------------------
7,970 CalEnergy Capital Trust 144A $3.75 cv. cum. pfd. 420,418
--------------
Total Convertible Preferred Stocks (cost $15,257,596) $ 17,849,097
PREFERRED STOCKS (4.6%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
41 American Communications Services $12.75 pfd. [2 DBL. DAGGERS] $ 48,380
2,264 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 61,128
26 Anvil Holdings Ser. B, $3.25 pfd. 624
2,755 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 317,514
3,000 California Federated Bankcorp, Inc. Ser. B, $11.50 pfd. 337,500
638 Capstar Broadcasting $12.00 pfd. 74,008
2,970 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 150,728
1,065 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. [2 DBL. DAGGERS] 128,865
3,755 Diva Systems Corp. Ser. C, $6.00 pfd. 48,815
90 Dobson Communications 144A 12.25% pfd. [2 DBL. DAGGERS] 93,150
32 Echostar Communications, Inc. 12.125% pfd. 35,600
2,493 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 274,230
125 Fresenius Medical Care AG Ser. D, $9.00 pfd., (Germany) 133,750
41 Hyperion Telecommunications Ser. B, 12.875% pfd. [2 DBL. DAGGERS] 46,433
143 Intermedia Communication Ser. B, 13.50% pfd. 175,175
180 IXC Communications, Inc. 12.50% pfd. [2 DBL. DAGGERS] 216,000
531 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. [2 DBL. DAGGERS] 615,960
2,896 Nextlink Communications, Inc. 144A $7.00 pfd. 178,104
149 NTL Inc. 144A Ser. B, 13.00% pfd. [2 DBL. DAGGERS] 174,330
5,000 Pantry Pride Inc. Ser. B, $14.875 pfd. 505,000
6,325 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 746,350
106 Spanish Broadcasting Systems 14.25% cum. pfd. 113,950
950 Von Hoffman Corp. 144A $13.50 pfd. 32,063
150 WinStar Communications. Inc. 144A 14.25% cum. pfd. [2 DBL. DAGGERS] 181,500
--------------
Total Preferred Stocks (cost $4,287,317) $ 4,689,157
UNITS (3.0%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
200 Allegiance Telephone, Inc 144A units stepped-coupon
zero % (11 3/4s, 2/15/03), 2008 ++ $ 113,000
250 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/03), 2003 (Australia) ++ 62,500
50 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 1,005,000
80 Club Regina, Inc. 144A units 13s, 2004 82,000
95 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 74,100
30 Concentric Network Corp. units 12 3/4s, 2007 34,500
100 Conecel Holdings 144A units 14s, 2000 107,000
293 Diva Systems Corp. 144A units zero % (12 5/8s, 3/1/03),
2008 ++ 160,418
200 DTI Holdings Inc. units stepped-coupon zero %
(12 1/2s, 3/1/03), 2008 ++ 108,500
200 KMC Telecom Holdings, Inc. units stepped-coupon zero %
(12 1/2s, 2/15/03), 2008 ++ 114,000
235 Knology Holdings Inc. units zero % (11 7/8s,), 2007 ++ 131,600
800 Nebco Evans Holding Co. 144A units 11 1/4s, 2008 [2 DBL. DAGGERS] 80,600
90 Orbital Imaging Corp. units 11 5/8s, 2005 92,925
90 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 48,150
80 Stone Container Corp. units sr. sub. 12 1/4s, 2002 81,700
130 Transamerica Refinance, Inc. 144A units 16s, 2003 136,500
250 21st Century Telecom Group 144A units cum. pfd. zero %,
2008 [2 DBL. DAGGERS] 262,500
200 XCL Ltd units sr. sec. notes 13 1/2s, 2004 260,000
600 XCL Ltd. units cum. pfd. 9.50%, 2006 78,000
--------------
Total Units (cost $2,304,668) $ 3,032,993
COMMON STOCKS (0.8%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
50 AmeriKing, Inc. + $ 2,500
4,800 CellNet Data Systems, Inc. + 42,000
1,213 Hedstrom Holdings, Inc. 144A 1,668
1,664 NEXTEL Communications, Inc. Class A + 49,192
55 Paging Do Brazil Holdings Co., LLC Class B 1
22,025 PSF Holdings LLC Class A + 660,750
1,800 Terex Corp. Rights expiration date 5/15/02 + 36,000
--------------
Total Common Stocks (cost $892,446) $ 792,111
FOREIGN GOVERNMENT BONDS AND NOTES (0.3%) *(cost $249,263)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
USD 460,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loans FRB 6.719s, 2020 $ 277,150
WARRANTS (0.3%) * EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
690 Cellnet Data Systems, Inc. 9/15/07 $ 13,800
185 Diva Systems Corp. 5/15/06 48,563
90 Esat Holdings, Inc. (Ireland) 2/1/07 3,150
1,378 Fitzgeralds Gaming Co. 12/19/98 14
250 Hyperion Telecommunications 144A 4/15/01 15,000
6,534 Intelcom Group 144A 10/15/05 130,680
200 Interact Systems Inc. 8/1/03 50
85 International Wireless Communications
Holdings 144A 8/15/01 2,380
175 Iridium World Com 144A 7/15/05 31,500
650 McCaw International Ltd. 4/15/07 195
285 MGC communications, Inc. 144A 10/1/04 9,975
1,001 Petracom Holdings, Inc. 9/30/99 7,257
135 RSL Communications Ltd. 11/15/06 13,095
100 Spanish Broadcasting Systems 144A 6/30/99 20,000
75 Sterling Chemicals Holdings 8/15/08 2,138
435 UIH Australia/Pacific, Inc. 144A 5/15/06 5,220
55 Vialog Corp. 11/15/01 3,300
--------------
Total Warrants (cost $141,835) $ 306,317
SHORT-TERM INVESTMENTS (1.0%) *(cost $1,036,324)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$1,036,000 Interest in $700,000,000 joint repurchase agreement
dated February 27, 1998 with Goldman Sachs due
March 3, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $1,036,487 for an
effective yield of 5.64% $ 1,036,324
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $93,217,405) *** $ 101,318,715
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $102,111,753.
*** The aggregate identified cost on a tax basis is $93,348,513,
resulting in gross unrealized appreciation and depreciation of
$14,002,765 and $6,032,563, respectively, or net unrealized
appreciation of $7,970,202.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the
new interest rate to be paid and the date the fund will begin
receiving interest at this rate.
[2 DBL. DAGGERS] Income may be received in cash or additional securities
at the discretion of the issuer.
(R) Real Estate Investment Trust Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 28, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $93,217,405) (Note 1) $101,318,715
- ---------------------------------------------------------------------------------------------------
Cash 227,976
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,159,941
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 918,710
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 16,929
- ---------------------------------------------------------------------------------------------------
Total assets 103,642,271
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 573,529
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 544,463
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 326,174
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 30,692
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 8,510
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,111
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 46,039
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,530,518
- ---------------------------------------------------------------------------------------------------
Net assets $102,111,753
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 2) $ 92,057,647
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (366,908)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions (Note 1) 2,319,704
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 8,101,310
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $102,111,753
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($102,111,753 divided by 3,704,000 shares) $27.57
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended February 28, 1998
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest income $ 6,696,321
- --------------------------------------------------------------------------------------------------
Dividends 1,487,123
- --------------------------------------------------------------------------------------------------
Total investment income 8,183,444
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,361,317
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 171,609
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,865
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,696
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 7,365
- --------------------------------------------------------------------------------------------------
Reports to shareholders 24,337
- --------------------------------------------------------------------------------------------------
Registration fees 75
- --------------------------------------------------------------------------------------------------
Auditing 39,408
- --------------------------------------------------------------------------------------------------
Legal 54,414
- --------------------------------------------------------------------------------------------------
Postage 11,129
- --------------------------------------------------------------------------------------------------
Exchange listing fees 18,865
- --------------------------------------------------------------------------------------------------
Other 11,563
- --------------------------------------------------------------------------------------------------
Total expenses 1,719,643
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (42,140)
- --------------------------------------------------------------------------------------------------
Net expenses 1,677,503
- --------------------------------------------------------------------------------------------------
Net investment income 6,505,941
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 4) 5,829,910
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 85,449
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (50,875)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 3,347,685
- --------------------------------------------------------------------------------------------------
Net gain on investments 9,212,169
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $15,718,110
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the year ended February 28
-------------------------------------
1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 6,505,941 $ 6,550,012
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 5,915,359 5,138,840
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 3,296,810 576,794
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,718,110 12,265,646
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (6,530,769) (6,781,670)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (4,866,110) (4,938,258)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (636,454)
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 4,321,231 (90,736)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 97,790,522 97,881,258
- ----------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $366,908 and
$636,454, respectively) $102,111,753 $97,790,522
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at the beginning and end of year 3,704,000 3,704,000
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended June 29, 1995+
operating performance February 28 to February 29
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $26.40 $26.43 $24.85 (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.76 1.77 1.17
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.49 1.54 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.25 3.31 2.80
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (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 (3.08) (3.34) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $27.57 $26.40 $26.43
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $27.312 $24.375 $22.625
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 26.03 23.54 (4.53)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $102,112 $97,791 $97,881
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.71 1.72 1.14 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.45 6.66 4.56 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.69 70.33 38.92 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0495 $.0539
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1, 1995.
(d) Represents initial net asset value of $25.00 less offering expenses of $0.15. Original offering costs were reduced by
$0.03 to reflect actual cost incurred.
</TABLE>
Notes to financial statements
February 28, 1998
Note 1
Significant accounting policies
Putnam Convertible Opportunities and Income Trust (the "fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company. The fund seeks current income and
capital appreciation by investing primarily in a diversified portfolio of
convertible securities and non-convertible, higher risk, high yield
securities.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Market quotations are not considered to be readily available
for long-term corporate bonds and notes, preferred stocks and certain foreign
securities. These investments are stated at fair value on the basis of
valuations furnished by a pricing service, approved by the Trustees, which
determines valuations for normal, institutional-size trading units of such
securities using methods based on market transactions for comparable
securities and various relationships between securities that are generally
recognized by institutional traders. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which approximates
market value, and other investments, including restricted securities, are
stated at fair value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date. Discounts on zero coupon bonds, original issue 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.
Securities purchased or sold on a when-issued basis may be settled a month or
more after the trade date; interest income is accrued based on the terms of
the security. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under the
contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such gains and losses are included with the
net realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign currencies
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using current forward currency
exchange rates supplied by a quotation service. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The fund could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet the
terms of their contracts or if the fund is unable to enter into a closing
position.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
H) Distributions to shareholders Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of market conditions or
investment decisions, the fund may not achieve projected investment results
for a given period. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences
include treatment of losses on wash sale transactions, interest on
payment-in-kind securities, market discount, defaulted bond interest,
organization expenses, realized and unrealized gains and losses on forward
foreign currency contracts. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year ended
February 28, 1998, the fund reclassified $294,374 to decrease distributions in
excess of net investment income and $52,944 to increase paid-in-capital, with
a decrease to accumulated net realized gains and losses of $347,318. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
I) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $36,134. These expenses are being amortized on a straight-line
basis over a five-year period.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 1.10% of average net assets.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended February 28, 1998, fund expenses were reduced by $42,140
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 $530 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 year ended February 28, 1998, purchases and sales of investment
securities other than short-term investments aggregated $59,926,145 and
$67,241,036, 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.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code as amended, the fund
hereby designates $6,270,938 as capital gain, including $1,761,658 as 20%
rate capital gain dividends for its taxable year ended February 28, 1998.
The fund has designated 19.61% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
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 for up-to-date
information about the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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41233 4/98
