Putnam
Convertible
Opportunities
and Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
After months of sagging prices, the small-company convertible market
rebounded during the six-month period ended August 31, 1999, rewarding
patient investors in the process. The fund's positive performance reflects
the success of its investment strategy prior to the start of the period,
when the fund's managers, Charles Pohl and Kevin Rogers, were able to
purchase the convertibles of many high-quality companies at significant
discounts.
Total return for 6 months ended 8/31/99
Net asset value Market price
- ----------------------------------------------------------------
4.33% 0.13%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 4.
In the summer of 1998, a number of events conspired to produce an unusual
buying opportunity in the technology segment of the convertible securities
market. Perhaps most significant was the Asian financial crisis, which
prompted many investors to sell shares in companies that have direct ties
to the region. Investors were also concerned about the Y2K bug, which they
feared would slow business spending on new software until the new
millennium. This low point in investor sentiment coincided with a cyclical
downturn in the semiconductor industry, epitomized by rapidly falling chip
prices. During this period it was not uncommon to find convertible issues
of high-quality technology companies selling at $0.50 and $0.75 on the
dollar with yields in excess of 10%. The fund's managers used this unusual
opportunity to add several high-quality names to the portfolio, companies
with clean balance sheets and strong cash positions, including LAM
Research, Credence Systems, Kent Electronics, and Park Electrochemical.
Another prelude to the current period takes place in the energy sector. By
the end of 1998 the price of oil had fallen 60% from a high of roughly $25
in early 1997. OPEC was having trouble restricting supply among its
members, the Asian financial crisis was threatening to leech demand from
the global commodity market, and an unseasonably warm winter in the United
States was making matters worse. Believing that oil would not stay that
cheap for long, your fund's managers increased the fund's stakes in
companies that specialize in oil-service, exploration, and production.
Examples include Pride International and Unocal. While these holdings,
along with others discussed in this report, were viewed favorably at the
end of the fiscal period, all are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
When convertible securities finally began to rally in the first calendar
quarter of 1999, the fund was well positioned to make the most of it.
Technology issues, which comprise roughly 20% of the convertible market,
were the primary contributors to performance during the period. The Asian
situation appeared to stabilize, Y2K proved to be less of an issue than
feared, and semiconductor prices began to rebound off their 1998 lows.
Many of the convertible issues we had purchased at $0.50 and $0.75 on the
dollar rebounded sharply. At the same time, OPEC managed to restrict oil
production, resulting in a 100% increase in price of oil and a boost in
the prices of the fund's energy-related convertibles.
Another influential trend during the semiannual period was corporate
takeover activity. Industry consolidation is a natural outgrowth of
competition as companies attempt to increase market share by purchasing
their rivals. However, takeovers also occurred in cases where large
corporations simply recognized the extremely undervalued nature of some
small companies that have been out of favor with investors in recent
years. These mergers were beneficial to the fund during the period because
in almost all cases, the acquired company was purchased at a premium to
its then-current price. Examples include AT&T's acquisition of MediaOne,
Goodrich's purchase of Coltec, and Centocor's takeover by Johnson and
Johnson.
[GRAPHIC OMITTED: pie chart PORTFOLIO COMPOSITION]
PORTFOLIO COMPOSITION*
Common stocks,
including warrants -- 2.1%
Preferred stocks -- 3.8%
Corporate high-yield bonds -- 42.2%
Other -- 3.7%
Convertible securities -- 48.2%
Footnote reads:
*Based on total market value of investments. Composition will vary over time.
In contrast to the fund's convertible securities, the high-yield corporate
bond portion of the portfolio provided relatively lackluster performance
during the period. The period began on a positive note with a recovery in
the telecommunications and energy sectors. The bonds of financial and
chemical companies also performed well due to consolidation activity and a
general rebound in economically sensitive issues. However, as spring
turned to summer, rising interest rates, an increase in defaults, and Y2K
concerns worked to push bond prices lower.
The portfolio was prepared to weather the weakness in the market. In late
1998, the fund's managers sold bonds with poor fundamentals and bought
higher-quality bonds that were selling at discounts, upgrading the
portfolio's average credit quality in the process. Their strategy
throughout the period was to remain broadly diversified in more than 50
segments of the market, increasing concentrations only when extremely
undervalued situations presented themselves. In their opinion, the current
performance headwinds are temporary and therefore represent potential
buying opportunities. Even the increased incidence of default rates,
although disappointing, may be an anomaly. Historically, default rates for
high-yield issuers occur most frequently in the second year following
issuance, and 1997 was a banner year for new high-yield issues, nearly
doubling the size of the market.
[GRAPHIC OMITTED: TOP FIVE CONVERTIBLE HOLDINGS]
TOP FIVE CONVERTIBLE HOLDINGS*
Pennzenergy Co. cv. deb. 4.95s, 2008
Oil and gas
Home Depot, Inc. cv. sub. notes
3 1/4s, 2001
Retail
MediaOne Group, Inc. $2.25 cv. pfd.
Cable television
MediaOne Group Inc. $6.25 cv. pfd.
Cable television
American General Delaware Corp. $3.00 cv. cum. pfd.
Insurance and finance
[GRAPHIC OMITTED: TOP FIVE HIGH-YIELD HOLDINGS]
TOP FIVE HIGH-YIELD HOLDINGS*
Cencall Communications Corp.,
10 1/8s, 2004
Cellular communications
Weirton Steel Corp., 10 3/4s, 2005
Metals and mining
Global Crossing Holdings, Ltd.
9 5/8s, 2008
Telecommunications
Benedek Communications Corp.
sr. disc. notes
Broadcasting
ICG Services, Inc. sr. disc. notes
Telecommunications
*These holdings represent 7.2% of the fund's net assets as of 8/31/99.
Portfolio holdings will vary over time.
Despite the appreciation in the convertible market thus far, Charles and
Kevin believe convertible securities remain attractive from a valuation
standpoint. They continue to take a company-by-company approach to
portfolio selection with an emphasis on diversification. Although the fund
has benefited recently from a handful of sectors including technology and
energy, they have sought to increase exposure, where prudent, to other
areas of the market, such as telecommunications and finance. Similarly, in
the high-yield segment of the portfolio, your fund's managers continue to
emphasize overall diversification while seeking to take advantage of
undervalued situations. With the convertible and high-yield markets still
well below fair value, in our opinion, they believe the portfolio has
ample room for further growth in the coming months.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 20, 1999
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 8/31/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Convertible
Opportunities and Income Trust is designed for investors aggressively seeking
capital appreciation and current income through a diversified portfolio of
lower-grade and nonrated convertible securities and nonconvertible
high-yielding securities.
TOTAL RETURN FOR PERIODS ENDED 8/31/99
Merrill Lynch First Boston
Market All-Convertible High-Yield
NAV price Index Bond Index
- --------------------------------------------------------------------
6 months 4.33% 0.13% 10.79% 1.22%
- --------------------------------------------------------------------
1 year 9.00 6.64 28.95 4.74
- --------------------------------------------------------------------
Life of fund 47.23 37.73 77.19 37.59
(since 6/29/95)
Annual average 9.72 7.98 14.70 7.95
- --------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 8/31/99
- ------------------------------------------------------------------------
Distributions
- ------------------------------------------------------------------------
Number 6
- ------------------------------------------------------------------------
Income $0.9300
- ------------------------------------------------------------------------
Capital gains
Long-term --
- ------------------------------------------------------------------------
Short-term --
- ------------------------------------------------------------------------
Total $0.9300
- ------------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------------
2/28/99 $22.93 $22.500
- ------------------------------------------------------------------------
8/31/99 23.00 21.563
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate1 8.09% 8.63%
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or Market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Market
NAV price
- -------------------------------------------------------------------------
6 months 1.64% -2.59%
- -------------------------------------------------------------------------
1 year 8.05 -3.41
- -------------------------------------------------------------------------
Life of fund 46.04 26.32
(since 6/29/95)
Annual average 9.32 5.65
- -------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
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 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.
*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.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
August 31, 1999 (Unaudited)
CORPORATE BONDS AND NOTES (42.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
$ 90,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 94,050
65,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 64,025
100,000 Outdoor Communications, Inc. sr. sub. notes 9 1/4s, 2007 100,000
--------------
258,075
Aerospace and Defense (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 44,000
60,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 52,800
120,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 113,100
80,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 81,200
60,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 55,950
200,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 202,000
50,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 49,125
50,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 51,125
100,000 Sequa Corp. med. term notes 10s, 2001 102,769
--------------
752,069
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
269,804 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 249,569
Airlines (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Calair LLC company guaranty 8 1/8s, 2008 73,000
75,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 49,500
130,000 Canadian Airlines Corp. sr. notes 10s, 2005 (Canada) 110,500
160,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 59,200
65,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 55,575
180,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 115,200
--------------
462,975
Apparel (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 58,500
65,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 65,325
--------------
123,825
Automotive Parts (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
188,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 191,760
80,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 76,000
170,000 Federal Mogul Corp. notes 7 1/2s, 2009 154,754
80,000 Hayes Lemmerz International, Inc. 144A company guaranty
Ser. B, 8 1/4s, 2008 74,000
55,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 54,588
70,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 68,950
180,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 175,050
250,000 Oxford Automotive, Inc. company guaranty Ser. B, 10 1/8s, 2007 235,000
15,000 San Luis Corp SA sr. notes 8 7/8s, 2008 12,150
170,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 136,000
60,000 Transportation Manufacturing Operations Inc.
144A company guaranty 11 1/4s, 2009 59,400
--------------
1,237,652
Banks (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 75,375
70,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 59,500
100,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 99,590
80,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 79,010
60,000 North Fork Capital Trust I company guaranty 8.7s, 2026 58,126
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 16,250
80,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 78,500
50,000 Ocwen Financial Corp. notes 11 7/8s, 2003 44,500
70,000 Provident Capital Trust company guaranty 8.6s, 2026 66,284
40,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 37,046
60,000 Sovereign Capital Trust company guaranty 9s, 2027 57,314
50,000 Webster Capital Trust I 144A bonds 9.36s, 2027 48,015
--------------
719,510
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 22,500
30,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 27,600
--------------
50,100
Broadcasting (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
135,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 111,375
75,000 Affinity Group Holdings sr. notes 11s, 2007 70,500
110,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 105,600
500,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 423,721
205,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 172,200
85,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 85,850
75,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s,
2004 (Bermuda) 41,250
79,370 Citadel Broadcasting, Co. sr. sub. notes 10 1/4s, 2007 82,545
10,000 Citadel Broadcasting, Inc. sr. sub. notes 9 1/4s, 2008 9,975
250,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 225,000
115,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 107,813
80,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 77,400
300,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 308,250
30,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 29,700
447,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 372,396
110,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 113,300
210,000 Scandinavian Broadcasting System SA cv. sub. notes 7s,
2004 (Luxembourg) 275,888
80,000 SFX Entertainment Inc. 144A company guaranty 9 1/8s, 2008 76,800
75,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 71,063
50,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 39,000
35,000 TV Azteca Holdings S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 26,425
20,000 TV Azteca Holdings S.A. de C.V. sr. notes Ser. A, 10 1/8s,
2004 (Mexico) 15,700
--------------
2,841,751
Building and Construction (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 27,500
30,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2009 29,175
150,000 D.R. Horton, Inc. company guaranty 8s, 2009 138,000
180,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 90,000
60,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 58,350
80,000 Toll Corp. company guaranty 8 1/8s, 2009 75,800
--------------
418,825
Building Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
85,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 65,238
80,000 Building Materials Corp. company guaranty 8s, 2008 73,200
--------------
138,438
Business Equipment and Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 110,963
110,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 103,675
50,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 48,500
49,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 53,288
20,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 18,400
260,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 152,100
--------------
486,926
Cable Television (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
93,679 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 94,147
90,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 80,888
200,000 Century Communications Corp. sr. notes 8 7/8s, 2007 192,500
220,000 Charter Communications Holdings LLC 144A sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 133,100
180,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 174,150
30,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 31,050
30,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 27,383
100,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00),
2005 (United Kingdom) (STP) 90,000
295,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (United Kingdom) (STP) 231,575
90,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 90,675
250,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 286,875
180,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 179,100
20,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008 22,200
110,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (9 1/4, 4/15/04)
2009 (United Kingdom) (STP) 67,238
115,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 65,838
--------------
1,766,719
Cellular Communications (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 159,600
505,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 506,263
100,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (In default) (NON) 13,000
100,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 105,500
450,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 258,750
305,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01),
2006 (Luxembourg) (STP) 226,463
180,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 200,250
50,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 36,625
30,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 30,300
--------------
1,536,751
Chemicals (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 55,800
20,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 18,800
90,000 Huntsman Corp. 144A sr. sub. notes FRN 8.873s, 2007 81,450
220,000 Huntsman ICI Chemicals Inc. 144A sr. sub. notes 10 1/8s, 2009 216,150
290,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 290,000
90,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 90,900
100,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 74,000
133,868 Polytama International notes 11 1/4s, 2007 (Indonesia) 24,096
80,000 Royster-Clark Inc. 144A 1st mtge. 10 1/4s, 2009 76,000
75,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 18,750
--------------
945,946
Computer Services (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 30,450
210,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 5/1/01), 2008 (STP) 159,600
120,000 PSINet, Inc. 144A sr. notes 11 1/2s, 2008 121,800
110,000 PSINet, Inc. 144A sr. notes 11s, 2009 108,625
55,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 52,800
235,000 Unisys Corp. sr. notes 11 3/4s, 2004 259,088
60,000 Verio Inc. sr. notes 11 1/4s, 2008 60,900
30,000 Verio Inc. sr. notes 10 3/8s, 2005 29,850
--------------
823,113
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Axia, Inc. company guaranty 10 3/4s, 2008 112,800
Consumer Durable Goods (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 8,000
30,000 Iron Age Corp. company guaranty 9 7/8s, 2008 23,400
140,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 121,100
45,000 Sealy Mattress Co. 144A sr. sub. notes Ser. B, 9 7/8s, 2007 44,325
--------------
196,825
Consumer Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
256,000 Coinmach Corp. sr. notes 11 3/4s, 2005 274,560
40,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %
(13 5/8s, 6/30/00), 2005 (STP) 36,000
--------------
310,560
Cosmetics (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 29,100
35,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 34,694
60,000 Revlon Consumer Products sr. notes 9s, 2006 55,950
250,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 227,500
--------------
347,244
Electric Utilities (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 37,800
350,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 396,361
60,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 59,611
111,416 Northeast Utilities System notes Ser. A, 8.58s, 2006 112,524
68,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 67,374
140,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 138,600
--------------
812,270
Electronics and Electrical Equipment (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 36,925
80,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 76,000
80,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 78,400
10,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 8,100
95,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 82,413
25,000 Wavetek Corp. company guaranty 10 1/8s, 2007 21,750
--------------
303,588
Energy-Related (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Calpine Corp. sr. notes 9 1/4s, 2004 101,000
170,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 158,032
290,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 156,600
60,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 29,850
--------------
445,482
Entertainment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 8,350
100,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 84,500
70,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 58,100
293,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 60,798
180,000 ITT Corp. notes 6 3/4s, 2005 163,357
100,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 46,000
110,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 33,000
--------------
454,105
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Allied Waste Industries, Inc. 144A sr. notes Ser. B, 7 7/8s, 2009 225,000
320,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10s, 2009 307,200
--------------
532,200
Financial Services (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 45,450
250,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 231,803
40,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 34,400
70,000 Capital One Financial Corp. notes 7 1/8s, 2008 64,329
100,000 Colonial Capital II 144A company guaranty 8.92s, 2027 91,578
115,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 39,675
110,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 37,400
80,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 28,800
400,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B, zero %
(12 1/2s, 3/1/03), 2008 (STP) 137,000
75,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 60,000
45,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 35,944
40,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 24,800
130,000 RBF Finance Co. company guaranty 11 3/8s, 2009 137,800
20,000 RBF Finance Co. company guaranty 11s, 2006 20,650
--------------
989,629
Food and Beverages (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 109,725
25,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 24,938
25,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 18,875
150,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 102,000
20,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 20,150
108,000 Triarc Consumer Products, Inc. 144A sr. sub. notes 10 1/4s, 2009 104,760
80,000 Vlassic Foods Intl. Inc. 144A sr. sub. notes 10 1/4s, 2009 72,800
--------------
453,248
Gaming (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Argosy Gaming Co. 144A sr. sub. notes 10 3/4s, 2009 102,500
100,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 98,500
20,000 Circus Circus Enterprises, Inc. deb. 7s, 2036 17,546
50,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 44,070
158,700 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 (PIK) 150,765
160,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s,
2004 (In default) (NON) 86,000
50,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 46,990
140,000 Hollywood Casino Corp. 144A sec. notes 11 1/4s, 2007 140,700
60,000 Hollywood Park, Inc. 144A sr. sub. notes 9 1/4s, 2007 58,050
110,000 Horseshoe Gaming Holdings 144A sr. sub. notes 8 5/8s, 2009 105,600
60,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 66,000
100,000 Mohegan Tribal Gaming, Auth. 144A sr. sub. notes 8 3/4s, 2009 98,000
70,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 65,800
180,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 173,250
175,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 78,313
50,000 Riviera Black Hawk 144A 1st mtge. 13s, 2005 52,500
180,000 Trump A.C. 1st mtge. 11 1/4s, 2006 153,000
200,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 202,516
--------------
1,740,100
Health Care (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 26,850
30,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 23,465
20,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 17,385
130,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 123,301
225,000 Conmed Corp. company guaranty 9s, 2008 211,500
100,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 89,500
90,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 27,000
60,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 18,000
150,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 7,500
245,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 122,500
145,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 17,400
60,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s,
2008 (In default) (NON) 7,200
90,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 88,650
70,000 Tenet Healthcare Corp. sr. notes 8s, 2005 67,200
--------------
847,451
Hospital Management and Medical Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 69,825
Lodging (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 60,900
210,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 187,950
30,000 Host Marriott L.P. 144Asr. notes Ser. E, 8 3/8s, 2006 28,200
120,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 116,400
--------------
393,450
Manufacturing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Blount Inc. 144A sr. sub. notes 13s, 2009 144,550
310,000 Grove Holdings LLC deb. stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 77,500
90,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 43,200
--------------
265,250
Medical Supplies and Devices (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 115,938
25,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 21,000
80,000 Mediq, Inc. company guaranty 11s, 2008 62,400
85,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 32,300
--------------
231,638
Metals and Mining (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 (In default) (NON) 36,800
80,000 Continental Global Group sr. notes Ser. B, 11s, 2007 53,600
110,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 90,200
50,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 53,125
120,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 118,800
500,000 Weirton Steel Corp. sr. notes 10 3/4s, 2005 480,000
--------------
832,525
Networking (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 20,300
Oil and Gas (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 82,400
90,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 54,000
35,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 35,875
70,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 68,408
70,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 68,600
40,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 40,600
10,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 10,050
150,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 146,250
90,000 R & B Falcon Corp. sr. notes 12 1/4s, 2006 94,950
55,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 22,000
75,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 74,063
150,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 153,000
--------------
850,196
Packaging and Containers (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 115,500
150,000 Consumers International 144A sr. notes 10 1/4s, 2005 149,250
80,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 76,200
30,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 22,200
20,000 Owens-Illinois, Inc. deb. 7.8s, 2018 18,485
140,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 130,761
100,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 101,250
40,000 Radnor Holdings Inc. sr. notes 10s, 2003 40,800
--------------
654,446
Paper and Forest Products (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
145,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 87,725
110,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 111,650
145,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 87,000
105,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 90,300
30,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 28,575
160,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 155,200
105,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 105,000
60,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 58,500
--------------
723,950
Pharmaceuticals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Biovail Corp. International 144A sr. notes 10 7/8s, 2005 41,400
155,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 152,288
10,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 9,275
--------------
202,963
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 18,900
Publishing (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 58,050
180,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 168,300
50,000 Perry-Judd company guaranty 10 5/8s, 2007 46,500
30,850 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 28,691
40,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 39,800
--------------
341,341
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 20,800
20,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 13,000
30,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 25,800
155,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 80,600
--------------
140,200
REITs (Real Estate Investment Trust) (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 169,386
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 89,000
Retail (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 38,000
100,000 K mart Corp. deb. 7 3/4s, 2012 97,250
110,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 103,400
200,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 206,000
65,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 53,788
160,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 153,600
100,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 99,500
--------------
751,538
Satellite Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 305,350
110,000 Golden Sky Systems 144A sr. sub. notes Ser. B, 12 3/8s, 2006 118,250
--------------
423,600
Semiconductors (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 97,500
46,220 Cirent Semiconductor sr. sub. notes 10.22s, 2002 45,064
53,031 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 51,706
135,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 131,288
90,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 81,900
--------------
407,458
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 93,000
Steel (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 219,650
40,000 Armco, Inc. sr. notes 8 7/8s, 2008 40,000
70,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 69,650
--------------
329,300
Telecommunications (7.1%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 32,400
130,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 82,550
80,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 51,200
70,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 70,000
60,000 Caprock Communications Corp. sr. notes Ser. B, 12s, 2008 59,700
50,000 Caprock Communications Corp. 144A sr. notes 11 1/2s, 2009 49,500
95,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero % (12s, 12/15/01),
2006 (United Kingdom) (STP) 77,900
90,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 87,300
285,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 152,475
230,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 131,100
60,000 Esprit Telecom Group PLC sr. notes 11 1/2s,
2007 (United Kingdom) 62,400
65,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 56,550
400,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 212,000
190,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 106,400
450,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 450,000
40,000 Globe Telecom 144A sr. notes 13s, 2009 41,200
426,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 363,165
50,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 29,000
60,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 50,100
129,200 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 134,368
50,000 Hyperion Telecommunications Inc. sr. sub. notes 12s, 2007 50,000
140,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 124,250
730,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 408,800
205,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 143,500
150,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 133,125
375,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 336,563
460,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 232,300
10,000 KMC Telecomunications 144A sr. notes 13 1/2s, 2009 9,875
245,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 142,713
60,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 62,250
50,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 48,125
40,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 37,300
90,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 77,400
170,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 167,450
135,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 111,038
20,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 12,700
40,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 34,400
50,000 Nextel Partners Inc. 144A sr. disc. notes stepped-coupon
zero % (14s, 2/1/04), 2009 (STP) 29,250
140,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 144,200
90,000 NTL Inc. 144A sr. notes Ser. B, 11 1/2s, 2008 (United Kingdom) 95,625
170,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 171,700
150,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 81,000
250,000 Primus Telecomunications Group, Inc. sr. notes 11 3/4s, 2004 245,000
145,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 113,381
190,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 95,950
60,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 47,100
80,000 Startec Global Communications Corp. sr. notes 12s, 2008 68,000
60,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 57,000
50,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 30,000
205,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 208,075
260,000 United Pan-Europe N.V. 144A stepped-coupon zero %
(12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 145,600
85,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 85,000
30,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 30,000
100,000 WinStar Communications, Inc. sr. sub. notes 15s, 2007 119,500
--------------
6,197,478
Telephone Services (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 208,800
290,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 156,600
70,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) (STP) 44,800
170,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 95,200
80,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 69,600
210,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 (Colombia) 168,000
130,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 115,700
95,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 69,350
68,000 ITC Deltacom, Inc. sr. notes 11s, 2007 72,080
20,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 10,000
45,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 29,250
30,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 19,800
95,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 96,900
70,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 63,700
40,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 34,400
45,000 Transtel S.A. 144A pass-through certificates 12 1/2s, 2007 22,050
60,000 US Xchange LLC sr. notes 15s, 2008 59,100
110,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 67,100
210,000 Viatel, Inc. sr. notes 11 1/4s, 2008 205,800
--------------
1,608,230
Textiles (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
235,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 199,750
110,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 52,800
80,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 76,000
30,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 28,200
--------------
356,750
Transportation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 36,000
100,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 102,000
50,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 48,500
--------------
186,500
Wireless Communications (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 9,200
90,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 70,875
55,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 21,450
110,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 64,075
--------------
165,600
--------------
Total Corporate Bonds and Notes (cost $39,836,146) $ 35,880,570
CONVERTIBLE PREFERRED STOCKS (24.1%) (a)
NUMBER OF SHARES VALUE
Automobiles (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,820 Tower Automotive Capital Trust 144A $3.375 cv. pfd. $ 250,260
14,000 Walbro Captial Trust $2.00 cv. pfd. 367,500
--------------
617,760
Banks (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,836 CNB Capital Trust I $1.50 cum. cv. pfd. 145,685
5,035 National Australia Bank Ltd. $1.969 cv. pfd. 141,609
5,880 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 308,700
--------------
595,994
Broadcasting (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,742 Cox Communications, Inc. $3.50 cv. pfd. 93,197
4,830 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 211,313
--------------
304,510
Building and Construction (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,641 Fleetwood Capital Trust $3.00 cv. cum. pfd. 194,615
Cable Television (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
600 Adelphia Communications Corp. Ser. D, $5.50 cv. pfd. 110,475
2,579 CSC Holdings, Inc. Ser. I, 8.50% cv. pfd. 269,828
8,773 MediaOne Group Inc. $6.25 cv. pfd. 721,579
5,848 MediaOne Group, Inc. Ser. D, $2.25 cv. pfd. 759,509
--------------
1,861,391
Chemicals (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
13,753 Monsanto Co. $2.60 cv. pfd. 555,277
Consumer Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,700 Newell Financial Trust I $2.625 cv. cum. pfd. 329,138
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,600 Carriage Services, Inc. 144A $3.50 cv. pfd. 258,225
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,898 Estee Lauder Aces TR II $5.41 cv. pfd. 250,677
Electronics and Electrical Equipment (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,431 Coltec Capital Trust $2.625 cv. pfd. 202,164
3,408 Lernout & Hauspie Speech Products N.V. 144A $2.375 cv. pfd 95,424
10,065 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 534,703
10,440 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 202,275
--------------
1,034,566
Engineering (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,218 Evi, Inc. $2.50 cum. cv. pfd. 123,893
Entertainment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,930 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 226,996
Financial Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,743 Devon Financing Trust $3.25 cv. pfd. 299,402
5,450 Finova Finance Trust $2.75 cv. cum. pfd. 283,400
4,090 Penncorp Financial Group, Inc. $3.50 cv. pfd. 36,810
--------------
619,612
Food and Beverages (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,994 Ralston Purina Co. $4.336 cv. pfd. 94,715
Gas Pipelines (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,495 Coastal Corp. $1.656 cv. pfd. 95,894
659 Williams Companies, Inc. $1.25 cum. cv. pfd. 127,517
--------------
223,411
Hospital Management (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
20,360 MedPartners, Inc. $6.50 cv. pfd. 180,695
Information Systems (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
13,450 Vanstar Financial Trust Corp. $3.375 cv. pfd. 255,550
Insurance and Finance (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
8,102 American General Delaware Corp. $3.00 cv. cum. pfd. 713,989
7,295 American Heritage Life Investment Corp. $4.25 cv. pfd. 614,604
12,100 Decs Trust IV $0.91 cv. pfd. 89,238
16,300 Lincoln National Corp. $0.463 cv. cum. pfd. 352,488
4,800 Protective Life Corp. $3.25 cv. cum. pfd. 232,800
1,078 QUALCOMM Financial Trust $2.875 cum. cv. pfd. 288,500
3,300 St. Paul Capital LLC $3.00 cv. cum. pfd. 187,688
--------------
2,479,307
Investment Companies (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,300 Suiza Capital Trust II $2.75 cv. pfd. 169,600
Machinery (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,272 Ingersoll-Rand Co. $0.195 cv. pfd. 198,162
Media (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,100 Seagram Co., Ltd. $3.76 cv. pfd. (Canada) 371,419
Medical Supplies and Devices (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,983 Mckesson Corp. $2.50 cv. pfd. 96,423
9,940 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 360,325
--------------
456,748
Metals and Mining (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,678 Cyprus Amax Minerals Co. Ser. A, $4.00 cv. pfd. 220,451
11,970 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 311,220
10,195 Titanium Metals Corp. $3.313 cv. pfd. 224,290
--------------
755,961
Oil and Gas (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
13,900 Apache Corp. $2.015 cv. pfd. 571,638
560 Chesapeake Energy Corp. $3.50 cum. cv. pfd. 16,100
2,608 Kerr-McGee Corp. $1.825 cv. pfd. 95,518
2,000 Newfield Exploration Co. $3.25 cv. pfd. 104,750
4,900 Pogo Producing Co. Ser. A, $3.25 cv. pfd. 259,700
10,200 Tosco Financing Trust $2.875 cv. pfd. 460,275
12,390 Unocal Capital Trust $3.125 cv. cum. pfd. 707,779
87 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. 261
--------------
2,216,021
Packaging and Containers (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
7,540 Owens-Illinois, Inc. $2.375 cv.pfd. 285,578
5,188 Sealed Air Corp. Ser. A, $2.00 cv.pfd. 291,825
--------------
577,403
Paper and Forest Products (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,434 Georgia Pacific Group $3.75 cv. pfd. 246,568
10,113 International Paper Co. $2.625 cv. pfd. 500,594
--------------
747,162
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,915 Tribune Co. $1.75 cv. pfd. 172,011
546 Tribune Co. $2.00 cv. pfd. 58,490
--------------
230,501
Railroads (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
4,049 Canadian National Railway Co. $2.625 cv. pfd. (Canada) 213,585
13,354 Union Pacific Capital Trust $3.125 cum. cv. pfd. 607,607
--------------
821,192
Recreation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,211 Royal Caribbean Cruises Ltd. Ser. A, $3.625 cum. cv. pfd. 175,368
REITs (Real Estate Investment Trust) (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
19,157 Equity Residential Property Ser. E, $1.75 cv. pfd. 471,741
2,337 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 114,513
--------------
586,254
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,386 Wendy's Financing Ser. A, $2.50 cv. pfd. 139,581
Retail (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,056 CVS Auto Exchange $6.00 cv. pfd. 78,276
3,865 Dollar General Strypes Trust $3.352 cv. pfd. 145,421
4,831 K mart Financing I $3.875 cum. cv. pfd. 237,927
--------------
461,624
Telecommunications (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,772 AirTouch Communications, Inc. Ser. C, $2.125 cv. cum. pfd. 415,107
1,098 Qwest Trends Trust 144A $5.75 cv. pfd. 52,979
245 TCI Pacific Comm $5.00 cv. pfd. 69,886
--------------
537,972
Tobacco (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,900 DIMON, Inc. $2.00 cv. pfd. 46,725
Transportation (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,000 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 324,000
Utilities (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
8,765 El Paso Energy Capital Trust $2.375 cv. pfd. 429,485
6,246 Houston Industries, Inc. $3.22 cv. pfd 613,670
3,200 KN Energy Inc. $3.55 cv. pfd. 106,000
3,100 NiSource, Inc. $3.875 cv. pfd. 134,850
4,334 Texas Utilities Co. $4.625 cv. pfd. 225,910
600 Texas Utilities Co. $3.315 cv. pfd. 26,400
--------------
1,536,315
--------------
Total Convertible Preferred Stocks (cost $22,083,774) $ 20,558,340
CONVERTIBLE BONDS AND NOTES (24.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
$ 212,000 Omnicom Group Inc. cv. sub. deb. 2 1/4s, 2013 $ 341,320
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Diagnostic Retrieval Systems, Inc. cv. sr. sub. deb. 9s, 2003 179,200
95,000 Kellstrom Industries, Inc. cv. sub. notes 5 1/2s, 2003 65,431
210,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 157,500
--------------
402,131
Airlines (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
55,000 Atlantic Coast Airlines, Inc. cv. sub. notes 7s, 2004 125,263
458,000 World Airways, Inc. cv. sr. sub. deb. 8s, 2004 109,920
--------------
235,183
Automotive (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 142,188
375,000 Magna International cv. sub. deb. 5s, 2002 375,000
260,000 Standard Motor Products, Inc. cv. sub. deb. 6 3/4s, 2009 247,650
380,000 Tower Automotive, Inc. cv. sub. notes 5s, 2004 361,475
--------------
1,126,313
Broadcasting (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 382,813
Business Equipment and Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
279,000 Interpublic Group Cos. cv. sub. notes 1.8s, 2004 317,014
170,000 National Data Corp. cv. sub. notes 5s, 2003 164,688
125,000 Personnel Group of America, Inc. cv. sub. notes 5 3/4s, 2004 98,750
--------------
580,452
Computer Equipment (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Intevac, Inc. cv. sub. notes 6 1/2s, 2004 75,000
470,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 293,750
--------------
368,750
Computer Services and Software (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
393,000 Aspen Technology, Inc. cv. sub. deb. 5 1/4s, 2005 224,501
380,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero %, (13s, 8/15/04), 2009 (STP) 205,200
36,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 191,700
897,000 Network Associates, Inc. cv. sub deb. zero %, 2018 272,464
250,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 220,625
86,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 5s, 2006 88,795
573,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 238,511
119,000 Vantive Corp. (The) cv. sub. notes 4 3/4s, 2002 84,044
230,000 Veritas Software Corp. cv. disc. notes 1.856s, 2006 196,938
1,945,000 Western Digital Corp. cv. sub. deb. zero %, 2018 303,906
--------------
2,026,684
Conglomerates (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
32,000 ADT Operations, Inc. cv. sub. notes zero %, 2010 88,320
250,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 220,938
--------------
309,258
Consumer Durable Goods (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,380,000 Sunbeam Corp. 144A cv. sr. sub. notes zero %, 2018 246,675
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
16,000 America Online, Inc. cv. sub. notes 4s, 2002 112,260
67,000 At Home Corp. 144A cv. sub. deb. 5246, 2018 41,456
43,000 Doubleclick, Inc. 144A cv. sub. notes 4 3/4s, 2006 57,620
--------------
211,336
Electronics and Electrical Equipment (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 Benchmark Electronics, Inc. 144A cv. sub. notes 6s, 2006 282,100
405,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 319,444
91,000 LSI Logic Corp. 144A cv. sub. notes 4 1/4s, 2004 175,516
383,000 Motorola, Inc. cv. sub. deb. LYON (Lyon Yield Option Note)
zero %, 2013 413,161
380,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 340,100
160,000 Sanmina Corp. 144A cv. sub. notes 4 1/4s, 2004 175,200
409,000 Solectron Corp. 144A cv. notes zero %, 2019 263,805
395,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 384,631
310,000 Thermo Quest Corp. cv. company guaranty 5s, 2000 304,575
--------------
2,658,532
Environmental Control (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 135,563
Health Care (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
415,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 331,481
239,000 Integrated Health Services, Inc. cv. sr. sub. deb. 5 3/4s, 2001 75,883
--------------
407,364
Information Systems (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Automatic Data Processing cv. deb. zero %, 2012 112,475
335,000 Quantum Corp. cv. sub. 7s, 2004 298,988
--------------
411,463
Insurance and Finance (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
234,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 471,510
600,000 Mutual Risk Management cv. sub. deb. zero %, 2015 357,750
--------------
829,260
Medical Supplies and Devices (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
333,000 Athena Neurosciences, Inc. cv. notes 4 3/4s, 2004 366,300
328,000 Centocor, Inc. cv. sub. deb. 4 3/4s, 2005 435,010
350,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s,
2000 (In default) (NON) 3,500
291,000 Thermo Cardiosystems, Inc. 144A cv. company guaranty
4 3/4s, 2004 246,986
300,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 240,750
--------------
1,292,546
Metals and Mining (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Inco Ltd. deb. 5 3/4s, 2004 (Canada) 93,750
440,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 442,750
--------------
536,500
Oil and Gas (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
344,000 Diamond Offshore Drilling, Inc. cv. sub. notes 3 3/4s, 2007 388,290
330,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 194,288
888,000 Pennzenergy Co. cv. deb. 4.95s, 2008 884,670
190,000 Pride International, Inc. cv. sub. deb. 6 1/4s, 2006 233,938
380,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 310,175
--------------
2,011,361
Pharmaceuticals (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
709,000 Alza Corp. cv. sub. LYON zero %, 2014 464,395
435,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %,
2010 (Switzerland) 257,468
100,000 Sepracor, Inc. cv. sub. deb. 6 1/4s, 2005 170,125
236,000 Sepracor, Inc. 144A cv. notes 7s, 2005 220,365
--------------
1,112,353
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
235,000 World Color Press, Inc. cv. sub. notes 6s, 2007 245,869
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
181,000 CKE Restaurants, Inc. cv. sub. notes 4 1/4s, 2004 119,460
Retail (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
106,000 Amazon.com, Inc. 144A cv. sub. deb. 4 3/4s, 2009 99,640
190,000 Ann Taylor Stores Corp. 144A cv. company gauranty 0.55s, 2019 96,188
247,000 Costco Cos, Inc. cv. sub. notes zero %, 2017 218,595
284,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 763,605
230,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 228,850
494,000 Office Depot, Inc. cv. LYON zero %, 2007 339,008
202,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 183,820
214,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 198,753
--------------
2,128,459
Semiconductors (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
244,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 227,530
400,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 373,500
265,000 LAM Research Corp. cv. sub. notes 5s, 2002 259,038
149,000 LAM Research Corp. 144A cv. sub. notes 5s, 2002 145,648
40,000 Level One Communications, Inc. cv. sub. notes 4s, 2004 108,400
524,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 666,135
60,000 Photronics, Inc. cv. sub. notes 6s, 2004 63,225
--------------
1,843,476
Supermarkets (--%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 31,500
Telecommunications (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
123,000 Gilat Satellite Networks Ltd. cv. 6 1/2s, 2004 (Israel) 152,213
62,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 (STP) 86,800
46,000 NTL Inc. 144A cv. sub. notes 7s, 2008 79,580
--------------
318,593
Tobacco (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
270,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 157,275
--------------
Total Convertible Bonds and Notes (cost $21,489,470) $ 20,470,489
PREFERRED STOCKS (3.8%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,745 AmeriKing, Inc. $3.25 pfd. (PIK) $ 38,430
758 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 87,170
3,799 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 440,684
2,970 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 161,865
838 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 95,113
54 Concentric Network Corp. Ser. B, $13.50 pfd. (PIK) 49,680
1 CSC Holdings, Inc. Ser. H, $11.75 cum. pfd. (PIK) 108
3,244 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 343,864
7,510 Diva Systems Corp. Ser. C, $6.00 pfd. 26,285
100 Dobson Communications Corp. $13.00 pfd. 96,000
102 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 92,400
125 Fresenius Medical Capital Trust I Ser. D, $9.00 company guaranty,
pfd. (Germany) 123,125
135 Fresenius Medical Capital Trust II $7.875 company guaranty,
pfd. (Germany) 124,538
171 Intermedia Communication Ser. B, $13.50 pfd. (PIK) 160,740
213 IXC Communications, Inc. $12.50 pfd. (PIK) 225,570
2,247 Lady Luck Gaming Corp. $11.25 pfd. 94,374
81 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 87,918
3,557 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 177,850
400 Packaging Corp. America 144A $12.375 pfd. (PIK) 43,600
18 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 172,800
72 R & B Falcon Corp. 13.875% pfd. 67,680
131 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 144,100
1,693 Trikon Technologies, Inc. Ser. H, $8.125 pfd. (PIK) 4,233
228 Trikon Technologies, Inc. Ser. I, $8.125 pfd. 77,520
294 21st Century Telecom Group 144A $13.75 cum. pfd. (PIK) 147,000
150 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 126,000
--------------
Total Preferred Stocks (cost $3,580,939) $ 3,208,647
COMMON STOCKS (1.7%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
4,459 Aetna Inc. $ 346,687
100 Allegiance Telecom, Inc. (NON) 6,013
50 AmeriKing, Inc. (NON) 1,000
3,820 AMFM, Inc. (NON) 188,135
4,704 BB&T Corp. (NON) 157,592
1 CalEnergy Co., Inc. (NON) 22
11,787 Celcaribe (NON) 5,894
34,146 Celcaribe S.A. 144A (Colombia) 42,683
4,800 CellNet Data Systems, Inc. (NON) 33,450
1 DII Group Inc., (The) (NON) 35
1,379 Fitzgerald Gaming Corp. 690
1,213 Hedstrom Holdings, Inc. 144A (NON) 1,213
182 Internet Capital Group Inc. (NON) 13,650
58 Mothers Work, Inc. (NON) 812
55 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 1
22,025 PSF Holdings LLC Class A (NON) 269,806
2,235 Sensormatic Electronics Corp. (NON) 26,122
42 Spanish Broadcasting System, Inc. (NON) 27,300
91 U.S. Interactive, Inc. (NON) 1,888
6,892 Unisys Corp. 296,356
757 Viatel, Inc. (NON) 29,286
--------------
Total Common Stocks (cost $1,939,763) $ 1,448,635
UNITS (0.4%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
250 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (In default) (Australia) (STP) (NON) $ 25
200 Interact Systems, Inc. 144A 14s, 2003 36,000
110 Network Plus Corp. units pfd. 13 1/4s, 2009 112,200
120 United Pan-Europe N.V. 144A unit 10 7/8s, 2009 (Netherlands) 120,300
200 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 73,000
628 XCL Ltd. 144A units cum. pfd. zero % (PIK) 1,884
--------------
Total Units (cost $890,272) $ 343,409
WARRANTS (0.4%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
250 21st Century Telecom Group 144A 2/15/10 $ 5,000
80 Bestel S.A. (Mexico) 5/15/05 2,400
70 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 3,850
690 Cellnet Data Systems, Inc. 10/1/07 17,250
80 Club Regina, Inc. 144A 12/1/04 80
95 Colt Telecommunications Group PLC 12/31/06 35,625
1,350 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 135
185 Diva Systems Corp. 5/15/06 33,300
879 Diva Systems Corp. 3/1/08 7,032
2,000 DTI Holdings Inc. 3/1/08 20
70 Epic Resorts 6/15/05 1
90 Esat Holdings, Inc. (Ireland) 2/1/07 6,300
400 Firstworld Communication 4/15/08 28,000
250 Hyperion Telecommunications 144A 4/15/01 19,875
6,534 ICG Communications 10/15/05 120,879
200 Interact Systems, Inc. 8/1/03 2
175 Iridium World Com 144A 7/15/05 22
200 KMC Telecom Holdings, Inc. 4/15/08 600
235 Knology Holdings, Inc. 144A 10/15/07 588
20 Long Distance International, Inc. 144A 4/13/08 40
650 McCaw International Ltd. 4/15/07 2,763
85 Mediq Inc. 144A 6/1/09 1
285 MGC Communications, Inc. 144A 10/1/04 25,508
45 Onepoint Communications, Inc. 6/1/08 45
90 Orbital Imaging Corp. 144A 3/1/05 1,800
150 Pathnet, Inc. 144A 4/15/08 1,500
70 R & B Falcon Corp. 144A 5/1/09 11,200
80 Startec Global Communications Corp. 5/15/08 80
75 Sterling Chemicals Holdings 8/15/08 1,125
50 Telehub Communications Corp. 7/31/05 1,500
435 UIH Australia/Pacific, Inc. 144A 5/15/06 13,050
115 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 18,400
--------------
Total Warrants (cost $169,291) $ 357,971
SHORT-TERM INVESTMENTS (3.0%) (a) (cost $2,568,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$2,568,000 Interest in $469,282,000 joint repurchase agreement dated
August 31, 1999 with Salomon Smith Barney due
September 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $2,568,385 for an effective
yield of 5.40% $ 2,568,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $92,557,655) (b) $ 84,836,061
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $85,380,194.
(b) The aggregate identified cost on a tax basis is $92,677,851, resulting in gross unrealized appreciation and
depreciation of $6,177,719 and $14,019,509, respectively, or net unrealized depreciation of $7,841,790.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund
will begin receiving interest at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Notes (FRN) are the current interest rates shown at August 31, 1999, which are
subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $92,557,655) (Note 1) $84,836,061
- -----------------------------------------------------------------------------------------------
Cash 265,481
- -----------------------------------------------------------------------------------------------
Dividends and interest receivables 1,150,762
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 182,271
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 6,039
- -----------------------------------------------------------------------------------------------
Total assets 86,440,614
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 577,559
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 92,911
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 302,473
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 26,881
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,628
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 741
- -----------------------------------------------------------------------------------------------
Other accrued expenses 47,227
- -----------------------------------------------------------------------------------------------
Total liabilities 1,060,420
- -----------------------------------------------------------------------------------------------
Net assets $85,380,194
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (unlimited shares authorized) (Note 1) $92,405,327
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,223,221)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 1,919,682
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (7,721,594)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $85,380,194
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($85,380,194 divided by 3,712,567 shares) $23.00
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended August 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income $ 752,345
- -----------------------------------------------------------------------------------------------
Dividends 2,595,964
- -----------------------------------------------------------------------------------------------
Total investment income 3,348,309
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 599,856
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 86,349
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,121
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,286
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,643
- -----------------------------------------------------------------------------------------------
Reports to shareholders 24,231
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 24,055
- -----------------------------------------------------------------------------------------------
Legal 9,861
- -----------------------------------------------------------------------------------------------
Postage 2,956
- -----------------------------------------------------------------------------------------------
Other 10,455
- -----------------------------------------------------------------------------------------------
Total expenses 769,888
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (29,288)
- -----------------------------------------------------------------------------------------------
Net expenses 740,600
- -----------------------------------------------------------------------------------------------
Net investment income 2,607,709
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,143,109
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (1,051,743)
- -----------------------------------------------------------------------------------------------
Net gain on investments 1,091,366
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,699,075
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
August 31 February 28
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 2,607,709 $ 6,888,744
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 2,143,109 1,118,740
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,051,743) (14,771,161)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 3,699,075 (6,763,677)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (3,452,527) (7,065,789)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (3,348,343)
- ---------------------------------------------------------------------------------------------------------------
Increase in capital share transactions from
reinvestment of dividends -- 199,702
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 246,548 (16,978,107)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 85,133,646 102,111,753
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $1,223,221 and
$378,403, respectively) $85,380,194 $85,133,646
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at the beginning of period 3,712,567 3,704,000
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions -- 8,567
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at the end of period 3,712,567 3,712,567
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share August 31 June 29, 1995+
operating performance (Unaudited) Year ended February 28 to February 29
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $22.93 $27.57 $26.40 $26.43 $24.85(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .70 1.86 1.76 1.77 1.17
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 (3.69) 2.49 1.54 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.00 (1.83) 4.25 3.31 2.80
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.93) (1.91) (1.77) (1.83) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.90) (1.31) (1.34) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- (.17) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.93) (2.81) (3.08) (3.34) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $23.00 $22.93 $27.57 $26.40 $26.43
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $21.563 $22.500 $27.312 $24.375 $22.625
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) .13* (7.47) 26.03 23.54 (4.53)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $85,380 $85,134 $102,112 $97,791 $97,881
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .88* 1.78 1.71 1.72 1.14*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.98* 7.31 6.45 6.66 4.56*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 23.86* 56.58 60.69 70.33 38.92*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Represents initial net asset value of $25.00 less offering expenses of $0.15. Original offering costs were reduced by $0.03
to reflect actual cost incurred.
</TABLE>
Notes to financial statements
August 31, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Convertible Opportunities and Income Trust (the "fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company. The fund seeks
current income and capital appreciation by investing primarily in a
diversified portfolio of convertible securities and non-convertible,
higher risk, high yield securities.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sales price, or, if no sales are reported -- as in the case of
some securities traded over the counter -- the last reported bid price.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Market quotations are not considered to be
readily available for long-term corporate bonds and notes, preferred
stocks and certain foreign securities. These investments are stated at
fair value on the basis of valuations furnished by a pricing service,
approved by the Trustees, which determines valuations for normal,
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships
between securities that are generally recognized by institutional traders.
Short-term investments having remaining maturities of 60 days or less are
stated at amortized cost, which approximates market value, and other
investments, including restricted securities, are stated at fair value
following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue discount
bonds, stepped-coupon bonds and payment in kind bonds are accreted
according to the yield-to-maturity basis. Any premium resulting from the
purchase of stepped-coupon bonds is amortized on a yield-to-maturity
basis.
E) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
F) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. The amount and character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $36,134. These expenses are being amortized on
projected net asset levels over a five-year period.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 1.10% of average net
assets.
The fund compensates Putnam Management for administrative services based
on quarterly net assets of the fund. Such administrative fees are based at
an annual rate of 0.25% of the average net assets of the fund.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended August 31, 1999, fund expenses were reduced by
$29,288 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 $473 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
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended August 31, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $20,336,866 and $23,942,438, respectively. There
were no purchases and sales of U.S. government obligations.
Results of October 7, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7, 1999.
At the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 3,485,988 49,100
Hans H. Estin 3,481,965 53,123
Paul L. Joskow 3,481,557 53,531
Lawrence J. Lasser 3,480,568 54,520
William F. Pounds 3,481,431 53,657
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows: 3,495,020 votes
for, and 13,184 votes against, with 26,884 abstentions and broker
non-votes.
All tabulations are rounded to nearest whole number.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Kevin Rogers
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA019-55020 10/99
